DOJ Changes Tune on Sports Broadcasting Monopoly

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Josh Kosman and Richard Morgan (NY Post) are reporting that the U.S. Justice Department has altered its position on The Walt Disney Company’s (DIS) acquisition of the 22 Fox regional sports networks and are said to be considering a scenario that would allow DIS to spin-off the cable networks; the company would cede operational control of the RSNs. The DOJ had initially mandated that Disney sell-off the sports networks within 90 days of the Fox entertainment deal closing to prevent a sports broadcasting monopoly, with subsidiary ESPN already owning the rights to more sports content than any other broadcaster. The news comes just days after New Fox – the perceived front-runner to take down the lot of cable assets – confirmed in an SEC filing that it would not be bidding on any of the networks. DIS reportedly remains committed to a sale before the end of February.

Howie Long-Short: The DOJ initially felt that if DIS were to add the broadcast rights to 44 pro sports teams to ESPN’s existing portfolio, that the company would be positioned to squeeze carriers in carriage negotiations; further driving up the cost of the cable bundle. While I don’t want to speculate as to why the DOJ is reportedly willing to reverse direction, there is a belief in industry circles that without DIS (or Fox) backing the RSNs (and the leverage that they hold), cable companies could/would opt to leave the costly networks off their basic tiers.

The Justice Department’s change of heart could end up saving Disney billions. New Fox’s decision to pass on what they perceive to be slow growth assets, leaves Sinclair Broadcast Group (with P.E. backing) as the last viable legacy media company capable of buying all 22 RSNs. The NY Post article said Fox’s decision to drop out of the bidding lowered the value of the sports networks to between “$9 billion and $11 billion” (or 5-6x EBITDA). If that’s true and DIS’ theoretical RSN pure play were to trade at the same 8.7x multiple ($16 billion) that MSGN does, a spin-off could net DIS $5 billion to $7 billion more (+60%) than an auction would.

That won’t be the case though. As Dan Cohen, Octagon SVP, Global Media Rights Consulting Division told me, “it’s quite different to compare a single RSN in the U.S.’ largest media market to a set of RSNs. There are factors beyond the viewership differences such as the costs, sets of rights, programming opportunities, etc. Remember, MSG owns the Knicks and Rangers. That dynamic creates stability and a guaranteed cash flow. It’s not the same as 22 RSNs whose rights are varied, where competition exists and higher costs play factors.”  

Disney paid +/-$20 billion for the RSNs as part of their $71.3 billion acquisition of Fox entertainment assets, so spinning off the networks would seem like a more attractive option than taking a +/- $10 billion loss, but if the rest of the legacy media companies are suggesting that RSNs are “slow growth” businesses – “at best” – I wondered why DIS would have interest in keeping them. Dan explained that moving forward the RSN business will be “slower growth, not slow. For the past decade+ the RSN business has been booming, a meteoric rise of the like cannot continue at that speed without slowing a bit for some time. However, growth on a RSN level will still move forward and the smart ones will develop business propositions around legalized in game betting and new interactive viewer technologies, and most certainly will need to further exploit the local digital rights as they play out.” For those who read “Early Entrants” (Vol. 1) on Sunday morning, you know that Disney is exploring entrance into the sports betting space.

Fan Marino: New Fox supposedly has a renewed focus on sports, but in the same week the company declared it was out of the regional sports networks business, it declined an option to carry the Big-12 championship game in ’19, ’21 and ’23. SBJ reported that the decision had to do with scheduling (see: they didn’t want it up against the SEC and ACC championship games), but I’m hearing that Murdoch’s company is preparing to go “all-in” on the Big 10 conference. ESPN, which aired the game in ’18 and has the rights in ’20, ’22 and ’24, is likely to pick up the 3 “odd-year” games.

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New Fox Out of Bidding for RSNs, Sinclair the Front-Runner

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New Fox has confirmed in an SEC filing that it will not be bidding on any of the 22 regional sports networks that were sold to Disney (see: $71.3 billion sale of entertainment assets), viewing the RSNs as slow-growth (or no-growth) assets. The perception that Disney has “overexposed” the RSNs has also tempered Fox’s interest. With countless teams and distributors privy to their detailed financials, there’s now a belief that future broadcast rights will become costlier and that carriage rate increases will be more difficult to come by (both of which would further slow growth). Sinclair Broadcast Group (with the financial assistance of a P.E. firm) is now widely considered to be the front-runner (and the last viable option) to take down the entire lot (vs. piecemeal) of cable networks – estimated to be worth between $15 billion and $20 billion. Final bids are due before the end of January.

Howie Long-Short: Remember, the Justice Department is requiring that Disney (DIS) sell-off the RSNs to prevent the company from maintaining a sports broadcasting monopoly. With ESPN under the company umbrella, DIS already owns the rights to more sports content than any other broadcaster.

Many assumed that Fox would buy back the RSNs because of their renewed focus on sports programming, but Chris Lencheski (an experienced global sports, media, and private equity executive; and an adjunct professor at Columbia University) first told you in our November 19th newsletter that not only was Murdoch’s company unlikely to re-acquire the regional sports networks, but Sinclair Broadcast Group (SBGI) was “uniquely positioned to take them down because of their owned and operated channels”; and that “they (SBGI) could perform well, have invested in and have wanted to further acquire sports rights but on a truly scalable format.”  You heard it here first, folks.

Sinclair’s ownership stake in Stadium – a 24/7 multi-platform sports network with the broadcast rights to several Group of 5 conferences – makes the RSNs more attractive to SBGI than they might be to other prospective bidders. As Chris told me, Stadium already has a name amongst “early adopters” and “cord nevers”, the technology and the existing agreements with OTT providers like Sling and Pluto; which makes the addition of the broadcast rights to the 44 pro sports teams “plug and play”.

Amazon is said to be participating in discussions surrounding the YES Network (estimated value: $5 billion – $6 billion), but it’s unlikely they (or any other tech giant) will pursue the entire lot; RSN coverage is restricted by the leagues to a defined local footprint (see: YES Network only available within metro NYC) which limits their value to a global enterprise. While 40+ companies were said to be involved in the first round of bidding, without the tech companies (+ Comcast, Charter and now Fox) DIS is unlikely to pull in offers anywhere near the $25 billion Guggenheim Securities originally pegged the RSNs at.

Fan Marino: The Sinclair sports portfolio includes the Tennis Channel, the “fastest growing” network in television; now in 61 million homes (+ 41% over last 2 years) after gaining 5 million subscribers (more than any other Nielsen-measured cable network, just 1/13 to add subscribers) in December ’18. If you’re a fan of the sport, you need the channel; it aired more live coverage than any single-sport network last year (2,300+ hours of matches).

ICYMI: It was recently revealed that the Cubs would be launching their own sports network come 2020 in partnership with SBGI. That’s a wise decision. Sinclair can offer widespread distribution and brings much-needed experience in both carriage negotiations and game production to the venture; issues that have plagued other start-up sports networks (see: Pac-12 Network).

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D.C. Expected to Permit Sportsbooks within 4 Area Arenas, Stadiums

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Mayor Muriel Bowser is expected to sign legislation that will permit 4 Washington D.C. arena/stadium operators to open “Las Vegas style” sportsbooks on their premises; Capital One Arena (Wizards, Capitals), Nationals Park (Nationals), Audi Field (D.C. United) and the St. Elizabeth’s East Entertainment and Sports Arena (Mystics, GoGo) are the venues that will be allowed to host sportsbooks (as will new RFK when built). The bill offers the arenas/stadiums some brick and mortar exclusivity, with the District’s other licensees unable to take bets within a 2-block radius of a designated facility, but it also gives the D.C. Lottery a “virtual monopoly” on mobile business; arena/stadium sportsbook operators will only able to take mobile bets from those on the premises. The city council’s decision last week to delay a vote that would have allowed the D.C. Lottery to negotiate with a preferred vendor (as opposed to going through bidding process), likely means that sports betting legalization isn’t becoming law in Washington “until summer at the earliest.”

Howie Long-Short: D.C. is willing to allow brick and mortar sportsbooks at their sporting venues because there are no licensed casinos within the jurisdiction. Unfortunately, it doesn’t appear to be the start of a trend. As Jill Dorson, Deputy Editor, SportsHandle told me “having read proposed legislation and/or talked with lawmakers in more than 10 states that will seriously consider sports betting in 2019, putting sportsbooks into stadiums has not come up. When D.C. first proposed this, it was a unique idea and remains so. That said, I have read that there is a chance that there will be a sportsbook if not in the Raiders new stadium, on the stadium property.”

While I had Jill on the line, I asked if D.C. was also going to be unique in licensing bars, restaurants and convenience stores and tried to find out why a state would issue licenses to small private businesses like them?

Jill: While I don’t believe that any of the six states that launched sports betting in 2018 are allowing for sports betting in bars, restaurants or convenience stores, many states proposing legislation in 2019 are considering putting kiosks into bars, restaurants, hotel lobbies, and convenience stores. In both Montana and North Dakota, sports-betting kiosks in food-and-beverage venues and corner stores are definitely part of the equation; and I have talked with legislators in several other states who would prefer not to have full-fledged casinos in their states, but would rather see sports betting online with “physical” locations being kiosks in non-traditional venues, like convenience stories or restaurants. 

None of the 4 venues intend to disclose their plans (or lack thereof) until Bowser signs the bill into law, but I would bet that Capital One Arena and Nationals Park end up hosting sportsbooks; Caps/Wiz owner Ted Leonsis has long spoken about bringing sports betting to his venue and between the 2 buildings, more than 5 million fans walk through the doors annually.

Those lobbying on behalf of the arenas/stadiums are right to claim they’re being “incentivized to spend a lot of money on something that has been minimized.” The District acknowledges that 2/3 of sports betting revenue is going to come through mobile wagers and as mentioned above, the D.C. Lottery is going to keep nearly all those profits. It likely won’t make sense for all 4 prospective venues to open “Las Vegas style” brick and mortar sportsbooks without an equally viable mobile business.

League rules prevent teams/facilities from operating sportsbooks, so those that proceed are going to partner with an established gaming company. If Capital One Arena decides to move forward, the Washington Post says to keep an eye on DraftKings as a prospective partner; Leonsis’ VC firm Revolution Growth is invested in the company.

As for mobile, it remains TBD if the D.C. Lottery will go through a competitive bidding process or unilaterally award a sole source contract to Intralot (trades on The Athens Exchange under symbol INLOT), their existing provider.

Fan Marino: Speaking of the Wizards, NBC Sports Washington produced an alternative sports betting broadcast for a recent game against Milwaukee (they’ll do it 7 more times this season, next is Jan. 27 vs. San Antonio). Those watching at home saw live odds, game statistics and player statistics alongside the action and were given the chance to participate in a “Predict the Game” contest (think: prop bets) for $500 prize. Monumental SVP of Strategic Initiatives Zach Leonsis called it “the 1.0 version of where we’re ultimately going” (with regards to integrating real-time data/predictive gaming feeds into game broadcasts) and you won’t find an argument here; the future of sports broadcasting will be engagement driven.

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Early Entrants: Sports Business “Rumblings” Before the News Breaks

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Editor Note: Below you’ll find the Volume 1 of “Early Entrants”, a bi-weekly newsletter from JohnWallStreet that will introduce sports business “rumblings” before the news breaks. Have a tip for the 2nd edition? Have thoughts on our newest product? Send them to JWS@JohnWallStreet.com.

Editor Note II: Have a colleague (or 3) that would find “Early Entrants” or the JohnWallStreet daily newsletter to be useful? Sign them up at JohnWallStreet.com/sign-up.

1. Disney Exploring Entrance to the Sports Betting Space

The Walt Disney Company (DIS) is exploring avenues to enter the sports betting space, reportedly modeling several consumer facing strategies (see: ESPN+ integration or standalone product) that would allow for the roll-out of a gambling product without tarnishing their family friendly brand. We’ve seen this strategy from DIS before, back in ’89 Michael Eisner introduced Hollywood (and Touchstone) Pictures so that the company could produce films for a mature audience.

2. Endeavor IPO?

There is heavy speculation that Endeavor (formerly WME-IMG) could file for an IPO in 2019. The company isn’t struggling, but after investing $4 billion on the UFC, $1 billion on Serie A rights and $150 million to acquire NeuLion, there appears to be a need for cash to pursue additional acquisitions and to fund their growth initiatives.

3. SEC Football to Remain on CBS

Despite stories to the contrary, rumblings indicate that CBS is close to extending their current pact (runs through ’23) with the Southeastern Conference. Their current deal with the conference is amongst the most favorable in sports, with the network paying just $55 million for 15 games (including the SEC championship game); for comparison purposes, ESPN pays the NFL $110 million/MNF game. Don’t be surprised if company overpays to land a secondary SEC game of the week on CBS Sports Network.

4. Eleven Sports Network Close to Collapse

Eleven Sports Network is said to be on the brink of collapse in US, UK, Taiwan, and Singapore as corporate losses continue to pile up. The company’s inability to gain traction with subscribers and its failure to find carriage with established cable providers has Eleven Sports unable to cover the costs of the broadcast rights they’ve acquired; some false hubris amongst high-level decision makers hasn’t helped matters.

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Jacksonville Jaguars Ownership Funds New Wrestling Promotion to Rival WWE

Cody Rhodes (birth name Cody Runnels) and The Young Bucks (birth names Matt Jackson and Nick Jackson), formerly of New Japan Pro Wrestling and Ring of Honor respectively, have announced the formation of “All Elite Wrestling” (or AEW); a new promotion intent on surpassing WWE as the industry leader. Jacksonville Jaguars (and Fulham F.C.) owner Shahid Khan (and his son Tony) will finance the venture (they’re putting up $100 million), with Rhodes and The Young Bucks each signing multi-year deals with the company to both wrestle and serve in an EVP capacity. The promotion’s first event, Double or Nothing, will occur in Las Vegas on May 25th.

Howie Long-Short: Cody Rhodes and The Young Bucks could have signed lucrative deals with WWE as free agents (Rhodes turned an offer down in Dec.), but opted to “change the world” instead. Change in the wrestling world means paying wrestlers more, instituting more  “favorable schedules” (see: not wrestling 250 days/year), offering female wrestlers compensation on par with the men and providing at least some of the roster with healthcare (and benefits) not afforded to WWE’s independent contractors.

Khan’s investment into AEW is significant, with industry experts speculating that it’s the largest investment into the pro wrestling space since Ted Turner financed WCW back in the mid 90s. That backing (net worth $6.3 billion) gives AEW the opportunity to compete with the WWE for talent, but reports indicating the new promotion has WWE “worried” seem a bit premature; even if “All In” was the largest non-WWE show since ’99 (self-financed by Cody Rhodes and The Young Bucks). WWE has a $6 billion market cap, a larger YouTube following than that of the NBA, NFL, MLS, MLB, NHL, PGA TOUR and NASCAR combined and new television deals worth $468 million/year; their status as the industry leader remains safe for the foreseeable future.

Speaking of the new television deals, AEW has yet to find a broadcast partner, but the TV dollars being paid for live sports (or sports entertainment) content are what’s driving Khan’s interest in the wrestling business; it’s been reported that multiple deals are on the table (possibly: AXS TV, TNT/TBS). Wherever the promotion’s weekly show lands, expect it to air on Tuesday nights in the timeslot vacated by WWE’s SmackDown Live; that show is moving from Tuesday to Friday nights when their new deal with Fox begins in October.

AEW will have a roster full of popular wrestlers, but it’s the talent they’ve been able to acquire behind the scenes that has me convinced the company will be able to carve out a niche in the U.S. sports entertainment space. Legendary commentator Jim Ross, long-time fan favorites Chris Jericho and Billy Gunn and former ROH wrestler/producer BJ Whitmer are all on board with the new promotion in front office or advisory capacities.

There were reports on Tuesday evening that WWE security had prevented at least some fans wearing AEW merchandise from entering the building for SmackDown Live! Some suspected the orders came from the top down with WWE “legitimately scared for the first time in 20 years.” If the WWE is scared, they’re taking AEW as a more serious threat to the business than Wall Street is; WWE shares are up 6% (to $78.92) YTD. 

Fan Marino: Kenny Omega (birth certificate says Tyson Smith), considered the best professional wrestler in the business, has announced he’s leaving New Japan Pro Wrestling after losing the IWGP Heavyweight Championship at Wrestle Kingdom (the promotion’s biggest annual event); his contract expires at the end of the month. The soon to be free-agent, aka “The Cleaner”, is expected to choose between working for wrestling’s most successful promotion (WWE) or with his buddies (Cody Rhodes, The Young Bucks) at AEW. Ringside Seats has reported that AEW is prepared to announce Omega’s signing with the company later this month.

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PBR Shifting Towards Extreme Sports Audience, Younger Demographic

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Professional Bull Riders (PBR) kicked off its 26th season with the Unleash the Beast Monster Energy Buck Off at Madison Square Garden last weekend. 2017 World Champion (and the current the #1 ranked rider) Jess Lockwood won PBR NYC with a perfect weekend (4 rides), earning $118,350 in the process. Sean Gleason is the CEO of PBR, one of America’s fastest growing sports properties, and JohnWallStreet sat down with PBR executive to learn how the business has evolved since the Endeavor acquisition in ’15, to understand why the organization has begun pursuing non-endemic sponsors (see: Monster Energy) and to find out how the company’s television deal with CBS aligns with Endeavor CEO Ari Emanuel’s DTC strategy? 

JWS: Explain the PBR business model?

Sean: We do about 40% of our revenue in ticket sales, 40% in sponsorship and the remaining 20% in media rights and other sources.

JWS: This is your 20th season with PBR. How has the business has evolved since the Endeavor acquisition ($100 million) in 2015?

Sean: The Endeavor years – the last three years – have been the best of my career. PBR has had virtually unlimited access to all their resources. One asset that we have access to is the Endeavor Global Insights Group, which is one of the world’s foremost research and analytical groups; having access to that type of data – which gives us the opportunity to better understand our customer – has been a huge lift for our overall business.

Endeavor’s history as a content developer has also helped us to secure projects like Fearless (on Netflix) and some other shoulder programming that continually grows the brand and our sport; their insights on how to place that content has also been immeasurable.

JWS: Historically speaking, PBR has focused on endemic sponsors, but there’s been a shift to non-endemic sponsors of late. What demographic are you looking to reach with those new partnerships?

Sean: PBR sponsorships have always been a little more endemic to western lifestyle with companies like Ford Motor Company, Wrangler jeans and Stanley hand tools participating, but last year Monster Energy took the title position for the first time (previously was Ford) and I think that change is indicative of our shift towards the extreme sports audience; a younger demographic that we’ve seen growing over the years. We’re excited about the opportunity to work with Monster because it is a hip brand with a wider audience.

JWS: Teams and leagues across the sports world are focused on offering an “entertainment experience” beyond the game, but that’s not a new concept to PBR. What does the organization do to ensure attendees have a good time, even if they’re not interested in bull riding?

Sean: We take an exciting, fast paced, adrenaline packed sport and wrap it in world class production. We pack our own lights, our own sound systems and our own pyrotechnics. We bring in our own entertainer (think: rodeo clown) and the music plays a huge part of it; it’s what has allowed us to introduce bull riding to tens of millions of people that had never been exposed to it (or the rodeo) before. Look at Madison Square Garden, there hadn’t been a rodeo in New York City since the 1950’s or 60’s (before PBR 12 years ago). We do 3 days there in front of a virtually sold out crowd mainly because it’s a great night out. I like to say, we hook them with the spectacle and then we keep them with the sport.

JWS: Gamblers who wish to bet on bull riding are currently limited to the World Finals in Las Vegas. Do you anticipate that widespread legalized sports gambling would be of benefit to PBR?

Sean: Yeah, we think it would resonate well not just with our core fans, but with gamblers. It’s an exceptional sport for gamblers because you can bet 45-50x in a night (every 1-2 minutes) and you don’t necessarily have to be interested in bull riding. There are a lot of ways that you can place bets; everything from the 8-second threshold for a ride (i.e. does the rider stay on or not), to the scores and the competition between riders (and the bulls, which also receive scores for each ride) over the course of a night or a weekend.

Howie Long-Short: “Direct to consumer” is a key part of Endeavor CEO Ari Emanuel’s strategy to make the former talent agency a true transformative 21st century media company. You may recall that back in ’18 the company acquired NeuLion for $250 million, giving it a platform to distribute DTC content. I asked Sean if PBR’s OTT offering (RidePass OTT) had become more profitable than their linear television package (terms not disclosed)?

Sean: The package we have with CBS is the cornerstone of our business, so it has not happened yet and it’s going to be a lot of years before – if ever – that the digital approach becomes more important to our media strategy than linear television.

Fan Marino: On Friday, PBR announced a distribution agreement with FloSports that will bring RidePass OTT (and its western sports content) to the live digital niche multi-sport programmer. The deal should help PBR grow its fan base, but also has monetary upside; the organization will receive a per subscriber fee and additional compensation based on content consumption. It’s not the first time that Endeavor has aligned with FloSports; the OTT provider also distributes the company’s EuroLeague, World Rallycross and FIVB (Fédération Internationale de Volleyball) content.

Fun Fact: The bulls featured in PBR events are worth $200,000 – $500,000, but they’re not owned by the organization; they’re hand selected and leased from independent stock contractors to avoid any potential conflicts of interest (think: not putting out the best field of bulls). PBR pays +/- $1,000 to the contractor every time the bull is bucked out.

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San Francisco 49ers Self-Funding the Hosting of CFP National Championship

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The San Francisco 49ers, through its Bay Area Host Committee, will lose upwards of $10 million hosting tonight’s college football national championship game between Clemson and Alabama at Levi’s Stadium (ESPN, 8p EST), but 49ers President Al Guido says that a single P&L doesn’t explain the whole story; the volume of eyeballs on the venue (the game is the most watched program on cable) “collectively benefits” both the franchise and the region. We had the chance to sit down with Al to discuss the costs associated with putting on college football’s national championship game, to find out why the host committee may be in the red coming out of the game and how the team and venue will ultimately stand to benefit from the massive event exposure.                                             

What does it cost to put on the College Football Playoff National Championship?

Al: Every market is different because of the labor rates, but we think it’s going to cost us right around $25 million operationally; and then we were provided hospitality assets, as the host committee, to be able to raise money against that $25 million. You need public safety, infrastructure, events, technology; there are several major operational elements needed to host an event of this magnitude

The San Francisco 49ers are going to lose +/- $10 million staging tonight’s game (and the surrounding festivities), why is that?

Al: In certain cities, there are public entities that can raise public dollars to put into these bids. Tampa Bay might have a license plate tax or another tax that funds the Tampa Bay Sports Commission (TBSC) and then the TBSC uses a percentage of those dollars to book an event. We didn’t have any money to start. We don’t have a tax, there is no public subsidy, there’s no waiving of costs or any rebates. The 49ers essentially funded every dollar without any public investment to support this event. The CFP provided us hospitality assets on the back-end to sell packages and generate revenue, but no matter how successful the event is you can’t raise enough money to cover the total expenses of this game, in this marketplace, without public dollars (Editor Note: math applies to the Super Bowl and other high profile events too).

The 49ers have since established a regional sports commission to pursue future high-profile events (think: World Cup 2026). Can you explain how it will operate?

Al: In 2017, we formed a 501 (c)(6) called the Bay Area Host Committee (BAHC) with the thought that we would create a year-round entity that would be used to fundraise and ultimately create a bank for bidding on future events; all of which require a sizable investment to orchestrate. We will work with the other pro sports team in the market, so if Rick Welts is pursuing the NBA All-Star Game we can use funds from the BHAC to raise money for that event.

The 49ers are responsible for booking/managing Levi’s Stadium for all non-NFL related events. If all the profits and losses for those events are passed through directly to the city, how does the deal with the stadium authority benefit the franchise? (Editor Note: The 49ers proactively reached out to the city and agreed to backstop costs for this event, which explains why the club is on the hook for $10 million.)

Al: We’re incentivized two-fold. One, those events capture some revenue on our side of the ledger too (think: suite sales) and our partners appreciate that their exposure is more valuable based off the events we bring to Levi’s Stadium; our suites are more valuable because the suite holders have access to these events. We understand that it’s not one whole pie, but collectively we benefit from hosting large scale, non-NFL events.

Since the venue opened in 2014 we have hosted more major events than any other large stadium in North America during that time. From Wrestlemania 31 to Super Bowl 50, from the opening match of the Copa America Centenario to the 2017 Gold Cup Final, from the Grateful Dead to Beyonce, we’ve had the biggest events take place inside our doors and that presents incredibly valuable opportunities for all stakeholders of the building.

Two, we believe that eyeballs matter and ultimately the 49ers and Levi’s stadium will benefit from the impressions. Large-scale events beget other large-scale events; Levi’s Stadium and the surrounding cities in the Bay Area continue to prove and improve their ability to host events of a sizable magnitude. 

If you’re an event promoter and you’re watching the game tonight, you might be impressed to learn about the stadium’s dynamic features, or sustainable initiatives, or high-end premium areas, or reputation for being technologically advanced – and consider it a possible event site. We might win a Gold Cup Final bid because we hosted the Super Bowl. Levi’s Stadium has garnered an awesome reputation amongst European soccer players – now it is a desirable place to potentially play for FIFA World Cup. Our sponsorship model, pricing and prospects change as a result as our eyeballs and the likelihood of attracting international partners increases. In the broader marketplace, we want to be known as a sports entertainment company that hosts the largest events in the world, not just an NFL football team playing in one of the best stadiums in the world.

Howie Long-Short: Tim Brando referred to the Playoff Committee’s decision to play the game in Santa Clara as a “money grab”, but there’s little negotiating to be done when an RFP is sent out and there are an abundance of cities interested in hosting the game; the various locals effectively commit to giving the committee whatever they require for operational expenses to put on the event (think: free concerts).

Al’s point re: impressions and rights fees is valid. Levi’s CEO Chip Bergh is on record saying that the number of combined impressions received since Levi’s Stadium opened in 2014 (including Super Bowl 50) has, from a valuation perspective, already paid off the company’s $220 million investment in naming rights; with 15+ years remaining on the pact.

Fan Marino: There’s been a lot of talk this week about the collapse of secondary market ticket pricing. Do you believe the perceived lack of local interest (Howie explained last week that ticketing allocations are driving the low prices) will impact where the game is awarded in the future?

Al: Those statistics aren’t reflective of the Bay Area’s proven history to host massive events in the past, or reflective of its status as a viable marketplace for college games in the future.  The infrastructure is incredibly well established. We have an outstanding relationship with the CFP and they have applauded the Bay Area’s marketing support, operational structure, hospitality and ticket sales for this event. We are confident the success of this year’s game and the weekend full of ancillary events will only positively impact future bid by West Coast cities.

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Ticketing Allocations the Cause of Free-Falling Championship Game Secondary Market Prices

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Ticket prices on the secondary market to the college football playoff national championship game are in free fall, available for +/- 10% of what they were selling for just a month ago, as scheduling, location and the participants have contributed to a depressed secondary market; but, it’s the way championship game duckets are allocated that has caused a flood of tickets to hit the market over the last few days. As of Thursday evening, StubHub had more than 9,000 tickets remaining for sale, with $475 (face-value) seats selling for as little as $114; the lowest ever for national championship game under the current playoff format.

Howie Long-Short: The number of tickets allotted to each of the participating schools is at the core of the ticketing problem; 20,000/per is simply too many tickets to sell, in too short a window (5 days), with the game +/- 2,500+ miles from campus (the longest average distance for any CG game since ’11). The cost of airfare (and hotels) – inflated on just 9 days’ notice – prices out fans that otherwise might attend making it difficult for the schools (and their preferred brokers) to unload the seats.

Dave Wakeman is a ticketing guru that hosts an iTunes Top 100 podcast, “The Business of Fun”, focused on marketing and the selling of experiences. I asked Dave why the participating schools get so many tickets and who receives the balance?

Dave: The College Football Playoff Committee has worked hard to retain a sense of the college atmosphere, allocating a large percentage of tickets to the competing schools; in this case, 40,000 is more than half the stadium (71,000 seat capacity for game). The remaining 31,000 seats are split up among the hosts and the sponsors; those tickets, which are sold in advance, are sold out.  

When the 2017 championship game between the 2 teams was played within 600 miles of campus (Tampa), the schools had no issues unloading tickets and the get-in price hovered around $2,000, but with the game in Santa Clara and flights from Clemson and Tuscaloosa going for upwards of $1,500 tickets haven’t sold; the result has been preferred brokers flooding the market (there are now 2x the amount of seats for sale) with tickets over the last several days.

One might think that a wealthy San Francisco sports fan base would quickly buy up the available seats tickets, but 40% of 49ers SBL members already bought seats to the game and 80+ suites were sold to local businesses, so many Bay Area fans who want to attend the game already have tickets; and it’s not like Northern California is a particularly good college football market. Stanford averaged just 37,850 fans/home game during the 2018 season despite being ranked in the Top 25 going into all but one of those games.

I asked Dave what needs to occur for the game to be a sell-out (meaning few seats available)?

Dave: There will need to be a focus on driving further demand from local businesses. There are a lot of very large companies in the Bay Area that have a once in a lifetime opportunity to take their employees, clients, or prospects to see a national championship and that should be a big demand driver. On the other hand, with rain in the forecast and the perception that declining ticket prices indicates a lack of “buzz” surrounding the game, local executives without a stake in the outcome may just decide to stay home.

It’s lazy (and simply wrong) to attribute the staggering low prices on the secondary market to a lack of interest in the game. Those making the apathy argument will tell you that the casual fan is tired of watching Alabama and Clemson play for a 3rd championship in 4 years, but 28.4 million people tuned in for an SEC rematch in last year’s title game (the highest non-NFL television broadcast of year) and many are expecting “Alabama-Clemson IV [to] pull in more viewers than any other championship game to date.”

Fan Marino: Cratering secondary market ticket prices are in no way indicative of what’s to be expected on the field Monday night when two undefeated teams, coming off semi-final blowouts, vie to become National Champions; and the 1st team in college football history since Yale in 1894 to win 15 games in a season. Need another reason to watch? Each team is led by a projected #1 overall NFL draft pick; Alabama QB Tua Tagavailoa is expected to be the first player selected in the ’20 draft, while Clemson QB Trevor Lawrence is the favorite to have his name called first during the ’21 draft.

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Cubs Split from Bulls, Blackhawks and White Sox to Launch Their Own RSN

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NBC Sports Chicago has agreed to a new 5-year multi-platform media rights pact with the Chicago Bulls, Blackhawks and White Sox, pending NBA, NHL and MLB approval. As of October 2019, all 3 teams’ regular season (excluding nationally televised broadcasts), pre-season and spring training games, plus Bulls and Blackhawks 1st round playoff games, will air exclusively on the Chicago RSN; WGN will no longer have broadcast rights to games. The news would also seem to confirm long-standing speculation that the Chicago Cubs are poised to launch their own television network come February 2020 (start of Spring Training); the team’s games will remain on NBC Sports Chicago through the end of the 2019 season.

Howie Long-Short: The Cubs, Bulls, Blackhawks and White Sox are currently equal partners (along with NBC Sports Group) in NBC Sports Chicago, but the Cubs are the network’s crown jewel. The Bulls, Blackhawks and White Sox will all see their stakes in the RSN rise from 20% to 25% come October ‘19, but it’s worth wondering if the network will run into carriage issues without the broadcast rights to North Sider baseball games?

Chris Lencheski is an experienced global sports, media, and private equity executive with c-suite stops at Comcast-Spectacor, TPG Specialty Lending, IRG Sports and Entertainment, SKI & Company and currently an adjunct professor at Columbia University. I checked in with Chris to get his thoughts the subject.

Chris: No, there won’t be any significant carriage issues. There’s more than enough people who are interested in the White Sox, Blackhawks and Bulls. The issue becomes if the various cable companies begin to push back on the $4.35 or $4.50 per subscriber fees during the next set of carriage negotiations. While that’s possible – they’re pushing back on lots of things –  NBC Sports Chicago will still have live professional major league sports and that content is still the best content you can have; you can’t make any more of it and there’s a finite amount of live sports programming in Chicago.

The Cubs decision to form their own “Marquee” (note: that’s the proposed name) network was derived from the Rickett’s family’s desire to continue growing revenues, but that doesn’t mean the team plans to go direct to consumer. Instead, the Chicago baseball club will align with a cable operator that can offer widespread distribution (think: Sinclair Broadcast Group) and bring some much-needed experience in both carriage negotiations and game production to the venture; issues that have plagued other start-up sports networks (see: Pac-12 Network). I asked Chris if there is any potential fiscal downside to the Cubs decision to start their own RSN?

Chris: No, even if the new network fails to generate the $3 – $4 per subscriber that NBC Sports Chicago gets, Marquee is still going to spin off significantly more revenue than the 20% that the team was going to get under the terms of their previous deal. Given that the franchise generates 3-4x the ad dollars in market (relative to the other 3 Chicago teams), the advertising dollars’ migration to Marquee is going to be significant; and that’s before any hybrid DTC model is applied, which will afford advertisers even more dynamic integration to Cubs fans.

In addition to their interest in partnering with the Cubs on an RSN, Sinclair has been mentioned as a potential investor in the YES Network (80% is for sale, $5-6 billion valuation) and is known to be in pursuit of the other 21 Fox RSNs currently on the market; CEO Chris Ripley recently called them “good fit with the [company’s existing] broadcast footprint and operations (from a cost savings standpoint).” The publicly traded (SBGI) telecom conglomerate, which owns more local TV stations than any other company in U.S., envisions the regional sports networks as the catalyst needed to grow their expansive cable business.

Fan Marino: Howie spent a lot of time talking to Chris about the financial impact of the Cubs decision to launch an RSN, but I wanted to find out how a Cubs owned television network would impact the on-field product?

Chris: Simply put, the team is going to generate much more free cash flow over the next several years. That will allow them to sustainably compete for players with the Yankees, Red Sox and Dodgers – all of whom have RSN-type models contributing to their ability to be competitive.

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CFB Playoff Expansion “Inevitable” Despite Bama, Clemson Blowouts

College Football Playoff

Over the last several weeks, the College Football Playoff Selection Committee’s decision to include Oklahoma (and to a lesser degree Notre Dame) at the expense of SEC East champion Georgia, Big Ten champion Ohio State and undefeated UCF, had many (including Big Ten Commissioner Jim Delaney) calling for expansion of the current 4-team field; perhaps as soon as 2020 (halfway through the 12-year pact with ESPN). The 8-team proposal being discussed would ensure each of the P5 conference champions and a Group of 5 team are afforded the opportunity to compete for a national championship, along with 2 at-large teams. But Clemson’s bludgeoning (30-3) of Notre Dame in the Cotton Bowl and Alabama’s dominance (led 28-0, 45-34 final) over Oklahoma in the Orange Bowl has changed the public narrative over the last 2 days; with blowouts in semi-final games now the norm (teams have won by 20 points in 5/10 games), some are wondering “maybe instead of moving to 8 we should go back to 2.”

Howie Long-Short: The decision to move from the old BCS system to the current playoff format was driven by the desire to grow revenues not to increase the number of teams competing to win the national championship, so there’s no chance of going back to 2 teams; in fact, Wisconsin A.D. Barry Alvarez deemed expansion “inevitable.”

ESPN currently pays an average of $470 million/year (deal signed in ‘12) for the rights to broadcast 3 playoff games. Expansion to 8 teams would mean the addition of 4 games, so one can assume the games would be worth upwards of an additional $600 million/season (one extra game, deal is 6 years old, reach larger swatch of country) to the conferences/teams. It won’t be all newfound revenue though, with playoff expansion would come the elimination of conference championship games and the revenues that come with them.

While Delaney said the conference “would definitely have conversations” about expansion, it’s unlikely the Big Ten will be the ones leading the movement; expanding to 8 teams will further devalue the bowl system and the conference co-owns the most valuable bowl game. ESPN pays $80 million/year for the broadcast rights to the Rose Bowl Game.

Fan Marino: Delaney says the Playoff Committee has failed to follow Selection Committee Protocol, electing participants based on win/loss records without accounting for scheduling inequities (see: SEC teams only plays 8 conference games, Big Ten teams are playing 9). He’s not wrong (it’s a joke SEC teams play FCS teams in November), but it’s naive to think his push for expansion isn’t motivated by the conference failing to put a team in the playoffs the last 2 seasons.

It’s inevitable that with 5 power conference champions (+ undefeated Notre Dame) and just 4 playoff spots that teams are going to feel slighted, but expanding to 8 doesn’t solve Delaney’s argument relating to protocol; it simply changes the conversation from whether the 5th or 6th ranked team was worthy of inclusion to the 9th or 10th ranked team.

Expanding to 8 teams ensures teams with 2 losses are going to have a chance to play for a national title and I can’t support that. I appreciate the importance of each regular season game and enjoy watching early season games knowing that a single loss could end a team’s hopes of playing for a national championship.

If expansion is in fact inevitable, there is one positive for college football fans; the quarterfinal games are all but certain to take place on the campus of the higher ranked team. That should make for some raucous game environments.

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