United Talent Agency Takes Significant Stake in Klutch, Rich Paul to Lead U.T.A. Sports

Uta

The New York Times’ Marc Stein reported that United Talent Agency (U.T.A.) has purchased “a significant stake” in Rich Paul’s Klutch Sports Group as the Hollywood agency looks to keep pace with William Morris Endeavor (W.M.E.) and Creative Artists Agency (C.A.A.) – rivals with prominent sports representation businesses. Paul will retain “substantial control” of Klutch and lead U.T.A.’s new sports division (U.T.A. Sports); Klutch will continue to operate as its own brand. The price paid and size of the stake taken were not disclosed.

Howie Long-Short: U.T.A.’s desire to be in the sports representation business is driven by the revenue potential. Jason Belzer (agent who represents collegiate and professional coaches, manages Forbes’ Sports Agency Rankings) explained that “there are a lot of athletes that are now making significantly more money than movie stars, so why not pursue those high profile, high-earning clients. And don’t forget, U.T.A. already has the agency infrastructure in place to market and package these players and to create businesses around them.

Conglomerating an agency also facilitates self-reinforcing activity for the firm’s clients. Belzer suggested that existing relationships with television networks and movie executives could pay off for athletes under the Klutch or U.T.A. Sports banners. “When those entities look to feature players in their content or want to use them to promote their products, they’re going to look in-house before they go to another agency.” Of course, the best opportunities go to the “athletes at the top of the food chain. There’s no demand for the middle or lower tier players, so there’s minimal value in signing with a large agency for those individuals.

It’s simply not practical – no matter how large the bankroll – to start-up a sports agency without an existing book of business; the competition is far too stiff. U.T.A. reportedly kicked the tires on Tom Gores’ Paradigm Talent Agency before coming to terms with Klutch, so I wondered if Paul’s agency was the best fit for Jeremy Zimmer’s company. Belzer says that it was. “The top five basketball agencies – C.A.A., Excel Sports Management, Wasserman, Priority Sports & Entertainment and Octagon – are all already large conglomerated practices or weren’t on the market, so the only real options were B.D.A, Klutch and Landmark Sports Agency; and Klutch is certainly the highest profile of the three.

Belzer suspects that if U.T.A. were to make a similar move for a baseball agency that “they would look to buy ACES. That’s the logical acquisition.” On the football side, he says Select Sports Group or Rep1 Sports would be the companies most likely to be targeted for takeover because “Rosenhaus is probably not going to sell.

There’s an argument to be made that much of Paul’s success is tied to James – he’s negotiated just over $1 billion in contracts and LeBron has earned 342 million of those dollars. With the Lakers star unlikely to sign another basketball contract and W.M.E. representing his media company (SpringHill Entertainment), it does appear as if Paul cashed in at least some of his chips at the right time.

On a final note, James tweeted “I had it laid out before you knew what a plan was. Three Hundred mil’ later, NOW you understand us!” which lead some to speculate Klutch sold at a $300 million valuation, but that’s not the case. Even if W.M.E. was interested (as Stein noted) and there was a bidding war, Belzer says “there’s no way U.T.A. paid anywhere close to $300 million. The agency brought in a maximum of about $25 million in commissions on current contracts as of 2018. Paul has done some new deals since then, so maybe Klutch does $30 million over the next few years. You’re not getting 3x revenue for a sports agency. Assuming he got 2x, the asset was probably valued in the $50 million to $60 million range.

Fan Marino: The heavy concentration of star athletes tied to just a few agents has altered the power dynamic in the NBA. Belzer said that “these large agencies now control so many players, they’re able to dictate the future of teams.” C.A.A. orchestrating Paul George’s recent exit from Oklahoma City is just the latest example.

James didn’t own a piece of Klutch (NBA bylaws prevent it), but it’s been surmised that he and Paul are working together to buy an NBA franchise. This transaction does little to further that mission – there simply wasn’t enough money in the deal. Belzer agreed saying, “let’s assume he gave up 50% of his agency, but retained control – there’s no way he’s walking away with more than $20 million or $30 million.” NBA teams are selling for upwards of $2.5 billion.

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Early Entrants: Vol. XIV – DAZN’s “RedZone-Like” MLB Show a “Complete Dud”, Makes NBA/NHL Shows Unlikely

Editor Note: Early Entrants is a series of sports business “rumblings” before the news breaks.

DAZN

DAZN’s “RedZone-Like” MLB Show a “Complete Dud”, Makes Similar NBA/NHL Programming Unlikely

Sports by Brooks and Front Office Sports reported that DAZN is interested in producing live NBA and NHL whiparound shows (think: NFL RedZone) as they’ve done with MLB, but sources tell JohnWallStreet that “ChangeUp has been a complete dud. While the show is well produced, it simply hasn’t driven new subs as hoped.” The decision to invest in ChangeUp – “a particularly costly way of getting into business with the league” – was said to be “mainly [executive chairman John] Skipper’s”, so we’ve heard that “there’s now a sense of vindication within the building among those who had opposed it.” The perception exists that with NBA and NHL whiparound shows bound to experience a similar fate, “unless John is making decisions unilaterally, DAZN won’t be making the same mistake again.”

On Location

Reports of On Location Experiences Sale Premature

Back in early April, it was reported that Endeavor was closing in on a deal to acquire the 80% of On Location Experiences – not owned by the NFL – for between $650 million and $700 million. It’s now clear that those reports were premature. While it’s true that Endeavor expressed interest in the high-end hospitality firm, OLE “never initiated a sales process or pursued a banker; a deal was never imminent.” Sources with knowledge of negotiations tell JohnWallStreet “those earlier reports failed to see the big picture. Sure [majority owners] RedBird Capital and Bruin Sports Capital would sell (the company has done particularly well), but Endeavor’s priority has been their IPO – or lack thereof. To make an acquisition in the middle of that process, to add debt to a balance sheet that is already highly leveraged, would only complicate things. Discussions are ongoing, but nothing is imminent.”

Boxing

Boxing Bubble Will Eventually Burst

Rumblings that the sport of boxing is sitting on a bubble are getting louder. Sources close to ESPN+ tell JohnWallStreet that while the OTT service “has been able to attribute subscriber growth to the company’s investment in the UFC, boxing has not delivered.” DAZN and Showtime have also posted underwhelming viewership figures for recent high-profile fights leading one boxing insider to say, “I don’t see boxing as this thriving sport. I don’t see a lot of sponsorship. There’s not millions of people watching. I see media companies spending crazy amounts of money hoping to use the sport as a building block for their SVOD products. That’s a bubble that will eventually burst.”

Petty

RPM Sale Seems Inevitable

Richard Petty Motorsports – one of NASCAR’s preeminent franchises – is in need of a revamp. Sources tell JohnWallStreet that despite the team’s claim that it’s running $5 million – $7 million short this season, “the figure is probably closer to $10 million – $12 million.” RPM’s problems began with the rise of ride sharing apps like Uber and Lyft, which severely challenged team owner Andy Murstein’s core business (he’s the president of Medallion Financial Corporation – MFIN –  and the company’s largest shareholder). With MFIN shares down -47% (to $6.13) over the last 5 years, Murstein has cut back on team spending. As a result, the #43 car “runs way in the back of the pack (currently sitting 28th in the standings) and they’re unable to sign marquee sponsors because no one wants to invest in a team that has an owner cutting corners on head count.” The Petty team needs a proper owner and NASCAR needs RPM to be competitive. One NASCAR insider suggested “a sale would seem inevitable.”

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MLS’ Fire to Pay $65.5 Million to Amend Stadium Lease, Play Home Games Downtown

Fire

MLS’ Chicago Fire Soccer Club – ranked last in home attendance (11,417/game) – has announced plans to amend their lease at SeatGeek Stadium to allow for future home games to be played “in other Chicagoland sports venues.” Majority owner Andrew Hauptman believes moving games from the suburban Village of Bridgeview to downtown Chicago will give the club “the opportunity to play [in front of] more fans than ever.” The Fire reportedly plan to start playing home games at Soldier Field (home of the Bears) next season. The team will continue to train and host its youth academy at the Bridgeview facility.

Howie Long-Short: Chicago Fire S.C. is paying $65.5 million to get out of their existing lease – a significant chunk of change for an organization that lost $6 million in 2017. Hauptman won’t be making a lump sum payment, though. The organization will pay the Village $10 million upfront and make an additional $5 million donation to upgrade sporting facilities around the stadium. The $50.5 million balance will be paid in $3.5 million increments annually through 2036.

At $65.5 million, Hauptman is paying $30 million more to move the team’s home games than he paid to acquire the club in 2007. But considering expansion franchises are now selling for $200 million, even with the buyout – and the $70+ million he’s lost over the last 7 years – the Andell Inc. co-founder is certain to come out ahead. MLS’ 1st commissioner Doug Logan reminds that “sports aren’t a P&L play, they’re an asset play. If owners can grit their teeth and stomach the operating losses along the way, what they’re really playing for is an appreciation in the value of the club – or in this case, the market agreement for the Chicago territory since MLS is a single-entity.

With the cost of expansion franchises continuing to increase (it was just $10 million when Real Salt Lake joined in 2005) and a scarcity of viable pro markets, there is a case to be made that the team could have played out its lease, ate the annual losses, rode the back of a growing league and still appreciated in value. Logan agreed. He said that his advice to Hauptman would have been to “put the absolute best product you can on the field and then market the hell out of it. One thing that is often overlooked when discussing Atlanta’s success is the phenomenal coach they had (Tata Martino, Mexican National Team) and his incredibly exciting style of play. If the team wins and you’ve done every promotion under the sun and the organization still isn’t drawing fans, then you look at the real estate.” In Chicago, the team has won playoff series in a decade.

Chicago Mayor Lori Lightfoot refused to confirm that Soldier Field is where the team is headed, but Logan insists it’s the only option – at least until there’s public money available to build the franchise a new venue on the North side. “Bridgeview is an industrial park – it’s Midway airport – and the neighborhoods that surround it are very ethnic in nature; it’s on Chicago’s orange L line. The young audience that the Fire wants to draw resides alongside the L’s purple line and that line, which runs closer to the lake front, doesn’t go past Soldier Field. Wrigley Field isn’t a fit. There really is no other place to play.

Relocating from a soccer-specific venue to a cavernous NFL stadium is a puzzling decision – particularly when you consider that the team drew over 17,000 fans/game in Bridgeview when it was winning. Sure, the league’s two best attended teams (Atlanta & Seattle) play in downtown NFL stadiums, but those clubs have captured the hearts of their respective cities. It’s unclear if that type of enthusiasm can be generated in Chicago with a “do-over.

To be clear, a change of venue isn’t going to turn the Fire’s fortunes around. Logan said that “lazy sports executives always blame their failures on the real estate and not their marketing plan.” He suggested that it’s going to “take a total rebrand for the club to achieve instantaneous success at Soldier Field.” The franchise is said to be considering the possibility.

Fan Marino: Chicago Fire S.C.’s best season was its first. Logan says that ’98 was a “charmed existence” – the team won both the Lamar Hunt U.S Open Cup and the MLS Cup. “A lot came together for that team to be successful. Peter Wilt – a top tier soccer executive – was the President. Anschutz was a great owner because he had deep pockets and let the soccer guys do their thing. Bob Bradley was as good an MLS coach as there has ever been and Piotr Nowak was like a 2nd coach on the field. It was just a magical season.

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Celebrity Ownership Won’t Boost G-League Attendance, But an Investment in the Community Will

G-League

The NBA’s G-League has come a long way from its humble beginnings as the National Basketball Developmental League (NBDL). Founded in 2001 with just 8 teams (all owned by the league) across 5 Southeastern states, the NBDL became the NBA Development League (D-League) as part of the 2005 NBA collective bargaining agreement. Over the next decade teams relocated, the league expanded and NBA organizations began buying up teams or negotiating single-affiliation partnerships with them; by 2015, every club in the Development League was either owned by or maintained sole affiliation with an NBA franchise. The league will begin the 2019-2020 season with 28 teams (only Denver and Portland will be without).

Sponsors and media partners began to take notice during the 2017-2018 season. Gatorade signed on to be the league’s title sponsor – which sparked another rebrand (see: G-League) – and both Twitch and the ESPN family of networks began carrying live game broadcasts. Progress on the business end lent credibility to the NBA’s minor league and recent investments in team ownership from celebrities like 2 Chainz and Ben Wallace, has only strengthened the narrative that the G-League – an overwhelming success in terms of churning out players, coaches and executives who can contribute at the pro level – is also a viable business.

Howie Long-Short: The NBA was less than forthcoming when asked if the celebrities referenced had made financial commitments to acquire their investment stakes, so I initially suspected the ownership titles awarded were simply part of broader licensing or marketing partnerships, but Jeff Feld (author of ‘Celebrity Ownership is the Newest Tool in the Aggressive Expansion of the G-League’) says that he has confirmation from team sources that both 2Chainz and Wallace ponied up hard cash. Feld said he didn’t cite the amounts invested or the ownership percentages acquired in the Forbes story “because the team sources asked that it not be disclosed.”

Ben Wallace rejoined the Pistons franchise (in May ’18) as part owner and chairman of basketball operations of the organization’s G-League team, the Grand Rapids Drive. Wallace, a fan favorite from Detroit’s ’04 championship team, indicated that his interest in minor league basketball stems from his own experience. As an undrafted free-agent, the JUCO/D-II prospect needed time to develop before he was ready to help an NBA roster. He hopes to “keep the dream alive” for the next late bloomer.

This past May, the Atlanta Hawks introduced Tauheed Epps – aka 2 Chainz – as a new partner in their G-League franchise, the College Park Skyhawks. For Epps, the opportunity to combine a love of basketball with an investment in the community he grew up in was a “dream come to fruition.” Of course, G-League ownership also gives both guys a formal affiliation with the NBA and the clout that comes with that, for significantly less money.

G-League teams are not particularly profitable (some still lose money), but NBA organizations – and now celebrities – are investing in them because they’re appreciating assets. The CEO of one Eastern Conference NBA franchise told me “we are close [to profitability with our G-League team]. The G-League is the 2nd best basketball league in the world. So, as part of a $2.5 billion NBA organization – the Clippers, Nets and Rockets all went for north of $2 billion and the NBA keeps on getting bigger – it’s a great property to own.

Quentin Williams (currently chairman of The Butler Lappert Williams Firm PC), who was the first president of the North Charleston Lowgators (one of the league’s original 8 teams), agreed saying that “team owners will make money on the resale. Profitability while operating depends on how good the club is at selling corporate sponsorship and what they do in the community; commitment to the local community remains a big part of minor league sports – it translates in attendance figures.

Feld called celebrity ownership “the [G-League’s] newest route to relevancy”, but the team executive we spoke to was “not confident celebrity [ownership] makes any impact – and if it’s a faux relationship, it’s destined to stumble.” No argument here. If 2Chainz or Wallace are hosting meet and greets before games perhaps there’s a bump in attendance, but no one buys a ticket to watch the owner.

Fan Marino: The G-League is about development on the court (and in the front office) and family fun entertainment off of it. While I’ve never had the experience of attending a G-League game and can’t speak to the in-arena atmosphere, the league has certainly made an impact on the NBA game; 40% (198/494) of the players on opening night rosters last season spent time in the G-League. The league also now holds claim to having developed its first NBA All-Star – Milwaukee’s Khris Middleton.

Williams said that in addition to developing players the NBA has two other goals for the G-League; “expanding the local fan base, as many of these teams are located on the periphery of an NBA market (think: Greensboro & Charlotte), and constructing greater demand for the game of basketball.

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Players, Coaches Pushed For The BIG3 to “Deactivate” Underperforming Co-Captains

Big3

The BIG3 announced that Lamar Odom, Baron Davis, Bonzi Wells and Jermaine O’Neal have been “deactivated” for the balance of the 2019 season. Odom, Davis and Wells were shut down after failing to contribute (Odom played 1 of 3 games, Davis and Wells missed all 3), a potentially serious medical condition forced the end of O’Neal’s season. While the decision to “deactivate” the foursome was ultimately made by the league office, sources tell JohnWallStreet that the idea of replacing the underperforming co-captains “came from the players and coaches.” Their desire to win and the prize money at stake motivated those invested in the nascent league to push out the few mailing it in.

Howie Long-Short: From a league perspective, the decision to “deactivate” Odom, Davis and Wells was an easy one. League co-founder Jeff Kwatinetz has been clear that The BIG3 “is not the Drew League or the [NBA] Summer League. It’s not a novelty act. It’s a professional 3×3 league and the players have a responsibility to show up ready to play.

When we spoke to Kwatinetz just a few weeks ago, he mentioned that the league had a deeper player pool this season than years’ past, so Wednesday’s announcement that three guys were being let go for performance related issues was a surprise. But it shouldn’t have been. While most of the league’s players went through a combine-like process, co-captains were exempt. As a result, the league never saw Odom, Davis or Wells in action until it was too late. It’s a safe bet to assume co-captains will be participating in the league’s 2020 combine.

In other The BIG3 news, the league has partnered with Adidas to reduce the cost of tickets for the balance of the season. Seat prices will be slashed by 50% along with all Ticketmaster and facility fees. Kwatinetz said that the decision was motivated by the desire to make the product more affordable for families and of course to draw more fans – attendance is down from 13,500/game in ’18 to 9,500/game this season. The lowest priced ticket to The BIG3 was $27, but with fees it came out to upwards of $50. By comparison, the NBA Summer League has seats available for $25. Ticket prices were simply too high. The former entertainment executive knows the league is unlikely to make up the lost revenue in new tickets sold, but firmly believes that giving more people the opportunity to experience the event supports its long-term growth ambitions.

Kwatinetz attributes the YoY attendance decline to the league’s television contract. With CBS scheduling games on Saturday and Sunday afternoons, as opposed to Friday evenings, The BIG3 is now playing in a window that people aren’t used to spending on. “People generally plan to go out on Friday and Saturday nights, so coming to The BIG3 last season wasn’t an additional expenditure; it was simply the fan’s choice to attend basketball games over dinner or a movie. On Sunday afternoon, we’re asking people to spend discretionary income that they may not have – and we were really expensive relative to the other choices they have.” Kwatinetz said that if the league were to be in the same weekend timeslot next season, he would expect ticket prices to remain where they finish this season.

Fan Marino: Former NBA stars like Joe Johnson and Amare Stoudemire receive most of the promotional attention, but it has been Royce White who has caught the eyes of scouts. White was the 14th overall selection in the 2012 NBA draft (Rockets), but a severe anxiety disorder tied to flying and his insistence on the development of a comprehensive league-wide mental health policy quickly landed the forward from Iowa State in exile. 7 years later, White finds himself as the best player on the floor in a league full of guys with NBA experience. He’s flying coast to coast for games and living in a society far more accepting of mental health diseases. For the first time, a return to the NBA seems like a real possibility (he’s 28). Kwatinetz said that he “would be shocked if Royce White isn’t starting for an NBA team by December.

On a final note, Glen ‘Big Baby’ Davis made headlines for tossing his jersey and shorts into the crowd following an ejection last weekend. Reports indicated that Davis would be suspended (since rescinded) and fined heavily for the incident, so I expected to be appalled with his behavior when I finally tracked down video of the incident. It turns out ‘Big Baby’ was simply playing to a crowd that ate up his antics. I asked Kwatinetz why the league would fine a player that was seemingly giving fans the good time they came for (and some great memorabilia). He said that while Davis’ post-ejection actions received a mixed reception in the league office, the real concern was a pattern of “abusive language towards players and coaches. He was also aggressive towards the officials and that can’t be tolerated.

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