Stadium Shrinkage En Vogue as “Time Has Become More Valuable Than Money”

RaidersStadium

Pro sports venues are shrinking. The Braves, Marlins, Twins and Yankees have all downsized since ‘09 and the Tampa Bay Rays plan to reduce seating at Tropicana Field from a league low 31,042 to between 25,000-26,000 this season. The Falcons, Vikings, 49ers, Colts, Cardinals and Rams (+Chargers) all opted to go small (71,000 seats or less), as well, with their new venues and the 65,000-seat building that the Raiders are building in Las Vegas will be among the league’s 5 smallest; only the Cowboys and Jets/Giants have built stadiums with more than 80,000 seats this millennium. It’s not just American franchises looking to create a more intimate environment for their fans, either. Italian rivals AC and Inter Milan have signed a memorandum of understanding to either modernize the 80,000 seat San Siro or build a new venue; either way, the clubs plan to reduce capacity to 60,000 seats.

Howie Long-Short: Shrinkage is en vogue because fewer people are going to games. Advancements in the in-home viewing experience (everything from HD to VR) have made it more difficult “for the clubs to attract fans to the stadium” – as has the increased competition (see: esports) for fans’ time, money and attention. Those dynamics won’t be changing, so pro sports venues will continue to get smaller and more efficient. Raiders President Marc Badain insists there’s an NFL “team who is looking to build a stadium in the next 10 years, talking about going to 50,000 seats.” That’s a shocking low figure when you consider that no team (playing in a permanent home) seats less than 61,500 (Bears).

To draw fans, pro sports teams are going to need to create an in-stadium experience more rewarding than what a fan receives on their couch. Andy Dolich, president of the sports consultancy Dolich Consulting, explained that “time has become more valuable than money, so fans simply aren’t going to attend as many games as they used to – and when they do visit the ballpark, they expect an incredible experience.” Creating that memorable experience begins with bringing fans closer to the action, but it also must include better service (think: food options, parking), access to mobile technology (think: sufficient Wi-Fi) and non-traditional seating (think: social spaces); Millennials and Gen-Z’s with shorter attention spans aren’t going to sit in a seat for 3+ hours, they want to interact with each other.

Event psychology has also begun to play a larger role in consumer decisions (like buying tickets), so it’s crucial that teams treat each game as a marquee “event”. Andy says “show fans that what you’re offering is special and they’ll be back – if it feels routine, they won’t. Fans want to go – and will go – to the biggest games and the biggest events.”

Moving to a smaller venue doesn’t necessarily hurt a team’s bottom line. For NFL clubs that will take in $255 million in broadcast revenues in 2019, selling fewer tickets will have little impact. Ticket prices will rise – to help off-set losses – in leagues where clubs are more dependent on gate receipts (+ food, beverage and parking), but Andy said that teams will make up most of the lost revenue from “all of the digital applications that enhance remote game viewership and with the proceeds from the commercial components (think: retail space) of these stadium real estate plays.”

Speaking of real-estate, the trend of teams moving away from multi-purpose suburban venues to downtown stadiums is another factor contributing to the shift in building sizes – there’s simply less property to work with in the city.

I asked Andy for his thoughts on how large the next generation of NFL stadiums, NBA/NHL arenas and MLB parks would be. He told me that, “baseball will likely drop down into the mid-30s, perhaps a little bit less. The indoor winter sports venues will probably cut seating down to between 14,000 and 15,000 and I think the outdoor stadiums will be cap capacity around 50,000.”

Fan Marino: There’s a case to be made that shrinkage has been a critical factor in MLS’ success. When the league launched in 1994, 80% of the league played in venues with 60,000+ seats (Spartan Stadium in San Jose and RFK Memorial Stadium in Washington were the outliers). By 2002, the league was contracting teams and on the brink of failure. It wasn’t until the LA Galaxy introduced the soccer-specific Dignity Health Sports Park (then the Home Depot Center) in 2003, did the league’s fortunes begin to change. Since that time 14 other clubs have built 25,500 seat (or less) venues and league expansion fees have risen from $10 million in ‘07 to $150 million in ‘18.

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EPL Considers Introduction of OTT Service, Opportunity to Treble Broadcast Revenues

epl

The English Premier League has reportedly considered the launch of an exclusive direct-to-consumer streaming service that would replace traditional broadcast channels. The league is eager to grow revenues after the value of their domestic broadcast rights package [for 3 seasons] declined from $6.6B to $6.0B during the most recent negotiation cycle. The Sunday Times indicated that the top-flight league intended on testing the OTT streaming service in Singapore, but shelved those plans in favor of extending Singtel’s television rights through May ’22.

Howie Long-Short: Former Crystal Palace chairman Simon Jordan initiated the push to follow the NFL’s lead and “become a broadcaster in its own right.” Jordan envisioned a day where the league “controls its own product”, which would enable it to treble “the revenues it currently gets.” Jordan figured “if you had 100 million subscribers [to an OTT service] at $10.45/mo., you’d be bringing in $13.06B/year – not $11.36B every 3 years like the current [television] deal does.” When the EPL ultimately launches its exclusive OTT service, it’s going to have a devastating impact on the league’s current pay-TV broadcast partners (think: Sky) who rely on soccer rights to attract subscribers.

Simon Jordan’s math is correct, but Wayne Sieve, EVP of Thuuz Sports, explained that an OTT platform isn’t necessarily the attractive proposition it appears to be. “For the EPL to really capture the revenue figures [Jordan] projected, it would have to go exclusive and put all league matches behind a paywall. Club owners would need to be able to stomach the loss of billions of dollars in traditional broadcast revenues as the league works to convert cable viewers to its new digital service; a process that won’t happen quickly. And don’t forget all the marketing muscle (think: tune-in promotions, shoulder programming) that the league’s current broadcast partners bring to the table. There’s an attraction to what an OTT service could one-day bring to the league, but I don’t see how taking on all the risk in the short-term would be a smart move. If the EPL is going to introduce a direct-to-consumer relationship with fans, it would be better served by making it additive (think: NBA’s 4th quarter option) and migrating fans over slowly.”

If the EPL were to introduce a subscription based streaming service, it makes sense to do it in a non-domestic market (like Singapore) without a lot of value – a market where there is zero (or limited) opportunity cost. That dynamic would give the league the opportunity to learn from the data it collects and to iterate and fine tune its technology without feeling the pressure from lost revenues. That said, a market like Singapore brings on its own sets of challenges. “With live sports, charging the consumer only really works if there is no free alternative. If you can’t ensure exclusivity and control access to the programming – and in markets where piracy is rampant [like Singapore], that’s going to be a challenge because any individual can create that pirated stream – it’s very difficult to feel comfortable operating a consumer subscription service.”

The sky isn’t exactly falling on the EPL. While the league’s domestic rights took a haircut, global media rights continue to grow. The Premier League will take in $11.7 billion over next 3 seasons.

The value of domestic and international rights may be headed in opposite directions, but it’s important to understand that the packages are not comparable; the league’s U.K. television offering pales in comparison (200 games available via live broadcast) to the overseas rights package it sells (all 380 games).

Fan Marino: The U.S. market is among the EPL’s most valuable, but the value of its broadcast pact with NBC (worth $1B/6 years) lags far behind the league’s domestic package – despite the U.K. having a fraction of the population. An OTT service might provide the EPL with the opportunity to increase revenues in the U.S. market, but Wayne doesn’t see that as a viable solution to growing the bottom line. The time zone is going to be a challenge as long as the best content experience remains watching live, especially on the west coast where you’re 8 hours removed from the broadcast window. There’s always going be a limitation on demand.”

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Federal Anti-Trust Lawsuit Holding Up Change in College Basketball

NCAA 200x200

Former Adidas executive James Gatto, Adidas consultant Merl Code Jr. and runner Christian Dawkins were convicted on federal wire fraud (and conspiracy to commit wire fraud charges) and assistant coaches from Arizona, Oklahoma State and USC have each accepted plea deals for their roles in bribery and kickback schemes – but other than The Commission on College Basketball’s issuance of “recommendations” to clean up the game, little else has been done to put a halt to the unseemly underworld of college basketball recruiting in the 17 months since their arrests. Whispers of corruption continue to run rampant throughout the sport.

There are a couple of valid reasons for the delayed response to eliminating the unscrupulous behavior. For starters, the independent commission remains unwilling to implement change until the underlying accusations work their way through the criminal justice system (Chuck Person’s trial will start in June). They’re also awaiting a decision on a lawsuit (Grant-In-Aid, trial concluded in Dec.) that will determine if the NCAA has been in violation of federal antitrust laws, by limiting the amount in which colleges can pay athletes (currently cost of attendance). Ramsey Chamie, a sports lawyer and adjunct professor at the NYU Tisch Institute for Global Sport, also noted that the NCAA is in “no rush to kick the hornet’s nest. March Madness remains enormously popular, the arrests did not negatively impact fan interest or ad revenue, and it doesn’t hurt to have bad actors brought into the light and to give off the perception that the game is being cleaned up a bit.” 

Howie Long-Short: The various investigations should ultimately lead to the elimination of some under-the-table dealing, but don’t expect college basketball to suddenly become a collective of choir boys. As Ramsey reminded me, the NCAA “is a billion-dollar enterprise and they don’t have to pay the athletes. They’ll do the recommendations. They’ll set up independent bodies to monitor the athlete/agent relationship and work to better out corruption – but there’s no real incentive to do more than that right now. It’s a matter of what the corporate entity can do, versus what it must do [in the case of the anti-trust lawsuit].

The FBI’s case against Gatto, Code and Dawkins was based on the premise that by conspiring to pay high school prospects, they had defrauded the Universities issuing valuable athletic scholarships; accepting money would have rendered the players ineligible by the NCAA. Yes, the FBI claims that it was the schools who were harmed in the bribing of elite prospects to play for their programs (insert eye-roll here). The high-profile case will end on March 5th when the 3 defendants are sentenced to between 2-5 years in prison. Lamont Evans (Oklahoma State), Tony Bland (USC) and Book Richardson (Arizona) all plead guilty to taking money to steer players to agents. The triumvirate will face sentences of up to 5, 1 and 2 years in prison, respectively.

For the sake of this conversation, we’re going to assume that the court rules amateurism is a valid defense for the NCAA to restrict player compensation. Under that scenario, Ramsey believes “allowing athletes to pursue compensation for their name, image and likeness” would be among the first Rice Commission suggestions to be implemented and the one most likely to help clean up collegiate sports. “If the players can make a few dollars, then the under the table money becomes less of an incentive. I think you’ll also see NBA and NBPA eliminate the one and done requirement.” Of course, none of that is imminent. Chuck Person (Auburn) first heads to trial on bribery charges in June and the Grant-In-Aid lawsuit is sure to be appealed.

Fan Marino: Code, who spent 14 years at Nike prior to joining Adidas, is on tape telling federal investigators that Nike schools [Duke, North Carolina, Syracuse, Kentucky] pay too.” That would seem obvious considering Adidas wasn’t bidding against themselves, but that doesn’t mean fans of those programs should be worried about getting wrapped up in a federal (or NCAA) investigation. As Ramsey said, I suppose there is a chance those programs could be ensnared, but the New York District Attorney is not a specialized agency designed to govern the NCAA – the Justice Department and the U.S. Attorneys’ Offices are our enforcement bodies for federal criminal laws. The feds have certainly made their point. So, while it could happen, I don’t think anyone is waiting for the next batch of indictments to drop.” As for additional NCAA investigations, Ramsey said, “I would be surprised if the NCAA goes after the programs that you mentioned, they’re the biggest college basketball programs and it’s a member organization after all.”

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Free-To-Play Looks To Be The “Biggest Gaming Trend of 2019”

Fortnite

The success of Fortnite’s free-to-play business model ($2.4B in revenue to date) has begun to negatively impact legacy gaming businesses. Despite posting a “record-setting” $7.26 billion in 2018 revenue, Activision Blizzard (ATVI) announced that it would be laying off +/- 800 employees (8% of workforce) and lowering 2019 full year expectations by -20% to $6.03B; should the company experience a -16% YoY decline, it would be the largest in their history. COO “Coddy” Johnson cited “weaker than expected retail demand” and the “slowing sales of micro-transactions” for the revised guidance. Fortnite’s cannibalization of the gaming sector has also begun to spawn successful copycats. Electronic Arts introduced a free-to-download, battle royale game entitled ‘Apex Legends’ that attracted 25 million players within a week of its release; for comparison purposes, it took Fortnite nearly 2 months to clear that benchmark.

Howie Long-Short: There is a case to be made that free-to-play games help to grow the overall gamer pool, bring younger gamers into the esports ecosystem and promote diversity amongst the gaming population, but let’s be clear – companies are moving towards the freemium model because “the most effective way to generate billions of dollars is to not require a player to spend a single one.”

The problem for legacy game-makers is that the free-to-play model relies on a game’s ability to draw mass participation, to keep gamers engaged and to monetize in-game add-ons, and historically, “legacy gaming companies have a hard time introducing games that have substantial and sustainable development.” Jefferies analyst Timothy O’Shea described the industry shift towards game-as-a-service, multiplayer titles as “the biggest gaming trend of 2019.” That’s a scary proposition for companies like ATVI that rely on upfront/one-time payment sales of marquee titles. Once consumer behavior changes, good luck getting gamers to “pony up and pay $60 for ‘Call of Duty’, when [competing studios] are offering high-quality games for free.”

ATVI failed to reach its “full potential” in 2018, but plans to double-down on its most successful titles – increasing developmental resources by +20% on Call of Duty, Candy Crush, Overwatch, Warcraft, Hearthstone and Diablo. It’s a risky decision because gamers have a finite amount of time to play and a limited budget to spend on games. If they’re invested in free-to-download games – as the trend indicates, sales are sure to languish; of course, what’s the alternative? The company is heavily reliant on those 6 titles to deliver sustained revenues. ATVI shares are down -35% since November 1st.

Apex Legends used “prominent video game streamers” to raise the game’s profile out of the gate – and the strategy worked, but the initial hype has begun to wear off and there are indications that the game won’t have the staying power; not uncommon for games that require minimal up-front investment from the player. Investors are yet to pick up on the trend, Electronic Arts’ (EA) shares remain +33% since the company announced Apex Legends had surpassed the 25 million player benchmark; they had declined -37% in the 6 months prior.

Fun Fact: Avatar is the ONLY movie to have grossed more than the $2.4 billion ($2.7 billion) Fortnite has brought in.

Fan Marino: One point that Howie missed, is that Fortnite’s cross-platform functionality (i.e. same experience available across all major consoles/PC hardware + mobile) has contributed to its massive success. Just about anyone can play, on any device; and the game allows for a shared experience, enabling any player to play with/against another (think: Drake/JuJu/Travis Scott/Ninja) – uncommon within the gaming world. As of November, Epic Games’ Fortnite had over 200 million registered users.

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Foot Locker Invests $100M in GOAT Group to “Stay Relevant with the Digital Consumer”

Foot Locker

Foot Locker has invested $100 million into GOAT Group (co. has raised $197.6M since ’15), the parent company of secondary footwear marketplaces GOAT and Flight Club; in a move that that CEO Richard Johnson says will help the company “stay relevant with [the] digital consumer.” GOAT boasts of having over 12 million active users on its platform. In addition to the capital, Foot Locker will bring its 3,200 stores (across 27 countries) to the strategic partnership; despite selling $10 million worth of shoes in 2018, GOAT Group has just 2 retail locations (Flight Club NYC, Flight Club LA). It’s been estimated that the Foot Locker investment was made at a valuation between $400 million and $500 million.

Howie Long-Short: Richard Johnson said the company would “leverage GOAT Group’s technology to further innovate the sneaker buying experience”, but it’s unclear how resale technology would benefit a mass retailer. As NPD Group retail analyst Matt Powell told me, “Foot Locker already has an established e-commerce business – they know how to sell one pair of shoes at a time and ship it to the customer. From a strategic standpoint, this partnership is more about deep learning of another facet of the athletic shoe business. FL can now begin to really track retail vs resale pricing and compare that data against the quantities that they are able to purchase.”

The GOAT Group investment also gives Foot Locker a chance to diversify in a tangential business – that is still growing. But with sales and interest in athletic shoes on the decline, it’s worth wondering if FL is late to the party.

Matt agreed saying, “it’s noteworthy that GOAT Group and Stadium Goods [which took a $250M investment from FarFetch] were looking to sell. My sense is that the meteoric growth the secondary markets experienced throughout the first few years has started to temper and that the early occupants of the space now see it as the right time to cash out.”

Sellers listed 750,000 pairs of rare athletic and lifestyle sneakers for sale on GOAT in 2018, up from 250,000 the year prior, but the increase is not indicative of a robust secondary market as much as there’s just a lot more people selling than buying right now. When GOAT launched in ’15, sellers were unnerved about sending valuable shoes to a warehouse for authentication (company keeps 10%-30% for its troubles). The company has managed to calm those fears by building a trustworthy reputation, so more people are now listing shoes for sale. The rise of profiteers has also contributed to the growing number of sellers. Historically collectors sold to other collectors, but now there’s also a business to consumer component to the marketplace.

While perhaps not the motivating factor, Foot Locker’s partnership with GOAT Group should also serve as a traffic builder for their brick and mortar locations – even if the inventory on hand is limited. As Matt told me, “while most of the industry’s growth is e-commerce based, people continue to tell [NPD Group] that they prefer shopping in physical stores because they want to touch and feel the product. With expensive limited edition shoes, buyers may want to see them in person before making the purchase.”

The sneaker resale market may have peaked, but GOAT Group still has plenty of upside. Matt explained, “once a company is established and has the authentication and handling parts of the process down, it really opens the business up to sell anything – postage stamps, watches, designer handbags; the GOAT platform can work across multiple product categories. We’ve already seen Stock-X introduce new verticals. They have a substantial watch business in addition to their core sneaker business. You’re going to see more and more of these resale sites offering a broader range of products.”

Fan Marino: Foot Locker has been active of late within the investment space having also taken equity stakes in Carbon38 (female athleisure), Super Heroic (children’s lifestyle) and PENSOLE (footwear design academy). Matt told me that the GOAT Group investment offers the greatest commercial upside (he thinks Super Heroic could be valuable too), but that “conceptually, the relationship with PENSOLE is the most exciting thing FL doing. Not only do we need to teach people how to design shoes, but we need to bring more people of color into the industry. The statistics are staggering white on the product side and they lean heavily towards people of color on the consumer side.”

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Start-Up Football League Sees Trevor Lawrence As Its Answer to AFL’s Joe Namath

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The Pacific Pro (Pac-Pro) league (to debut in 2020) wants Clemson quarterback Trevor Lawrence – the projected #1 overall selection in the 2021 NFL draft – to be its Joe Namath; the University of Alabama star left school early to join the New York Jets and be the face of the start-up AFL. While NFL rules prohibit players from entering the draft until 3 years after from H.S. graduation, Pac-Pro league founder Don Yee said his league “would like to make [the CFP National Championship MPV] an employment offer [and] professionalize him right away”; to date, elite underclassman have lacked an alternative to the NCAA. Yee (Tom Brady’s agent) insinuated that Adidas (a founding sponsor of the Pac-Pro league) would also “make [Lawrence] an endorsement proposal” if the freshman were to turn pro after next season. Lawrence has yet to acknowledge the opportunity.

Howie Long-Short: Trevor Lawrence is going to have the opportunity to make significantly more money than Joe Namath did as a professional, so while his addition to the Pac-Pro league might provide a comparable boost to the league’s legitimacy, Lawrence faces a far more complex decision. Eric Winston played 12 years in the NFL and has served as the NFLPA President since 2014. I reached out to Eric to gain perspective on the decision Lawrence will face after next season, to learn of any risks associated with foregoing a collegiate football career and to find out how the NFL would view a prospect that opted to take the Pac-Pro route.

Yee’s pitch to Lawrence sounds attractive. Is there a case to be made for a projected Top-10 selection to pass on a payday, further risk injury (more demanding schedule) and forego the coaching meant to prepare players for the NFL – to play college football?  

Eric: I always tell guys, you’re a business – you should be making decisions in the long-term interests of your business. So, how much money are we talking about here? If the Pac-Pro league is offering Trevor [or another top prospect] $10 million for the 2020 season, well that’s a different conversation than if they’re offering $50,000 and the ability for him to market his own likeness. As funny as it may sound, a college education still matters to a lot of guys – more so than people realize. Every player is going to become a retired athlete before the end of their 30s, so, there is value in a degree.

Top players like Trevor also need to consider if the preparation they’re getting at programs like Clemson, Michigan, Alabama and Miami (Eric’s alma mater) is better than what they would get in a subpar league relative to the NCAA. It’s not helping a player’s long-term potential if they come into the NFL under-developed. If you’re thinking of yourself as a business, you can’t be thinking about where you can maximize your money next year – you need to be thinking about how you can maximize your money for the next 20 years.

You referenced preparation, but what specifically would a player who bypasses college football for the Pac-Pro league be missing out on?

Eric: You can assume that the coaches in a start-up league aren’t going to be as accomplished as coaches leading P5 programs. It’s safe to say that the medical personnel won’t be as talented. The strength and conditioning programs and prehab regimens aren’t going to be as advanced as what a player would find in the NCAA; and you’re not going to find many NFL teams with better facilities than what the elite college programs have. 

If Lawrence were to become the Pac-Pro’s version of Joe Namath, should he be concerned about how NFL teams would view his decision to play against lesser competition?

Eric: Isn’t that the argument that teams were making three years ago when guys started skipping bowl games – that they wanted players who would compete? Then guys like Fournette and McCaffrey called their bluff and they’re still being taken in the top 10. The majority of NFL teams are going to field the absolute most competitive team that they can. Let’s say Trevor plays next year and then decides to sit out his junior season [and not play at all]. Is there any doubt he would still be among the top overall selections in 2021? Sure, he’ll face questions about why he sat out the season, but if an NFL team thinks that he can make them better, they’re going to pick him. 

Unless Adidas is willing to write a check that Lawrence can’t refuse, expect him to suit up for the Tigers the next 2 seasons. Playing for Dabo should keep the 6’5 QB on track to become the top overall pick in 2021, when he would be in line to sign a rookie contract with a total value close to $40 million.

Fan Marino: Looking strictly at the Pac-Pro league from a business standpoint, the model is fascinating. All 4 of the league’s teams will be in Southern California – eliminating costly travel expenses, player salaries are manageable (avg. $50K vs. $250K/3 years in AAF) and unlike the AAF and XFL, they’re not pulling players from the NFL scrap heap.

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Can a Customized, Interactive Viewing Experience Solve Sports’ Existential Threat?

Caffeine

Sports broadcasts have remained virtually unchanged over the last 50 years – 2-3 guys in a booth, a long shot, a bunch of replays and some commercial interruptions. But fundamental shifts in the behavior of digital natives has forced rights holders to offer a more customized, interactive viewing experience. ESPN has announced that “portions of the X Games Aspen 2019” will be available on Caffeine (a social broadcasting platform) and the G-League announced it has extended and expanded its streaming pact with Twitch; both platforms will give viewers the chance to “host their own interactive streams” with commentary free broadcasts. The NFL has yet to make the leap into user generated content, but Amazon Prime Video has announced that Hannah Storm and Andrea Kramer will return to call Thursday Night Football games on a secondary streaming feed in 2019 (Joe Buck/Troy Aikman have the call on the main feed).

Howie Long-Short: Tom Richardson, a former media exec at the NFL, NHL and AOL, is the head of strategy and development for Mercury Intermedia (a leading mobile and connected TV app developer) and a professor at Columbia University, where he teaches digital media in the Sports Management grad program. To give you a better idea of what a customized interactive viewing experience would entail, Tom says “envision private viewing rooms. Essentially a Skype or Zoom-like experience where you and your friends can take the party. The environment would enable you to see everyone’s faces, offer real-time commentary, share content and post emojis.”

It sounds like you’re describing Caffeine and Twitch. Are one of those companies (or another social streaming platform) the future of live sports broadcasting?

Tom: There have been various attempts throughout digital media history to create alternative digital consumption environments for content, but aside from the big social platforms, the only one that has really had success at scale is Twitch. The TV outlets realize that to appeal to and attract younger millennials and Gen-Z digital natives they’re going to need to provide customization elements – we’ve raised a generation of viewers who’ve had the ability to dictate how they consume media. So, the question is, even with new viewing options and user experiences, will it be enough to attract and retain young fans. It’s an unprecedented challenge for the business.

Doesn’t the fact that Caffeine and Twitch have 21st Century Fox and Amazon, respectively, backing them, create an advantage?

Tom: Yes, but there are no guarantees. Looking back, there’s a fair amount of roadkill – startups that came in with the expectation that the property – because if its promotional reach and clout – would be able to change user behavior. But alas, there have been very few examples of success. 

If viewership for live sports programming is declining, how can any rights holder justify additional broadcasts?

Tom: It’s about evolving the core product. We can’t assume millennials, Gen-Z, with a very different mindset about media, are going to sit in front of the TV and watch a 3-hour broadcast with 70 30-second commercials – especially with so many grazable highlights, GIFs and memes available.. Rightsholders need to look at it as a marketing challenge vis-à-vis audience segmentation – and to draw this young crowd you need to give them more options. Choice is an essential ingredient in modern media.

So, you would continue to throw good money after bad (as it relates to a declining audience)?

Tom: I would think of it as an investment in audience development. If you are a major sports league and you’re thinking about the future, then the answer is you absolutely put money into it. What other option do you have? Do you want to look at a potential barren wasteland of significantly fewer fans 10, 15, 20 years from now? Because it will be if you don’t actively develop the millennial/Gen-Z fan. I think we’re looking at a serious maybe even existential threat, at least for some sports – over the next couple of decades; especially with sports that don’t translate well to modern media or are relatively unpopular with young people. Remember, another huge factor is the rapidly growing competition from native digital sports – most notably video gaming.

Don’t these alternative platforms pose a threat to traditional broadcasters – and ultimately to the billion-dollar TV deals the leagues have with them? (lower ratings = lower media value)

Tom: If the viewers are not there in the first place – which is the case with certain leagues and demographics now – then, what is there to lose? It’s not like they’d be siphoning off existing users. Maybe you appeal to a percentage of millennials or Gen-Z that aren’t currently tuning in. I don’t want to be overly glib about it, but if young fans are not watching your games and they’re disengaging from your sport – forget about TV ratings, you need to be proactive in warding off a future disaster scenario.

Fan Marino: While on the topic of rights agreements, Sports Illustrated recently announced it has inked an agreement with Liverpool FC to carry matches on the subscription streaming service SI TV. However, with NBC holding the exclusive rights to broadcast Premier League games in the U.S., Liverpool game broadcasts on SI TV will be subject to a 7-hour delay. The premise of taking a club that has among the biggest audiences in the U.S., buying their broadcast rights and building shoulder programming around them is logical. “Like all skinny bundles, the primary way they can have any success is to get exclusive or semi-exclusive third-party content, but broadcasting on delay doesn’t make much sense. Serious fans will purchase Liverpool TV and casual fans seeking out highlights, can find them on social.”

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Record Transfer Fee Offers Definitive Proof MLS’ Revamped Strategy Can Work

Almiron

Newcastle United F.C. has agreed to pay Atlanta United FC $27 million for the rights to 25-year old Paraguayan midfielder Miguel Almirón, the largest transfer fee ever paid to an MLS club. The deal comes less than 6 months after FC Bayern Munich acquired Canadian winger Alphonso Davies from Vancouver Whitecaps FC for a then-record $13 million (escalators could increase that fee up to $22 million). The deals are representative of Commissioner Don Garber’s wishes “to become more of a selling league.” Prior to the sales of Davies and Almirón, MLS had just one (Jozy Altidore in ’08, $11.6 million) player in its 23-year history command an 8-figure transfer fee.

Howie Long-Short: Don Garber’s philosophical 180° on MLS’ position as a seller within the international soccer ecosystem will lead to a better product on the field and give the league’s teams a chance at some financial stability; Forbes reported that 15/22 (no data on LAFC) operated at a loss in 2018 and only 3 clubs (LA Galaxy, Seattle, Portland) made $3 million or more.

The sale of Miguel Almirón serves as definitive proof that MLS can be a viable destination for ascending Central and South American players with aspirations of playing in Europe – and it validates the league’s revamped approach to business. Almirón spent 2 seasons with the club – including last season, when he was arguably MLS’ best player and the team won the championship – and returned +237% on the $8 million Atlanta paid to lure him from Club Atlético Lanús. Atlanta can now use that windfall to replenish their academy program and increase the overall talent on the roster. There was no real case to be made to keep Almirón in Atlanta. 11/23 clubs generated less than $29 million in total revenue last season.

Glenn Crooks is the radio voice of NYCFC. I had the chance to sit down with Glenn to discuss the international transfer market, the Central/South American pipeline and the need for scouting resources/infrastructure across the league.

Why are MLS players commanding more money than ever in the international transfer market?

Glenn: MLS as a league is gaining more respect. MLS isn’t just producing better players, they’re drawing some of the games’ most respected coaches too. Almirón’s coach was Gerardo “Tata” Martino (coach of Mexican national team), but Frank de Boer (coached Crystal Palace & Inter Milan), Patrick Vieira (considered among best players of generation) and Guillermo Barros Schelotto (coached Boca Juniors) have all coached MLS clubs in recent years as well.   

What is drawing Central and South American players to MLS?

Glenn: Many of the cities that MLS occupies are outstanding places to live, MLS players make a decent wage and the competition is good. The players are also in pursuit of some stability. Many of the leagues in South America operate in seriously unstable environments.

While Almirón represents best case scenario for developing international players, Davies – from Edmonton – is representative of what the league would like to achieve with homegrown talent. Glenn told me that, “MLS’ goal is to develop American players through their academies, for them to become 1st team MLS stars and then eventually play their way out of the league in terms of market value. I don’t think it gets any better than that for a league that’s never going to the top league in the world.”  

NYCFC’s transaction ledger is representative of the direction the league is headed. When the club first joined the league, “it bought Villa. Then it was Lampard. Then it was Pirlo. They’re not inking those kinds of high profile deals anymore. They signed 3 home grown players over the last year. They also paid transfer fees of $4 million for Jesús Medina from Paraguay and another $8.5 million for Alexandru Mitriță from Romania – so it’s not that the club isn’t spending money, it’s just that they’re spending it wiser.”

NYCFC may be spending wiser on player personnel, but they’re currently operating under the league’s worst stadium agreement and as a result lost more money than any other team in 2018 (-$15 million). It’s been reported that NYCFC is paying $1 million PER HOME GAME ($17 million/season) to occupy Yankee Stadium.

Fan Marino:  If you’re going to be a seller’s league, the ability to identify talent early is crucial. Unfortunately, Glenn says that MLS teams lack the infrastructure needed to find needles in a haystack. “Most teams don’t have the kind of scouting network that they’d really like to have because it’s costly. In fact, some teams outsource the scouting process. There’s a company called Soccer Syndicate that developed a detailed scouting network and has managed to land Real Salt Lake as a client. RSL wanted to find young international players and they couldn’t because they simply didn’t have the staff to do it. The company looks for players on the club’s behalf.”

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Desire to Pursue “Contextual Commerce” Driving Mobile-Only Ticketing Trend

Rays

The Chicago Bears and Detroit Tigers are the latest pro sports franchises to announce they’ll be eliminating the use of printed tickets in favor of mobile-only ticketing systems – a trend picking up steam as organizations look to reduce fraud and improve the fan experience. The Miami Heat became the first club to implement mobile-only entry during the 2017-2018 season, but over 30 NBA and NHL franchises have adopted the technology since and +/- 50% of MLB clubs “will begin transitioning to mobile-only ticketing during the 2019 season.” The Tampa Bay Rays have decided to take mobile a step further. Not only will Rays fans buy, sell and transfer tickets on their phones, but they’ll be paying for all of their in-stadium purchases with them (or a credit card); Tropicana Field will become the U.S.’ 1st cash-free pro sports venue.

Howie Long-Short: Teams embracing mobile ticketing are working to eliminate fraud on the secondary market (static barcodes on print-at-home .pdfs are the leading source of ticketing fraud) and have interest in optimizing game-day for fans, but that’s only 2/3 of the story. Pro sports organizations are also interested in gathering insights on the seat holder – as opposed to just the ticket buyer – so that they can pursue a marketing strategy dubbed “contextual commerce”; the cross-selling of products/services (think: parking, personalized offerings) based on a specific consumer’s habits and/or preferences. Some have speculated that teams are moving in a mobile direction to save money on the printing of physical tickets, but those costs are so insignificant to a club’s bottom line that it really has no impact on the decision.

Russell Scibetti, President of KORE Planning and Insights, has spent the last 12+ years working on the data-side of the business. He’s held roles with the Philadelphia Flyers and New York Jets, and in his current role with KORE he works with more than 100 professional teams. I had the chance to sit down with Russell to discuss the transition to a fully digital ticketing ecosystem and Tampa’s decision to go cash-free.

If printed barcodes have been so easy to rip off, then why didn’t leagues/teams go back to issuing physical hard-to-replicate ducets over the last 10 years (prior to mobile-only entry technology becoming available)?

Russell: Fans needed to be able to sell or transfer their tickets easily for a true secondary marketplace to exist. Physical tickets handcuff the consumer in terms of their ability to easily resell or transfer tickets to people they don’t know.

If the whole ecosystem is digital, what happens to the scalper who sells extras outside the stadium (the original secondary market)?

Russell: If you look at the secondary market, tickets sold outside the stadium comprise such a tiny percentage of the overall sales picture – essentially, the business has already gone digital. Sure, in theory there will be a small number of fans who are accustomed to buying seats that way, that won’t be able to any longer, but scalping tickets outside the venue was one of the biggest links to fraud; mobile ticketing creates a safer transactional marketplace for the retail buyer.

Mobile is certainly safer, but anytime you’re dealing with technology there is the possibility of difficulties. What if the ticket holder’s phone dies? What if the stadium’s ticketing system goes down? Doesn’t mobile-only entry make it less convenient for the fan?

Russell: There’s a little onus on the customers to have charge on their phone, but there’s still going to be will-call and there’s always going to be staffed ticket windows [in the event a fan can’t access a mobile ticket]. As for stadium technology, there’s so much redundancy in the infrastructure now that teams are prepared in the event conductivity goes down.

Ticketmaster data indicates that fans have been quick to embrace mobile entry technology (where their Presence system is available). The company reported that 75% of fans used mobile entry to get into the ‘18 College Football Playoffs and 85% used it to enter the 2018 NHL all-star game.

Fan Marino: The Rays decision to go cash-free is being sold as a way to “increase the speed of service and to reduce lines throughout the ballpark”, but there was also a financial incentive for them to make the move. Russell explained, “anytime you have a large-scale cash operation, there’s always the assumption that the cash received will not match the cost of goods sold. It makes sense for them to pay a small credit card fee to ensure the accuracy of funds coming in during all 81 home games – a fee more than offset by the revenue gained, that otherwise would have been lost to the improper handling of change or theft.”

How is the decision to go cash-free going to be received by Rays fans?

Russell: Any team going to make that kind of drastic move is going to do their due diligence on fan demographics. The Rays likely did some analysis on their transaction records at the point of sale and realized that credit cards are the preferred method now, anyways. If that’s the case, then what they’re really doing is just staying in line with changing consumer behaviors. There’s always going to be that small percentage of fans that don’t want to change with the times.

Fans that don’t have credit cards are going to be directed to convert cash to gift cards in $10 or $20 multiples. The team is not refunding fans for unspent “credits”. On the surface that appears to be another way for the team to milk more money from fans, but Russell insists that’s not driving the decision; “breakage is not a sustainable way of generating profits.”

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Early Entrants: Vol. 3 – Blazers Vice Chair Angling for Ownership?

Blazers

Blazers Vice Chair Angling for Ownership?

Portland City Commissioner Nick Fish told reporters on Thursday that the word he’s “received from Blazers management” indicates that the team “will be put on the block” – and that he’s concerned a new ownership group would look to relocate the franchise. That’s news to my sources. Jody Allen (Paul’s sister, executor/trustee of his estate) may be willing to sell the NBA club – if she has an allegiance, it’s to the Seahawks and the city of Seattle – but no decision has been made. Some suspect that Blazers Vice Chair Bert Kolde is the source of Fish’s story. There’s a belief that Kolde is angling to buy the franchise and is looking to gauge the interest of PNW investors.

F1

Potential SPAC Exploring Purchase/Option of Multiple F1 Tracks

There are rumors circulating of London and/or New York based groups of high-level motorsport executives (think: creditable promoters, former team owners, advertisers within the sport, agency heads, real estate developers) – with access to capital – considering the formation of a special purpose acquisition company (SPAC) to purchase or option multiple Formula One (FWONK) tracks. FWONK currently takes in +/- $600 million in annual promoter fees.

The feeling is that if any one group were to acquire enough tracks (in the right markets), they’d be able to lower promoter fees (the reason races operate at losses) to the collective benefit of advertisers, fans and FWONK (less tracks to negotiate with); most importantly, it would give the sport some long-term stability. The Formula One Promoters Association has increased its pressure on FWONK over the last several weeks, disappointed with their plans to co-promote the Miami race (see: reduced or no fee) and upset with indications that 2019 could be the last running of the Mexican Grand Prix.

DAZN

DAZN’s 2019 Media Rights Budget Revealed

In Early Entrants Vol. 2, we noted that DAZN Group was considering selling off the company’s B2B play – Perform Content (think: data, news, game prod.) – to fund additional rights acquisitions. Well, Jochen Lösch – the former CEO of MP & Silva – has since shed some additional light on DAZN’s grand ambitions for 2019. Lösch, speaking on a panel at the SPOBIS conference in Düsseldorf, Germany, said he’d been told first-hand by a DAZN executive that the company would be spending $2.5 billion on global media rights this year. That total wouldn’t place DAZN in the same league as ESPN (spent $8 billion+ in ‘17) or Fox (pays $1.75 billion/year just for NFL rights), but it compares favorably to what Amazon and Facebook are projected to spend – neither has ever paid more than 8-figures on a sports rights agreement.

ESPN+.png

Metrics that Matter

Disney CEO Bob Iger disclosed on the company’s Q1 2019 earnings call that ESPN+ had surpassed 2 million subscribers – less than 4 months after hitting the 1 million mark – a proclamation that has more than a few industry insiders wondering about the OTT service’s cost of user acquisition and churn rate. As one industry analyst said to me, “you can get to any number [of subscriptions] you’d like by essentially putting more marketing dollars against it. What matters is does your audience hold.” A second remarked, “great timing on the announcement considering they added 568K subs around their first UFC event on January 19th, subscribers received a 30-day free trial, have the option to cancel at any time and they didn’t have to mention churn on the call.” For what it’s worth, OTT video service churn rates are +/- 20%.

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