Tour Based Model Positions Start-Up Pro Lacrosse League to Succeed

PLL

The Premier Lacrosse League (PLL) intends on becoming the sport’s preeminent outdoor pro league (will challenge Major League Lacrosse). 6 teams (20 players/per) will compete in the PLL’s inaugural season (starts June ’19), a 12-stop tour-based schedule that will include an All-Star game and playoffs; NBC Sports Group will carry the game broadcasts. The PLL has been able to secure the sport’s best talent by offering full-time salaries, healthcare benefits and equity interest to all players.

Lacrosse star Paul Rabil (first lax player to top $1 million in endorsements) and his brother Mike (co-founder and CEO) are the brains behind the new single-entity lacrosse venture. JohnWallStreet recently sat down with Paul to learn more about the new league. In part 1 of a 2-part interview (P2 will be released next Wednesday) we spoke about why the PLL is positioned for success, the league’s unique player compensation model and its tour-based schedule.

JWS: You can argue that in the last 50-60 years, we’ve seen the successful emergence of just a single domestic pro sports league (MLS). Why is PLL going to become the next success story?

Paul: I would disagree that MLS is the only sports league that’s seen or up-ticked success over the last 50-60 years and argue there’s never been a time where we’ve seen so much growth in sports, specifically non-big four sports. If you begin to look at individual sports, we’ve seen the tour-based model work most recently with the UFC, as well as the emergence of World Surf League, PBR, Drone Racing League and eSports. 

Mostly though, success is defined by a sports property’s achievement of goals and expectations. NFL and NBA teams are targeting billion-dollar valuations, while many leagues are built and shaped to reach profitability – or “X” amount of millions of dollars in annual EBITDA. The PBR and UFC have both sold within the last decade, and the WWE trades on the NYSE. I would consider those three successes.

JWS: How will PLL define success?

Paul: For us, success will be defined by the enterprise value we create for our players, investors, and employees. We’ll drive toward success by building a robust media and broadcast plan, signing corporate partnerships, hitting major ticket sales numbers, and rolling out a merchandise business; as well as our youth lacrosse initiatives. We’re off to a nice start with earned media and the ongoing attention we’re continuing to aggregate post-launch of the PLL – we hit 60 million impressions within the first week of the PLL announcement.

JWS: PLL has touted full-time wages for players. How does PLL define “full-time wages”?

Paul: We define full-time wages by compensating our players within the median wage for full-time workers in the US – according to the Bureau of Labor Statistics. Historically, professional lacrosse has offered part-time wages to its players, where salaries average below the national poverty line for part-time workers in the US. We’re investing in our players – with increased wages, benefits, and equity in the PLL. This way, our players and league are aligned on the outset, so the product on field can continue to improve (see: more time for practice, training) and they can invest in their media and brand development (see: grow within the lacrosse community).

JWS: The players are going to share in the league’s success as they’ll be entitled to an equity stake. Does their decision to play in PLL prevent them from playing in other lacrosse leagues?

Paul: Our players are under effective agreements that are exclusive to professional outdoor lacrosse (i.e. they cannot play in MLL). Many of them will be playing in the National Lacrosse League (see: indoor lacrosse), which from a timing perspective, is played during the winter (ends in May). That way, our players will be able to play and draw salaries from both indoor and outdoor professional lacrosse.

JWS: The PLL is going to operate on a tour-based model (think: NASCAR, PGA), creating a final-four like atmosphere (think: multiple games, FanFest, corporate village) in each of the 12 cities it visits. Why the tour-based model over a more traditional city-based one?

Paul: We thought critically and creatively about the build of the PLL, and call our solution an “inside-out” approach. What’s most important in any pro sports league is your talent – which has to be the best in the world – your competition, and your distribution. We knew we had the best players. Then we needed to create the most competitive environment – which meant 6 independent teams, governed by top-tier coaches, a college draft, training camp, regular season, all-star break, playoffs and a championship. And finally, with the aforementioned in-place, we needed a major network partner for mass distribution of the live games. Which we secured with the NBC Sports Group.

Traditionally, if you look at pro sports from an operator’s perspective, you see a city-based model with individual owners. And if you don’t own a venue, you aren’t able to optimize your schedule – home and away games – or the broader business opportunity; from parking and concessions revenue to other ancillary opportunities. Niche team sports leagues are often low-priority tenants on a lease, playing in non-preferred venues, with little flexibility in the scheduling; making it difficult to find a media partner.

The other issue we identified with a traditional city-based model was that if you’re not in 30+ markets (i.e. the NFL, NBA, NHL) – or if you’re the MLL and are in fewer than 10 markets – than the city-based model actually does not achieve national recognition or prominence.

With 6 teams in the PLL, we decided that being tour-based could not only capitalize on operational opportunities like securing premier pro sports venues over a single weekend in a major market city, but would also allow lacrosse fans nationwide to feel included, rather than ostracized for not having a team based in their market. Put simply, a tour-based model makes us a national sport overnight.

Lacrosse has grown rapidly over the last 15 years and we’re seeing the emergence of new hotbeds in the South, Midwest, Pacific NW and out West; it’s no longer just a Northeastern sport.

JWS: How do you keep a fan engaged throughout the season if their favorite team/player is going to play once/season at “home”?

Paul: We have to get the competition right. This is not a showcase series. Fans will not feel like their teams aren’t competitive because they’re not anchored to a city. Our gamedays will embody the best players in the world, competing to win, with the goal of capturing a PLL Championship at the end of the year. That’s at the core of the PLL.

Our investment into our teams and player narratives will capture the attention of lacrosse fans and net new sports fans. Our players are world-class talents, with dynamic personalities and origin stories. And much like the UFC showcased their athletes and competition with The Ultimate Fighter, we plan to create original shows around our athletes and teams, additive to the live broadcast. That’s where the intersection of fandom lives.

Additionally, our major media rights partnership with NBC Sports Group will showcase professional lacrosse like it’s never before been witnessed. Every game will be broadcasted live – with 19 games on broadcast television. Production quality will be at its finest. This way, fans everywhere can watch their favorite teams compete every week of the season.

Finally, major sports leagues galvanize fan bases with fantasy sports and gambling. We’re being strategic here, and are prioritizing stat-keeping on behalf of our players and teams, as well as rolling out league-wide standings and playoff predictions. Fans care about player trades, waiver wires and player pools. They care about the next stars of the college draft. There will be performance incentives and bonuses for top players and coaches.

As a group, if we get all of those things right, a tour-based model becomes a function of operating, and the prevailing subject matter is team competition and player performance.

Howie Long-Short: It’s known that The Raine Group, Chernin Group, Creative Artists Agency and Blum Capital are among those funding the league. There’s a series of family offices and angel investors (including former NE Patriots player Chris Hogan) that have also invested, but have elected to remain private.

Fan Marino: While youth participation in football has declined (-23%) over the last 5 years, Lacrosse has experienced explosive growth over (+35% to 2.17 million participants) that time; curious if only because the suspected cause of decline in football participation is related to head injuries and lacrosse also subjects players to hits to the head. NYIT researchers recently released results confirming “subtle cognitive declines” in lacrosse player studied over the course of a season. I asked Paul why he suspects the threat of brain injury has impacted participation in one sport but not the other?

Paul: I would suspect the challenge plaguing football is the volume of helmet-to-helmet collisions and tackling during every play – especially through the art of contact at the line of scrimmage between offensive and defensive linemen, as well as running backs. In lacrosse – while a contact sport – tackling is illegal, as is any form of helmet contact. In our sport, the emphasis in contact is on stick-checking to dislodge the ball from a player’s crosse. While contact and concussions occur in all sports – even soccer and basketball – lacrosse gear is intended to protect primarily from stick-checking, or the rubber ball making contact with a player’s head – wherein lies the helmet protection.

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Next Generation Record Label to Provide Soundtrack to NBA’s Top Plays

UnitedMasters

UnitedMasters and the National Basketball Association have announced a deal that will give the league authorization to use the music published by UnitedMasters artists in highlight videos across all “digital properties and (its) social community of 1.5 billion”; the songs may also be used within in-arena highlights packages. The NBA’s partnership with the music distribution service will provide fans with “a new way to discover music”, as posts on social media will document the artist’s name and song title and provide a link back to the song and artist. UnitedMasters was founded by former Interscope EVP Steve Stoute, who envisioned the platform serving as the “next iteration of what a record label should be”; one that enables artists to connect more directly with their fans while maintaining ownership of their music.

Howie Long-Short: UnitedMasters, which offers up and coming artists a platform for distribution, wants their music placed on a variety of platforms (think: video games, influencer videos) that together will meet or exceed terrestrial radio’s reach; and this deal furthers that mission (even if the NBA isn’t paying for spins). The company’s standard business model entitles artists keep 90% of the revenue generated in royalties, while the company retains 10% as a distribution fee.

UnitedMasters’ up-and-coming independent artists are big winners in this deal (again, even if they’re not being paid each time their song is played). The league’s social channels offer “a global digital stage” (see: NBA highlights receive 19 billion impressions/year) that can be used to build a fan base; and once they do, they can begin to establish lucrative brand partnerships. They’ll also be able to sell both concert tickets and merchandise directly to their new fans.

As for the league, they’ll save on major label licensing rights. It would be reasonable to assume they’re also entitled to a portion of any sales originating through their channels, though no financial details were released.

There are 2 ways to play UnitedMasters; Alphabet (GOOGL) led the company’s $70 million Series A round back in November ’17 and 20th Century Fox (FOXA) invested alongside them.

Fan Marino: While we’re discussing NBA news, Golden State introduced a new monthly ticket offering that will provide fans with entry to all home games (and the right to team giveaways) for just $100. There’s just one catch, the ticket does not actually come with a view of the court. The Warriors “In the Building Pass” simply gives the holder the right to convene in one of the arena’s bars/restaurants, overpay for a few beers and catch the game on television; which is delayed relative to the crowd cheering/booing. Howie seems to think everyone won in the NBA’s deal with UnitedMasters, but there are going to be clear losers with this arrangement and they’re going to be Warriors fans.

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Report Suggests Fortnite has Peaked, Trends Say Otherwise

Fortnite

StreamElements has published a report indicating that Fortnite streams have “reached peak viewership” after the number of hours watched (on Twitch) declined -30% over a recent 2-month period. Fans of the battle royale game spent 151 million hours watching their favorite gamers back in July, but Fortnite streamtime dropped -13% (to 131 million) in August and another -19% (to 106 million) in September as several other highly anticipated games were released. Despite the decline, Fortnite remains Twitch’s most-watched game, though World of Warcraft (+232.5% to 87 million hours) has closed the gap following its August Battle for Azeroth expansion release.

Howie Long-Short: I’m not ready to declare that we’ve reached peak Fortnite. World of Warcraft and the October release of Call of Duty: Black Ops 4 (which has a battle royale mode and was touted by pundits to be the “Fortnite killer”) took a temporary share of Fortnite viewership, but neither appears to be a long-term threat; 5 out of the 6 fastest growing channels on Twitch are playing Fortnite over everything else (Twitchmetrics) and the game just set a new concurrent player count record (8.3 million) last week (November 8th).

Fornite remains the title of choice for pro gamers because it’s the most lucrative to play. Daniel Conlan, editor at esportsranks.com, told me “Fornite is already 5th in total prize payouts across all games, ever”; particularly impressive considering “the other titles in the top 5 are anywhere from 5-8 years old.” Fortnite was released in July ’17.

The StreamElements report uses Twitch data because the Amazon subsidiary continues to “dominate as a game streaming platform” (see: 813 million hours viewed in September). YouTube has experienced a rise in popularity, growing from 15% of all live stream hours viewed in March ’18 to 25% in September ‘18 (226 million hours), but that growth hasn’t come at Twitch’s expense; YouTube and Twitch prevent their stars from streaming on competing platforms, so “this is simply the market growing.” StreamElements CEO Doron Nir explained, “YouTube creators are starting to realize the potential of live-streaming (more dynamic, better audience engagement, more income per hour of work) and that’s what is largely driving them to stream more.”

World of Warcraft’s strong September has knocked Epic Games from its position as the most viewed publisher; with 5 of the 20 most watched games on Twitch, Activision Blizzard (ATVI) has regained the top spot for the first time since February. Rising viewership hasn’t kept ATVI shares from plummeting 25% over the last 30 days (to $55.01) though, news that their number of monthly active users declined for a 3rd straight quarter and Tencent’s pending roll-out of widespread restrictions, on online play time for kids in China, have spooked investors.

Fan Marino: Fornite has become a cultural phenomenon, but it’s important to keep sight of why the game has resonated with such a large audience; its virality. The game is as famous for its dances, as it is for its shootouts, eliminating the seriousness out of a last man standing apocalyptic adventure. In turn, that’s created a safe world for corporate brands to associate with and Fortnite has been no stranger to partnerships; Marvel Studios temporarily made Thanos a playable character in game (May 2018) and just last week NFL skins (cost: $15) were introduced to gamers.

Ninja’s rise to mainstream celebrity status (10 million followers) and the game’s inclusive nature (100 participants compete, low barrier for entry) have also helped Fortnite reach an audience beyond the hardcore gamer. Fortnite will peak, but only when the battle royale genre does…or if Ninja gets bored. You may recall Snapchat shares plummeting -7.2% (equating to $1.3 billion loss) when Kylie Jenner announced she had lost interest in the photo sharing app.

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Boras Calls Harper a “Generational Player”, Says He’s Worth $400 Million – $500 Million

Harper

Bryce Harper is a free agent and his agent, Scott Boras, told reporters at this week’s GM meetings that the “generational player” deserves a contract valued between $400 million and $500 million; the baseball super-agent defined a “generational player” as one entering F.A. at a young age (Harper turned 26 in Oct.), one who has demonstrated “elite performance” during the early stage of his career (see: in the last 16 seasons, only Bonds and Pujols had seasons with a higher OPS than Harper did during his ’15 NL MVP season) and one with “iconic value” (see: the potential to impact a franchise’s valuation, gate attendance and television ratings).

Boras made his case by asserting that the value of the Nationals franchise had increased by “more than 4x”, that attendance at Nationals Park had grown by “600,000” fans/season and that the team’s TV ratings had “tripled”, since Harper first joined the club in ‘12. In late September (word just leaked this week), Harper rejected a 10-year +/- $300 million proposed extension with the Nationals, a move that effectively ended his time in Washington; the Phillies are now believed to be the front-runners to land the star outfielder’s services.

Howie Long-Short: A quick fact check on Boras’ boasts indicate he had been exaggerating on claims related to both team valuation and TV viewership (attendance was correct, rose from 1.9 million in ’11 to 2.5 million in ’18). In March ’12, before Harper ever took a MLB at-bat, Forbes pegged the Nationals value at $480 million; it’s worth $1.675 million today. We can debate how much of an impact Harper had on the club’s rising valuation (the league average rose from $605 million to $1.645 billion during that time), but the team is now worth under 3.5x (3.489x) what it was 6 years ago, not more than 4x.

We found similar inconsistencies with Boras’ claim that TV ratings had tripled. In ’11, Nats games averaged a 1.44 household rating in the Washington D.C. market. While ratings have increased (averaged 2.52 in ’18), the Nationals never averaged close to a 4.2 rating; heck, the Yankees (with Stanton and Judge) didn’t even post a 4.2 rating in ’18 (3.91).

I’m not saying Harper isn’t a “generational player” (the numbers speak for themselves – 6x All-Star, 184 career home runs, 521 RBIs, OPS of .900), but if you aren’t going to attribute the team’s rising valuation to the player (I’m not) and despite a +78% increase (to 2.8 rating, not 200% to 4.2) the club still finished in the bottom half of the league in TV viewership, I would suggest he’s not worth +/- 25% more than anyone else in the league.

Giancarlo Stanton is currently MLB’s highest paid player, but Boras said it’s worthless to compare his 13-year, $325 million deal with the one Harper seeks (and he has a point). When Stanton signed his deal in ‘14, he was under contract for another 2 seasons (i.e. he could only negotiate with Miami); Harper can negotiate with all 30 MLB clubs.

Harper may not be the league’s only player to sign a deal surpassing Stanton this offseason though, Manny Machado could also sign a contract worth $300 million+. It’s known that Machado wants to play in NY, but the NY Post is reporting the former Orioles/Dodgers slugger is not among the Yankees top priorities and the Mets aren’t considered a realistic landing spot.

Fan Marino: Harper is amongst the league’s most marketable players and Home Run Derby (during ’18 All-Star weekend in Washington) became a Bryce Harper showcase, so I was surprised to see he only finished 13th in Majestic MLB jersey sales this season. Sure, 6 years in the same uniform (i.e. no new design, same team) will depress sales, but he finished behind Jose Altuve (2nd, ’11), Clayton Kershaw (4th,’08), Anthony Rizzo (6th, ’12), Yadier Molina (10th, ’04), Mike Trout (11th, ’11) and Buster Posey (12th, ’10); all guys who have played for their respective teams longer. Aaron Judge topped the list.

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Relaxed NFL Ownership Guidelines Sets Stage for Record Franchise Sale

Seahawks

Last Sunday afternoon, the Seattle Seahawks honored their late owner Paul Allen (died on 10.15.18) with a tribute video, by raising their famed 12th Man Flag to half-staff and by wearing a patch on their game jerseys with his initials; the day marked the end of the most successful chapter (20+ years) in club history (includes ’14 Super Bowl). Since Allen’s passing, his sister Jody has taken control of the trust with power over the Seattle football franchise, but the Microsoft co-founder didn’t leave the franchise to her (or anyone else, he has no heirs), leaving many to suspect it (along with the Portland Trailblazers and Seattle Sounders) will soon be for sale. Per Allen’s wishes, any transfer of ownership would be contingent upon the new owner retaining the Seattle market.

Howie Long-Short: The Microsoft co-founder bought the team in ’96 for $200 million, it’s valued at $2.58 billion (Forbes) today.

There is no shortage of wealthy individuals who would like to claim the trophy asset, but few have the liquidity (30% of the franchise value) to afford an NFL team (last sale: Carolina Panthers, $2.3 billion); which is why the league finally (in mid-October) did away with its restrictive cross-over limitations (preventing NBA, NHL, MLB owners from bidding when teams outside their market were for sale). I suspect the league’s next move will be to increase ownership debt limits (currently $350 million) as it looks to continue growing the potential buyer pool (and keep sale prices rising).

So just how small is the potential buyer pool? If the Seahawks sell for an NFL record $2.58 billion (and Forbes is historically conservative on their estimates), under current league bylaws the next owner would need to have +/- $775 million in cash; a figure so high, that half the league’s current owners would struggle to come up with the money without selling or leveraging other assets.

One local businessman who is wealthy enough to purchase the franchise without any partners (or financing), is Amazon founder Jeff Bezos. Cowboys owner Jerry Jones (one of the league’s most influential owners) has let it be known he would “carry him (Bezos) piggyback to get him to the NFL.” I wouldn’t bet that ride happening, Bezos’ had the opportunity to buy high-profile teams before and passed. Clippers owner Steve Ballmer (former Microsoft CEO), Warriors owner Joe Lacob, Oracle co-founder Larry Ellison and Salesforce co-CEO Marc Bernioff are among the other names that have been mentioned as potential buyers.

Fan Marino: In addition to softening ownership guidelines, it’s reasonable to suspect the league will continue to relax its advertising guidelines; liquor companies were permitted to advertise during NFL games, for the 1st time, last season. Though TV viewership is up slightly in ’18, the league knows that long-term “the only way that they can continue to raise (ad) rates and grow their business is to open it up to some restricted brands.” While that’s great news for sports betting companies (and the league’s owners), here’s to hoping the rules remain restrictive enough to prevent a repeat of the ’15 DFS blitz (before it turns into English soccer, where 95% of commercials during league games are for sports betting companies).

As mentioned, the Seahawks won’t be relocating, but San Antonio Mayor Ron Nirenberg seems to think one of the league’s existing franchises (or an expansion franchise) will move to the Alamo city “within the next 10 years.” Nirenberg cited “major jobs coming to Brooks City Base”, the city’s downtown UTSA campus and “the rise of Texas A&M” (community college districts) as reasons why San Antonio is ready to support an NFL team. Don’t count on it, Jerry Jones (and Robert McNair) is going to oppose a 3rd franchise in Texas and Mexico City, Oakland, Toronto and Western Canada are all likely higher on the waiting list.

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Seminole Tribe of Florida (with an Assist from Disney) Protects Florida Gambling Monopoly

Seminole

The Walt Disney Company spent $20 million in support of a ballot initiative that would give Florida voters the right to prevent the expansion of casino gambling within the state, a measure designed to protect their tourism interests and the state’s brand as a “family friendly” destination. Amendment 3 of the Florida Constitution passed on Tuesday evening, with more than 70% of the state’s voters backing the law that will require new casino projects to gain the support (60% must vote in favor) of the state-wide voting public prior to breaking ground; few (if any) projects are likely to meet the 60% benchmark. MGM Resorts International (seeks licensure in state), the Miami Dolphins and the Tampa Bay Buccaneers (both NFL teams are hoping to profit on sports betting) were among those that publicly opposed the measure; each of the 3 entities spent $500K on the proposed amendment’s “no” campaign.

Howie Long-Short: Disney (DIS) was invested in the amendment passing for its own selfish reasons, but there’s no bigger beneficiary to the “Voter Control of Gambling” amendment passing than the Seminole Tribe of Florida (spent $16 million on “yes” campaign). The Tribe dominates the Florida gaming landscape, operating in the state under a Federal gaming exemption afforded to Native Americans with little competition; the amendment’s passage ensures the moat remains around their business.

The long and costly battle for gaming company expansion into the state just became infinitely more difficult, but don’t expect casino operators to give up on Florida. Dan Alkins (Chairman of the committee opposing the ballot initiative) said should the measure pass “there’s going to be litigation just continuing on forever.” The state’s size/population, reputation as a tourism destination and abundance of retirees makes it a highly desirable locale for casinos to take up residence.

It’s worth pointing out the irony in the Miami Dolphins opposition of the amendment, while playing their home games at Hard Rock Stadium; a chain owned by the Seminole Tribe and the one that will pay the franchise $250 million over the next 18 years for naming rights.

Speaking of MGM Resorts International (MGM), the company is reportedly exploring a potential merger with Caesar’s Entertainment (CZR) to form a gaming behemoth (think: +/- 50% of all hotel rooms in Las Vegas and Atlantic City). While there’s no offer on the table (and it’s possible regulators could determine a merger would create “undue economic concentration), it’s known that “without a CEO, Caesar’s is in play” and that it’s CZR’s activist investors (own +/- 25%) driving the tie-up talk; a merger would allow the combined companies to eliminate redundant “overhead and marketing” expenditures. Wynn Resorts (WYNN) and the Genting Group (OTC: GEBHY) have also been names as companies that could have interest in a CZR (-25% YTD) take-over. With licenses in 13 states (49 casinos), the company is well positioned to benefit from wide-spread sports betting legalization.

Fan Marino: Howie mentioned Las Vegas and Atlantic City, so it seems like an opportune time to note that Eilers & Krejcik is projecting New Jersey sportsbooks will generate more sports betting revenue than those in the gambling mecca, as soon as 2021 ($442 million vs. $410 million). The boutique research firm (with a focus on the gaming industry) supported their thesis by pointing out NJ gamblers can make “sports betting transactions” on credit card (as opposed to being forced to make a deposit in a casino), that the state’s sportsbooks have created a highly competitive online/mobile market (think: pricing/promotions) and that state’s licensees have had “very high rates of black market recapture.”

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Real Madrid Inks Most Lucrative Kit Sponsorship Pact in Soccer History

Real-Madrid-logo

Real Madrid has agreed a 10-year deal with Adidas worth at least $1.25 billion, the most lucrative kit manufacturing pact in soccer history (previously: Manchester United/Adidas worth $97 million/year). The deal’s value, worth more than twice the $59 million/year Los Blancos currently earns from its kit sponsorship agreement (also with Adidas), could rise to as much as $171 million (from $125 million) annually should Adidas reach merchandising and performance milestones. The newfound revenue will be used to help fund the redevelopment (cost: $650 million) of Santiago Bernabeu stadium (their home field) and to sign top-tier talent; the club has been relatively quiet in recent transfer windows.

Howie Long-Short: While Real Madrid re-signed with Adidas (been with company since ’98), the German apparel company wasn’t bidding against themselves; Nike and Under Armour were also interested in outfitting the La Liga club.

For perspective on the deal’s size, consider that Nike is paying the same amount ($1 billion over 8 years) annually to outfit (game jersey, shorts & socks) all 30 NBA franchises. If you’re wondering who signed the better deal (Nike or Adidas), consider that the NBA boasts of more followers/fans (1.5 billion to 689 million) across social media platforms and delivers the greatest “commercial impact” (according to the POWA Index) of any brand in sports.

Fan Marino: Speaking of the NBA, Monumental Sports & Entertainment announced a multi-year jersey patch sponsorship agreement with Geico that will result in the insurance company’s logo occupying space on the Washington Wizards, Washington Mystics (WNBA) and Capital City Go-Go (G-League) game uniforms. Financial terms of the deal were not disclosed, though it’s known that the average patch sponsorship deal was worth $6.5 million to NBA teams in ’17-’18; the Warriors have the league’s most lucrative agreement (with Rakuten), worth $20 million/season. The Thunder and Pacers are the only NBA teams yet to take advantage of the newfound revenue stream.

MLS executives watched NBA teams bring in over $100 million in new corporate sponsorship revenue last season (from jersey patches) and decided they too should increase kit sponsorship inventory. Starting with the 2020 season, MLS clubs will have the ability to sign secondary sleeve sponsorship pacts (each team has a main partner, Houston is the exception); deals projected to be worth $1 million to $1.5 million annually. For those wondering, top-end MLS main kit sponsorship deals are worth $3-4 million/year, though it’s said D.C. United (who is replacing Leidos as its main kit sponsor at the end of this season) is looking to re-set the market; the club is reportedly seeking $5 million per/year, a figure that would place them atop the league (LA Galaxy is currently 1st, $4.4 million/year) in kit sponsorship revenue.

European soccer has a gambling advertising epidemic. 9 of 20 EPL clubs and 17 of 24 EFL Championship League teams have gaming companies as their main kit sponsor (sports betting ads also make up 95% of commercials during live matches in the U.K). MLS currently has restrictions on gambling partnerships, but they are said to be “under review by the league”. Gaming companies will certainly have interest in secondary kit sponsorships and they could bring MLS clubs much needed revenue, but here’s to hoping the league opts to avoid the low hanging fruit; a recent study indicated the U.K. has 430,000 “problem gamblers”, including 25,000 between the ages of 11-16. Incessant gambling advertising is contributing to (if not the root of) the problem.

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New NASCAR President Likens Sport to “Buy Stock”

Steve_Phelps

Kevin Harvick won Sunday’s Monster Energy NASCAR Cup Series playoff race at Texas Motor Speedway, clinching his spot in the Final 4 (Joey Logano has also qualified with his win last week at Martinsville). There’s one last Round of 8 race next weekend in Phoenix, before the 2018 championship is settled at Homestead-Miami Speedway on Sunday November 18th.

On October 1st, Steve Phelps assumed the role of NASCAR President; responsible for oversight of the sport’s commercial, media and competition. If NASCAR were a publicly traded equity, Phelps says he’d consider the sport a “buy stock”; intrinsically under-valued and on the right path, again. We sat down with the new NASCAR President on Friday morning to discuss the direction NASCAR is headed; who he thinks will replace Dale Jr. as the face of the sport, the demographics driving fan base growth, the international markets with the greatest potential and the changes coming to the race schedule in 2020.

Howie: Critics will say the Cup series has yet to replace the star power that Dale Jr. brought to the sport. Which young driver has the potential to be NASCAR’s biggest draw?

Steve: The odds-on favorite would be Chase Elliot. His dad was the most popular driver in NASCAR for 15 years and now fans are gravitating towards him, but Darrell Wallace Jr., Ryan Blaney, Eric Jones and Danny Suarez are all very talented race car drivers who resonate with our fan base.

Howie: NASCAR draws a larger female demo (from a television viewership percentage standpoint) than the NFL, NBA, MLB and NHL and the sport and is 2nd (to only the NFL) in terms of the total number of female viewers tuning in. What is NASCAR doing differently than other sports, that is resonating with this audience?

Steve: We’re not specifically targeting the female base, like we’re doing with the Hispanic fans. The general outreach that we have seems to be resonating with women. I think there are several different factors at play here; the style of racing, the new generation of drivers and the racing is better than it was.

However, for the last three or four years, we have been targeting the Hispanic fan base and we’ve seen results. Our media partnerships and consumer facing activations have resonated and it doesn’t hurt that Danny Suarez, who is from Mexico, won a championship in our Xfinity series and is now competing in the Cup series. Our fan base, in the last four years, is up four full percentage points – not four percent – and all new NASCAR fans over that time are more female and more Hispanic than any other demographics.

Howie: Most perceive NASCAR to be a domestic sport, but fans in more than 185 countries (and territories) can watch races. Which international markets offer the most potential and what is NASCAR doing to develop fan bases in those countries?  

Steve: Mexico is an incredibly important market for us. We have a developmental racing series there and it helps us in two ways; with driver development and fan development. Mexicans are enjoying our sport at the grass roots level and then they follow these young talented drivers as they race in our three, national series. It’s a recipe that we think we can replicate in other countries. We’re looking at potentially starting a series in China, we have a series in Europe and ideally, we can nurture those fan bases to eventually participate in some fashion; whether it’s coming to the states to watch a race, watching on television or buying licensed merchandise.

Howie: Television ratings are down (historic low viewership for 24 races this season). Fans of the sport complain there’s not enough variety to the race tracks on the schedule; there are too many 1.5 mile ovals. Competing with the NFL on Sunday afternoons in the fall, doesn’t help ratings. Is NASCAR considering new stops on the circuit or revamping other track layouts (think: ROVAL) to keep the sport fresh? Is there any thought to altering the schedule (think: ending season before Labor Day) to avoid losing fans to the NFL? 

Steve: We are looking at all kinds of things to enhance our schedule in 2020 (’19 schedule already set), including some sizable changes to where we race. A lot of fans – and people within the industry too – will say we should include more road courses and have more short track races. We race at several tracks a couple of times, we may race at some of them a single time. We’re willing to look at it differently than we have in the past

There are also things that we could do to this schedule that would make it more appealing to fans and frankly give us better windows, so we’re not competing against the NFL (on Sunday afternoons in the fall). We have some off-weeks, we could do some double-header weekends, we may look to do a mid-week race, we could potentially start the season earlier; I’m not suggesting we’re going to make all those changes, but we’ll certainly make some of them.

Fan Marino: Steve mentioned Ryan Blaney as a driver with the potential to become the circuit’s most popular driver and his NASCAR sanctioned podcast “Glass Case of Emotion” is among the reasons why. Over the last 2 years, the show – which rarely discusses racing, but will delve into Star Wars and video games – has developed a loyal following (“Glassholes”) and it’s Blaney’s authenticity on air that has listeners now invested in his career on the track. NASCAR wisely intends on replicating the model, giving other charismatic drivers the chance to draw fans in with their personality.

Editor Note: Part 2 of our NASCAR State of the Union address with new President, Steve Phelps, will be released on Friday November 16th; the last newsletter (sign-up: JohnWallStreet.com/sign-up) before NASCAR crowns a new champion.

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WNBA Players Opt-Out of CBA, Ignore “Financial Realities” of Business

WNBA

The WNBA Players Association has notified league owners that it intends on exercising its right to opt-out of the current collective bargaining agreement at the completion of the 2019 season (2 years early). The league’s players are looking for “full” fiscal transparency, a larger share of league revenues (currently 20%, NBA players receive 50%), better working conditions (think: travel accommodations) and more marketing/promotion from the NBA (which owns 70% of the league) in the new deal. In a piece written for the Player’s Tribune, WNBPA President Nneka Ogwumike said the players deserve “a fair and consistent work environment. A league that treats its players as the world-class athletes they are. A league that invests in its future.”

Howie Long-Short: The ’19 season will go off unaffected, but failure to come to terms could put the beginning of the ’20 season at risk; and that would appear to be a possibility. While the WNBPA seeks comparable treatment to their male counterparts (“not some LeBron money”), the league’s message is already out; negotiations are going to be “rooted in the financial realities of our business” (i.e. comparable treatment is unrealistic unless you generate comparable profits) and according to NBA Commissioner Adam Silver (NBA owns 70% of WNBA), the reality is that “we’ve lost over $10 million every year we’ve operated”. The NBA generated $7.4 billion last year.

10+ months would seem like plenty of time to hammer out a deal, but CBA agreements are rarely completed without the pressure of a deadline and electing not to play may be the only leverage the players have; though, it seems unlikely league owners are going to be motivated by a business in the red (WNBA said it lost $12 million in ‘18) going dark for a few weeks/months.

Ogwumike disputes that the “league is losing money”, while acknowledging the players have not seen the books. If she’s right and the league is profitable, calls for additional “investment and resources” deserve to be met, but what if we find out the league is in fact a money pit? The WNBPA President says the players are “opting out of our CBA because of the world we want to live in”, I can’t imagine she means one in which women’s sports are being treated as a charity.

The WNBA median salary is $70,000 (max. is $115,500); for comparison purposes, MLS’ median salary is $117,000. When you consider the WNBA’s 12 teams generated +/- $55 million in ’17 revenue ($4.5 million/team) and MLS’ 18 teams (23 now) in ’14 did just shy of $500 million ($27 million/team), you begin to wonder if WNBA players are in fact underpaid.

If you believe WNBA players aren’t getting a large enough piece of the league revenue pie, you should consider that the Seattle Sounders (2nd in league attendance, 40,600/game) spent just +/- 20% of their revenue on player salaries this season; it’s what the business can afford.

Fan Marino: Assumptions that only women are watching the WNBA are inaccurate. As we recently noted, a newly released Nielsen survey (51% of those polled were male) indicated that 84% of sports fans hold an interest in women’s sports. Those supportive of women’s sports say they’re “more progressive and inspiring, less money-driven, more family-oriented and cleaner than men’s sports.” Perhaps that explains why WNBA television viewership rose +31% in ’18 (best numbers since ’15), while ratings for the Big 4 sports are flat or declining (save the NFL, viewership up slightly over ’17 ratings).

It’s commendable that today’s WNBA players are willing to “bet on themselves” for “the greatest women’s basketball players of tomorrow”; and with TV ratings on the rise, league pass subscriptions up +39% YoY and merchandise sales having grown 66% YoY, they’ve never been in a better position to negotiate. At a minimum, it should help the players gain access to TSA pre-check in airports and exit row seats on planes (virtual eye-roll); it’s wild to realize that’s not already standard operating procedure within the league.

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“New Fox” Front-Runner for “Old Fox” Regional Sports Networks

Fox

Earlier this month, The Walt Disney Company (DIS) sent out official bid books to potential buyers for the 22 regional sports networks they’ll acquire (and then sell-off) as part of the $71.3 billion deal for 21st Century Fox film and TV assets (to close H1 ’19). “New Fox”, focused on live sports and news programming, is believed to be the “front-runner” for the lot of “Old Fox” RSNs. A deal with Rupert Murdoch would allow Disney to unload the RSNs in a single transaction, as opposed to selling them off “piecemeal” (more timely, difficult), and would give “New Fox” the opportunity to reclaim the cable assets at a discount worth billions. Initial bids are due one week from today (Nov. 8).

Howie Long-Short: The Justice Department is requiring that DIS sell-off the RSNs to prevent the company from having too much control within the sports broadcasting space. With ESPN under its umbrella, DIS already owns the rights to more sports content than any other broadcaster.

Disney paid a premium to acquire the package of RSNs after a bidding war with Comcast drove the price tag up +/- $20 billion, but as stand-alone properties it appears the cable sports channels are worth less than the premium DIS paid. Why? “There is doubt about the long-term future of regional sports networks in their current form.” High carriage rates and declining ratings could eventually lead distributors to drop the channels. (see: DirectTV/SportsNetLA, Home of the Dodgers).

I asked Octagon SVP Global Media Rights Consulting, Dan Cohen if he thought RSNs were a risky acquisition given the current sports media landscape?

Dan: Yes, the traditional media business is under intense pressure and consumption habits have shifted and will continue to shift. However, live sports rights are still of high demand. In our current world of unbundling, I’m not sure you need as much linear distribution as once required. I can envision a world in which a RSN goes direct to consumer, technology now affords that option. The same goes for carving up multiple Virtual Multichannel Video Programming Distributor distribution deals; YouTube TV has already shown this with MLS and there’s more to come.  

Specific to RSNs, their benefit is their locality. Sports are incredibly tribal and community driven and such, local premium sports content will remain a highly valuable asset. The bigger challenge I’d pose to the new RSNs owner(s) is how will they push the envelope to connect with the next generation of consumers? What contractual obligations will they negotiate with their local teams (think: access and content exclusivity)?  What technologies will they invest in to increase interactivity with the content? How will they empower the consumer to customize their viewing options? How much will they invest to meet the demand of a consumer who now expects to be able to watch their content whenever, wherever, and across many platforms? There’s a lot of questions to be answered. 

Guggenheim valued the 22 RSNs (which collectively control broadcast rights to 44 MLB, NBA & NHL teams) at $25 billion, but expect the lot to draw offers between $16-$20 billion. Fox (FOXA) would offer DIS the cleanest transaction, but it’s been reported that P.E. firms (see: Apollo Global Management, Blackstone Group, KKR, Providence Equity Partners and Silver Lake Partners), tech companies (see: Google, Amazon, Facebook) and broadcasters (see: Sinclair Broadcast Group) are also all kicking tires on the cable networks.

Howie: Why is Guggenheim’s estimate so much higher than the projected winning bid? Who ultimately takes down the lot?

Dan: Initially, when news first broke and I expected Comcast to bid aggressively, I thought the valuation was between $23-$25 billion; with the potential to reach $28 billion if an aggressive bidding war broke out. However, with Comcast seemingly not bidding on the RSNs, I would lower my expectations and estimate that they’ll be valued between $18–$22 billion with a high watermark of $25 billion.

As for who takes the lot down, Fox is certainly the lead horse. That said, there’s still a few more laps to run and I expect Charter, Liberty and even Sinclair with PE backing to make a pitch. I also wouldn’t discount a surprise challenger bid from lesser widely publicized media co.

While it’s been surmised for some time, that the Yankees (which control 20%) would buy back the YES Network (they have first right to do so), prospective bidders have been asked to include YES in their offers; that’s because DIS is reportedly seeking $5-6 billion for YES, a significant premium to its $4 billion valuation. Of course, YES is the most valuable RSN among the group. It’s been estimated that collectively, the RSNs generate $2 billion/year in EBITDA; YES (2nd most expensive cable channel, ESPN 1st) is responsible for bringing in +/- 25% of that total.

Fan Marino: Sure, subscriptions (to RSNs) and ratings (to the games on the RSNs) are down, but RSNs continue to warrant high carriage prices and relative to the remainder of the networks in your cable package, they continue to perform well ratings wise. In fact, the 29 RSNs that own MLB rights saw ratings rise +2% YoY during the ’18 season, league games were the most watched programming in primetime on cable television in 28 of 29 markets (Miami is the exception) and 12 of the RSNs were tops in their market in primetime, amongst all programmers.

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