Disney in Control of the College Football Post-Season

College Football Playoff

The Walt Disney Company (DIS) owns the college football postseason landscape with ESPN and ABC controlling the broadcast rights to 35 out of the 40 FBS bowl games, including the College Football Playoff semifinals and the National Championship game; CBS (still has Sun Bowl on 12.31) and Fox (still has Redbox Bowl and Holiday Bowl on 12.31) will carry the balance of the games. The network’s dominance isn’t limited to the bowl subdivision either, ESPN (or the online streaming service ESPNWatch) will also broadcast the FCS playoffs for both Division II and Division III, the NAIA championship game and a de facto championship game for HBCU’s. ESPN is airing 34 games over the 17-day period ending on 1.1.19; the National Championship game will be played on January 7th.

Howie Long-Short: The number of bowl games played on an annual basis has more than doubled over the last 40 years (never more than 19 scheduled through the 1980s) with most of the growth coming this millennium; just 25 bowl games were scheduled at the completion of the 2000 season. The vast expansion of the college football postseason is simply the result of supply and demand, bowl eligible teams without bowls to play in and a cable television audience that craves football. Need proof? 2.5 million fans tuned in for the 2016 Bahamas Bowl game between a MAC school (Ohio) and a Sun Belt program (Troy). To put that figure in perspective, it’s 800,000 more fans (1.69 million) than ESPN averaged over 18 NBA games during the month of November.

ESPN Events (a division of ESPN) owns and operates 14 of the 35 bowl games it will broadcast this postseason, a 15th will debut next season. The games rarely include high profile teams (they’re all played before 12.29), but in a month where the network lacks an abundance of live sporting events (see: just the NBA and 1 NFL game/week) the bowl games help to fill out the programming calendar and generate meaningful advertising revenue; few networks can draw 1 million+ viewers on weekday afternoon.

While television viewership for bowl games is strong, in-stadium attendance has declined 10 years running (to 40,000) forcing the participating schools to buy up a record $25 million in unsold tickets for the 2017 postseason. Despite the significant bill, there’s no indication that bowl expansion will slow down anytime soon. The NCAA recently approved further expansion to 86 teams (44 games, includes National Championship), meaning nearly 2/3 of FBS teams (total of 129 + 1 in transition) will have the opportunity to play a postseason game come 2020. Of course, $25 million in unsold tickets is a drop in the bucket relative to post-season earnings; schools and conferences split $448 million in profits last year.

ESPN is paying $470 million/year for the 3 college football playoff games. Last season’s championship game drew just shy of 30 million viewers and the semi-final game at the Rose Bowl drew 28.4 million, making them the 2nd and 3rd most watched cable programs of all-time. Those viewership totals are impressive, but on a cost per viewer basis the network is actually paying more for the CFB playoff package than it does for a single NFL wildcard game ($100 million).

For those wondering about the costs of bowl sponsorship, on the low-end ESPN sold title sponsorship to the Bahamas Bowl for $300,000; down from an estimated asking price of $450,000 (went unsold) in 2017. On the high-end, Northwestern Mutual is paying a reported $25 million/year over 6 years to sponsor the Rose Bowl.

Fan Marino: The Dec. 26th First Responder Bowl between Boston College and Boise State was called midway through the 1st quarter amid a 2-hour lightning delay. The bowl’s executive director Brant Ringler said, “the decision was made after lengthy consultation with emergency personnel, both universities, ESPN and Cotton Bowl Stadium staff”, but one must assume the quick decision was aided by ESPN’s ownership of the game. ESPN lacked the broadcast window to re-schedule the game and opted to cut bait before incurring any further expenses; another owner may have insisted the game was played later.

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UFC Moves Card from Vegas to LA on 6 Days’ Notice, Leaves Fighters and Fans Scrambling

UFC 200x200

The UFC has announced it will move this weekend’s card (UFC 232) from Las Vegas to Los Angeles (The Forum) after the Nevada State Athletic Commission (NSAC) decided that it would not issue headliner Jon “Bones” Jones a license to fight in the state. A December 9th drug test revealed that Jones had trace amounts of the steroid turinabol in his system and the committee felt it lacked the time required (before Saturday) to investigate if the results were tied to Bones’ 2017 ban (15 mo.) for the same substance; a distinction that would have allowed for Jones to fight in the state. The decision to move the show (which was never communicated to the fighters) was made on December 23rd, just 6 days before the event, leaving both fans and fighters scrambling to alter plans.

Howie Long-Short: Dana White was quoted saying “you know I’m not afraid to cancel a fight. I’m not going to move a whole f***ing event to Los Angeles because we need Jon Jones to fight on Saturday because money”; no, he’s moving the event because his promotion lacks star power and Jones is one of two UFC fighters capable of pulling 1 million PPV buys (Connor McGregor the other). Does anyone pretend to believe White would move a card for any other fighter (save McGregor) on the roster?

If you exclude McGregor’s October fight against Khabib, there wasn’t a single UFC PPV to draw 400,000 fans in 2018 and the promotion’s November 3rd card featuring heavyweight (and light heavyweight) champion Daniel Cormier did a paltry 250,000 buys. Looking at it simply from a revenue generation standpoint, it’s tough to fault the UFC for making excuses on Jones’ behalf; a card headlined by Cris Cyborg and Amanda Nunes would do 200,000 buys up against the 8p EST college football semifinal game.

I can certainly understand why the UFC wants Jones headlining, but I’m baffled by the decision to move the entire card to California. The UFC should have simply moved the Jones/Gustafsson fight to The Forum and kept the balance of the fights in Las Vegas allowing them to sell twice as many tickets, while pleasing twice as many fans; instead, they’ve disappointed some of their most loyal supporters and will pay for a dark arena. The money spent to book T-Mobile Arena won’t be the only wasted expenditure on UFC 232, one must assume the promotion will also be picking up any expenses associated with the relocation of the fighters, including several hundred thousand dollars in state taxes owed on fight night purses (NV has no state income tax, CA does) and the costs associated with state required medical exams.

The relocation is an inconvenience to the fighters, but it’s the UFC fans that made non-refundable accommodations (hotels, flights) to spend New Year’s weekend in Las Vegas (likely at a premium price) that are really getting screwed. The UFC is not honoring seat locations, so those who bought good seats and still plan to make the excursion to LA are not guaranteed to sit where they’d hoped and those who bought tickets on the secondary market and opt not to make the trip will be forced eat the difference between the primary and secondary ticket price.

Fan Marino: Jones is able to fight in California because unlike Nevada, the California State Athletic Commission and the U.S. Anti-Doping Agency (a UFC partner) have ruled the adverse finding in Jones’ test to be the result of residual “pulsing” tied to his ’17 usage. But not everyone is buying that story, Cormier (among the UFC’s most respected fighters) said, “a pinch of turnibol in an Olympic size swimming pool from 2017 that stays in your system for 18 months = joke.”

Bantamweight Brian Kelleher (on undercard) floated the idea of the 11 fighters not named Jones boycotting the event’s relocation, a decision that would have put the UFC in a tough spot; book 5 fights on 6 days’ notice to fill-out the Los Angeles card or put on an event that draws 1/5 of the viewers (as Howie noted). I’m betting the former and Kelleher would too, acknowledging “we’re all trying to make a paycheck and pay our bills, so we [can’t] risk it.”

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Insiders: eSports Organizations are Overvalued, Market Correction Coming

Cloud9

Ben Fischer (SBJ) has reported that eSports insiders believe gaming organizations (think: Cloud9, OpTic Gaming) are overvalued assets and are “increasingly convinced” a market correction is on the horizon. Negative cash flow balance sheets caused by organizational spending (think: gamer salaries) that’s far outpaced team revenues, flat (see: League of Legends) or declining (see: Overwatch) viewership for the games with the most money invested in them and the continued belief that eSports organizations are getting less than full cooperation/support from publishers have all dampened short-term investor enthusiasm. The prevailing belief now is that eSports are “much more analog than digital”, meaning like traditional pro sports, organizations will need time to “build a distinctive brand, a deep emotional bond with fans and long-term relationships with sponsors”; it’s now suspected that those invested are at least 5-10 years out from capturing meaningful returns.

Howie Long-Short: Jason Lake, the founder of compLexity Gaming, applied some “good, old-fashioned common sense” and stated, teams with revenues under $25 million shouldn’t be raising capital at valuations over $300 million. Sure, eSports organizations have the potential to develop truly global fan bases (think: Manchester United), but “the revenue (at this time) has still not caught up to the size of the demographic and eyeballs.”

Fischer’s article stated that organizations “lack the hard assets” that sponsors desire. Jeff Eisenband is a esports journalist and was a host/analyst for the NBA 2K League in its first season this past summer. I spoke to Jeff to find out exactly what eSports organizations have to sell to sponsors and where the opportunities lie to grow the revenue pie

Jeff: Esports organizations have an identity to sell and they can offer sponsors direct access to the players and usage of organizational IP (think: logos). Kyrie Irving isn’t the best player in the NBA, but he’s one of the most marketable because he identifies with fans. His dribble moves are eye candy, his sneakers are fresh and he even acts. Just as sports leagues and teams use their players as marketing chips, so can esports organizations. People relate to people. That’s why Ninja’s Fortnite streams are a bigger deal that Fortnite’s own Twitch channel. These players and organizations have fans and these organizations present a more direct marketing play to those fans. Also, Overwatch League and the NBA 2K League are among the first to build around locally-based franchises. This is a long-term play to connect not only to the cities’ fans, but to their sponsors. Wawa might have no interest in a general publisher, but it will happily sponsor the Philadelphia Fusion and 76ers GC.

In terms of revenue growth, these organizations are not tied down to simply running teams. Gaming is a lifestyle, not just a competition. Streaming outside of competition is a simple and easy wait to gain a little revenue (remember, Ninja is still technically signed to Luminosity Gaming). There are also other ways for teams to utilize their gamers for appearances, consulting and content. Think of the esports community as a large-scale grassroots operation. Gaming events like E3, TwitchCon and the League of Legends World Championships are massive summits with the most-engaged fans looking to open up their wallets. Just like NBA All-Star Weekend or Super Bowl week, this is a major opportunity to create satellite events on site and connect with potential fans. It is all about maximizing the value of the logo/roster and selling sponsors on not just a few name mentions, but on being aligned with an experience for fans.

Many organizations feel as if they’d be able to generate additional revenue with greater support from the publishers, so it’s worth wondering why publishers aren’t more motivated to work with eSports organizations. I asked Jeff, isn’t it in their best interests for organizations/teams to be successful with their games?

Jeff: Yes, for sure, but think about it this way, who needs the other one more? Publishers can use esports organizations as an asset, but esports organizations do not exist without the publishers. Many publishers see esports organizations and leagues as marketing tools, but not as moneymakers for them. Activision makes much more money from direct sales of its games and accessories than its esports competitions, so the focus is on selling games and making gameplay conducive to competition. Now, if these esports organizations build identities and fan communities, the publishers will have to play a little bit nicer.

Labor costs have steadily risen as investment capital has poured into the eSports space, but as mentioned, organizations aren’t generating enough revenue (see: mid-7 figures, top organizations generate 8 figures) to operate in the black. Now we’re seeing organizations (see: Infinite Esports, Echo Fox) laying off gamers, teams and staff on less popular titles (see: Call of Duty) to minimize losses. Eventually capital will begin run out for some of these organizations. When that happens, they’ll once again be in the market for investment capital; this time, they’ll be taking money at a lower valuation.

Fan Marino: It’s difficult to make the case eSports organizations are not overvalued when you consider that Forbes’ 12 most valuable eSports organizations are said to be worth an average of 14x annual revenue; by comparison, NBA teams are valued at just 6.5x revenue. Those buying in see the potential to capture “the long-term value accretion of (global) sports franchises with high-growth, early-stage tech multiples.” It’s far too early to talk long-term value (teams in other pro sports lose money as their value grows), but it’s clear that because of their similarities to traditional sports, eSports organizations do not have ability to scale revenue-wise at the same rate that a promising early-stage tech start-up does.

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MLB, FCB Announce Posting System to “End Dangerous Trafficking”

Cuban Baseball

Major League Baseball (and the MLBPA) has inked a deal with the Cuban Baseball Federation (FCB) that will “end the dangerous trafficking of Cuban players who desire to play professional baseball in the United States” and provide those players with a regulated and streamlined path to playing in the big leagues; historically, Cuban players had been forced to defect to the United States to sign with a MLB team. The pact pertains to any player at least 25 years of age with 6+ years of service in the FCB. In exchange, the agreement ensures the FCB will be fiscally compensated for Cuban players that opt to sign MLB contracts; between 15-20% of the MLB contract value for players signing major league contracts and 25% for those signing minor league deals. Under the terms of the agreement, Cuban players signed from the communist Caribbean island would receive U.S. work visas subject to government approval.

Howie Long-Short: Financially speaking, Thursday’s announcement doesn’t impact contract negotiations between MLB clubs and Cuban players, it simply requires MLB teams to pay the FCB the 15-25% “release fee” for the player’s services on top of any money owed to the player. It will result in a nice raise for the Cuban player, though; historically he’d pay a “big chunk of his bonus to pay for his passage out of Cuba.”

MLB teams won’t love paying millions on top of the player’s contract to sign top-tier talent from Cuba (they had been paying nothing), but they won’t be pushing kids to defect in hopes of saving a few million sheckles either; attempts to defect to another country and then sign with a MLB club could delay the player’s arrival by 2 years and MLB teams would still hold the obligation to pay the player’s release fee.

Back in ’13 the Cuban government announced it would allow players to sign contracts with international leagues, but the United States’ long-held Cuban embargo meant that MLB wasn’t among the options. MLB tried to change that during the final days of the Obama administration when it applied for and received licensure (which remains valid) from the Office of Foreign Assets Control of the Treasury Department to negotiate a posting system with the FCB, but Trump’s election and his decision to tighten sanctions put plans for the partnership on hold. While Thursday’s news has been celebrated as a landmark agreement between the U.S. and Cuban baseball leagues, the excitement may be premature; the Trump administration opposes any agreements that would aid the “Cuban regime’s ability to profit from U.S. business” and insists Cuban players will still need to travel to a 3rd country to apply for a U.S. visa.

Fan Marino: Cuban-born players with MLB ambitions have long been forced to face an “unimaginable fate” to fulfill their dreams. Those that have made it have told stories of being threatened, extorted and kidnapped along the way. Among the most astonishing, Dodgers Star Yasiel Puig was held captive for 2+ weeks by smugglers affiliated with infamous Los Zetas cartel. The newly announced agreement makes it both easier and safer for Cubans to compete in MLB.

I had the chance to connect with Vince Gennaro, the Associate Dean of the NYU Tisch Institute for Global Sport, the author of Diamond Dollars: The Economics of Winning in Baseball and the host of a weekly radio show on SiriusXM (Behind the Numbers: Baseball SABR Style) to ask him how the deal will impact MLB on the field?

Vince: The posting process should create “liquidity”, i.e., reduce friction for the free flow of talent. Simply put, the level of talent in MLB should rise. Perhaps by a small amount, but it is destined to rise via a more fluid labor market. This will help re-allocate talent from Cuba to the market that is most capable and willing to pay for it–the US.

Major League Baseball is motivated by the deal’s humanitarian benefits (see: end human smuggling/trafficking) but it’s worth wondering what the FCB’s long-term vision is as it relates to this partnership? As Vince Gennaro explained, the deal enables the FCB to monetize the development of talent. To the extent, they have 5 or 10 highly talented six-year players each year, they can make a profit from “harvesting” and developing this talent. I would expect the Cuban baseball infrastructure to put additional energy into producing and developing elite talent, since there is a tangible ROI for doing so. A $40 million player like Puig (signed a 7-year $42 million) would generate $7.625 million in fees to the FCB.

Fun Fact: Rusney Castillo’s 7-year $72.4 million deal is the largest contract ever awarded by a MLB team to a Cuban born player.

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Top NFL Prospect Launches Player Representation Agency

Gary

University of Michigan defensive lineman Rashan Gary, who will forego his senior season to enter the 2019 NFL draft, has announced plans to form his own sports agency. Licensed NFL player agent Ian Clarke will join Gary at Rashan Gary Sports (RGS) and will be responsible for team contract negotiations during the player’s NFL career; DSA Media Group will handle player marketing. The decision to launch RGS will make the projected top-10 selection the first American athlete from a Big 4 sport to own a player representation agency during an active playing career.

Howie Long-Short: Players (see: Lamar Jackson) have opted to represent themselves and lean on the rookie wage scale in lieu of hiring an agent, but the decision is typically driven by the athlete’s desire to avoid paying a 3% agent fee (usually accounting for a few hundred thousand dollars), not to retain control of their future. Don Povia is a sports marketing veteran and the founder of Transition Sports & Entertainment, a strategic business consulting agency for athletes, entertainers and brands. I asked Don to explain what’s driving players to stray from the typical agent-player relationship?

Don: It’s all about empowerment and taking ownership in the process, rather than defaulting to the status quo; which is tilted against the players. Jackson knew he was a first-round pick, knew salaries were slotted and knew he’d be paying an agent for something that ultimately, he had primary control over. People laughed at him, but I thought it was brilliant. Gary has chosen to be much more encompassing. As an agency owner, conceivably he’ll earn on both ends. But his thought process is the same as Jackson’s in the sense of “why am I giving away more than I should to someone who likely views me as little more than a vehicle to their own professional and financial advancement?”

Gary’s wise to be preparing for life after football with the average NFL career just 3.3 years and 78% of players (NFL & NBA combined) eventually going broke. I asked Don why more players aren’t thinking critically about their short earnings window and acting accordingly?

Don: Players don’t know, what they don’t know. They come out of college and think that the first thing they need to do is find an agent, because that’s what they saw everyone before them do. The agents aren’t looking to change the status quo (because they’re cashing in) and the players adversely effected (see: those with short-term careers) by the existing system, don’t know it needs to. The highest profile players make enough money that agent fees are not a concern; lower profile ones don’t have the sense that they can rock the boat.

Setting up his own agency is just the latest business savvy move from the 21-year-old, The Sports Biz’ Darren Heitner reported that the former #1 overall recruit (Class of 2016) has been awarded a trademark on his name and has since filed for trademark registration on his personal insignia, for use with sale of apparel. Fans of the Michigan star will be familiar with Gary’s RG logo, he’s branded his various social media channels with the logo throughout the ’18 season.

That said, Rashan Gary Sports is no lock to become a success, particularly if Gary struggles in his transition to pro football. I asked Don what Gary’s worst case scenario would look like?

Don: Gary can be a terrible player that washes out, but if he sets this thing up right with the right professionals around him, he may be able to parley it into a viable business. Worst case scenario would be him selecting the wrong business people to run it; remember, his focus will be on football. There are a lot of untalented people that glom on to athletes and appreciate the glamour of working in sports without recognizing the hard work needed to be successful. Gary needs to model this thing after non-sports agencies. Take sports out of the equation. Take sports people out of the equation. If he loads it up with the same old rehashes, he’ll be setting himself up for a high-profile disaster. He needs to set this up and position it, not as a competitor to existing agencies, but as an alternative model. Don’t go head to head, because you aren’t really the same thing and you won’t win a game fixed to see you fail. 

Financially speaking, it seems as if Gary has little to lose. Whatever investment costs are associated with launching the agency will likely be largely offset by the its keep in the agent fee on his rookie contract; and remember, if he would have pursued the typical agent-player relationship, he still would have been on the hook for $340K (1% of the total value of his rookie contract).

Fan Marino: On the field, Gary’s 2018 season is over; the freakishly quick lineman won’t play in the December 29th Peach Bowl against Florida. Instead, he’ll head to Texas to begin training at Michael Johnson Performance. Assuming his shoulder checks out (he missed parts of 5 games this season with injury), Gary should be a top 5 selection; ESPN’s Todd McShay has him as the #2 overall prospect in the draft, behind only Nick Bosa (Ohio State).

Should he be selected 2nd overall, Gary can expect to sign a contract worth nearly $34 million; meaning Rashan Gary Sports’ first contract negotiation will be a million dollar one (assumes he’s not looking to cut down the standard 3% agent fee, typically top prospects pay closer to 1%), $1,020,000 to be exact.

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Dolan Open to Selling Knicks, Rangers, but Little Interest in Franchises Alone

In an “unplugged” interview with ESPN’s Ian O’Connor, New York Knicks (and Rangers) owner James Dolan acknowledged that while “nobody in my family wants to sell” the teams, that as “the head of a public company” he has “a responsibility to the shareholders”; implying he would part the pro sports franchises if he were to receive a satisfactory offer for them. Dolan noted that he has entertained conversations about the prospects of selling the Knicks and that “the price point discussed was around $5 billion”, though no “bona fide offer” has ever been received. The Madison Square Garden Corporation has since released a statement looking to extinguish rumors that Dolan is actively looking to sell the NBA and/or NHL franchise, saying that “there are no plans to sell the Knicks or the Rangers.”

Howie Long-Short: Dolan and his 5 siblings “like being owners” but their preference to retain the Knicks is financially driven, it’s their belief the family’s trophy asset “gets more valuable every year” and “that (trend) will continue to go on.” They haven’t been wrong up to this point, at least not if you put stock in Forbes’ valuations; the publication has estimated that the team’s value has risen from $1.4 billion in ’14 to $3.6 billion in ’18 and I’m confident they’re right about the team’s valuation moving forward too. As the value of media rights continues to rise, so too will the worth of the league’s clubs.

The mercurial Knicks owner downplayed the value of the Knicks and Rangers as businesses, pointing out that team revenues (only) experience “single-digit growth. There’s really not any way to get it to go beyond that.”

I asked Scott Rosner, Academic Director of the Sports Management Program at Columbia University, why Dolan would look to downplay his pro sports teams as businesses?

Scott: As a revenue business what he said is accurate, the NBA is a mature business; revenue growth in a good year is high single digits. He didn’t really address the valuation part of it, other than to say that the team’s value keeps going up. But, much like a stock price, that only matters if he plans to sell; and he’s made it clear that is not the case.  

Back in June, it was rumored that MSG was considering spinning off its sports franchises from its entertainment properties; a move many assumed was a precursor to the eventual sale of the teams despite Dolan’s denials. The news sent MSG shares skyrocketing to an all-time high ($330), but the excitement certainly appears premature. There’s a reason why Dolan has never received more than cursory interest in either of his marquee franchises. As Scott Rosner explained, it has less to do with the asking price and more to do with where the teams will play.

Scott: As a buyer, you would want to buy everything; the horizontal and vertical pieces. You would want to buy the teams and you would want to buy the buildings. Having that adds value to the overall transaction; sold piecemeal, the teams are far less valuable. Dolan has indicated he’s willing to sell the clubs, but he’s never said he’s willing to sell the arena. It’s always better to be a landlord than a tenant, particularly if you’re going to be spending $5 billion on the team playing in it.   

In addition to the Knicks and Rangers, Madison Square Garden Company (MSG) owns the New York Liberty. However, unlike the family’s prized assets, Dolan and Co. are looking to unload the WNBA franchise; the club announced it was seeking a seller back in November ‘17. That’s because Dolan doesn’t believe he knows “how to be successful with the Liberty”; despite their best marketing efforts, the club has been unable to sell seats.

Fan Marino: At $3.6 billion, the Knicks are the NBA’s most valuable franchise and Forbes pegs the Rangers at $1.55 billion (+3% YoY), making it the most valuable NHL club for a 4th straight season. If early season attendance is an indicator though, there are serious doubts the Rangers will make it 5 straight years come 2019.

The NHL is a “gate driven league”, so a decline in attendance will put a dent in team revenue totals (if there isn’t an increase in the ticket price to offset it) and while the Rangers are drawing 600 fewer fans/game, the league’s 2nd most valuable team (Toronto, $1.35 billion) has managed to continue its sell out streak through the season’s first 15 home games; combine that with the fact that the Maple Leafs valuation rose at a faster rate (+4% YoY) than New York’s did in 2018 and its apparent Canada’s most popular club is closing the gap on the #1 spot.

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MLS’ Future to Include a Single Elimination Post-Season, Further Expansion and Player Sales

MLS Commissioner Don Garber issued a State of the League address prior to the MLS Cup final in Atlanta earlier this month, where he confirmed plans to revamp the league’s playoff format, announced intentions to become more of a “selling” league and vowed to explore expansion beyond 28 clubs.

  • Beginning next season, the MLS post-season will transition to a single-elimination tournament (think: NCAA tournament). Previously, the semi-finals and finals would each consist of 2 legs, with each club hosting one game.
  • With MLS Academy players electing to sign lucrative contracts overseas, Garber wants to see MLS clubs collect training compensation and solidarity payments (see: a share of the transfer fee for a player they helped develop). As it currently stands, the U.S. Soccer Federation does not abide by FIFA player transfer rules and thus are not fiscally rewarded when a player leaves to play for an international club.
  • Cincinnati (’19), Nashville (’20), Miami (’20) and Austin (by ’21) have already been given franchises and Garber said the league would award its 28th club (assuming Columbus remains) in 2019; Sacramento, St. Louis, Detroit, Charlotte, Phoenix are among those under consideration. Conversations about further expansion are currently being had as Garber believes without a “doubt in my mind” that the “country can support having more than 28 teams.”

Howie Long-Short: The U.S. sports fan doesn’t grasp the concept of a side advancing on goal differential (we’ve been told “you play to win the game”), so increasing the importance of the regular season (by eliminating the home and home series) and moving towards a single elimination bracket is long overdue. Ratification of the league’s playoff format will also allow MLS to finish its season uninterrupted before FIFA’s November international break.

Garber’s change in philosophy re: the sale of homegrown stars is significant. MLS has long operated like the NFL, NBA and MLB do in terms of working to retain America’s biggest stars, but unlike those leagues, MLS doesn’t provide domestic top-tier talent with the highest level of competition or the financial resources to stay and thus maintains “a different dynamic in the global game.” Team financials have dictated that it’s simply too costly to develop and retain stars, so “selling players” seems like a necessity if the goal is to grow team revenues; unless the league can dramatically increase the value of its television contracts.

MLS’ decision to “sell” its best players is financially driven, so it’s worth asking what that decision will do to the on-field product. If the league becomes just a “seller”, it’ll never progress from the #5 to #3 sport in the U.S.; American’s simply aren’t interested in anything less than the highest level of competition. But, if MLS can successfully operate as both a “buyer” and a “seller” (like English soccer) then its clubs will have the financial resources (see: increased salary cap) required to build their rosters (beyond designated players) and the quality of league completion will improve. The trick though, will be to remain more of a “buyer” than a “seller”; a necessity to appease the fan base.

At 28 clubs, MLS is the largest top flight league in the world (of course, it doesn’t have promotion/relegation either). While it’s easy to understand why MLS would be interested in continuing to add teams (see: $150 million expansion fees), it’s reasonable to wonder if Garber is overselling the potential for expansion; 14/23 teams lost money in ’18 and no team made more than $6 million (Galaxy, Sounders). I asked Steve Horowitz, a partner at Inner Circle Sports, a leading sports investment bank with experience handling MLS and European soccer club transactions, if he thought the country “could support” further expansion?

Steve: The in-stadium experience is as strong as it’s ever been with record attendance throughout the league. New markets Atlanta, Minneapolis and LA FC are all having great success. Right now, it’s about investment; investments in the training facilities, investments in stadiums and investments in players. Clubs are setting the table for 5 years, 10 years, 20 years from now when that investment can be harvested, so I’m less concerned about the short-term losses as long as the league can continue to improve on the field relative to the rest of the world. Competition wise, with further expansion will come a dilution in talent, but that’s where the investment is going; to make sure more Americans will fill the rosters and to ensure they can continue supplementing them with international players.

Fan Marino: 2018 was a banner year for MLS. On average, clubs grew revenue +7.5% YoY (to $34.6 million), as the league set a record for paid attendance (7.4 million) and its 23 teams recorded a new high for the average price of a ticket sold ($30).

According to Forbes, MLS club valuations increased +7.6% YoY (to +/- $240 million). That said, Forbes valuations are historically conservative (see: controlling interest in D.C. United sold at +64% premium). Atlanta is the league’s most valuable franchise, worth an estimated $330 million; they also won the ’18 MLS Cup Championship and lead the league in attendance (53,000) this season.

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The Case for a Fully Integrated Sponsorship Model

nascar-logo

NASCAR intends on replacing its current title sponsorship model with a multi-tiered offering (similar to the NCAA or IOC), to “make it easier for sponsors to work with” the stock car racing series, prior to the start of the 2020 season. NASCAR President Steve Phelps explained that the multi-tiered model is “far more efficient and allows our (50+) sponsors to activate intelligently against the assets that they have” because for the 1st time, the racing organization will package assets that have historically been negotiated individually. Tier-1 sponsorships, expected to pull in $20 million/season, are said to include $15 million worth of exclusive circuit and track promotion (think: race title sponsorships, TV signage) and a $5 million media spend. NASCAR has plans to include team specific assets in top-tier sponsorship packages, though it remains TBD how that will happen due to competitive balance concerns. Monster Energy’s contract as the Cup Series title sponsor expires following the 2019 season.

Howie Long-Short: Historically sponsors have bought I.P. from NASCAR, media from Fox and NBC, digital from NASCAR Digital Media, audio from Motor Racing Network and Performance Racing Network, did track deals with International Speedway Corporation and Speedway Motorsports Inc. (plus Dover, Pocono, Indy) and then negotiated their individual team deals  (remember: in Big 4 sports team/stadium IP is one in the same), so a fully integrated sponsorship model, where all assets can are acquired through NASCAR, certainly appears logical.

At $20 million/season, the cost of a single top-tier sponsorship (aka premier partners) rivals Monster Energy’s current annual spend and NASCAR plans to sign 5 premier partners. On the surface, it would appear NASCAR would be dramatically increasing sponsorship revenues, but under NASCAR’s old system the circuit owned the assets it sold. The new tiered model, “takes the assets of the majority of the stakeholders in the sport and packages them together”, so everyone (see: NASCAR, tracks, media partners) shares in the revenue generated.

Sponsorship revenue is going to grow, but Steve Phelps explained this move wasn’t fiscally driven. Phelps said, it’s about “finding long-term partners that are committed to this sport, committed to activating the sport and our drivers on whatever channels of distribution they’re doing business. That’s what we need to grow the sport overall, the revenue will follow.”

The tiered model is logistically more efficient and NASCAR is going to increase sponsorship revenues, so it’s fair to wonder why other pro sports leagues don’t operate under a similar model. The NFL, NBA, MLB and NHL are financially healthy, so there’s little reason for them to revamp what’s working, but smaller leagues and start-up leagues (think: XFL, AAFL, PLL) would seem to benefit from a fully integrated sponsorship model. I reached out to Michael Neuman, Founder, EVP and Managing Partner for Scout Sports and Entertainment, the in-house sports sponsorship and marketing division of Horizon Media (largest independent media agency in the world) to find which model he would advise his clients to pursue if they were launching a league today?

Michael: If you’re a new property and you’re trying to win over the traditional sponsors and the agencies they work with, I would recommend making the sponsorship and advertising opportunities as cost efficient, and as buying efficient as possible; the tiered model makes perfect sense.

Fan Marino: Samsung has renewed its top-tier partnership with the IOC through the ’28 games. While no formal terms were released, it’s been estimated that the IOC rakes in $50 million/year from top-tier partners. With Samsung on board through the Los Angeles Games, the IOC now has 9 of its 14 top-tier sponsors signed through the ’24 Paris Games; only Atos, Coca Cola (considered a near lock to be a NASCAR top-tier sponsor as well), Dow, GE and P&G have pacts set to expire after the ’20 Games. The willingness to commit so much money, so far out, speaks to the long-term confidence brands have in the Olympic movement (and to the requirement that they sign on for a minimum of 2 quadrennials).

It’s not just NASCAR and the IOC that are using fully integrated sponsorship programs. Following the ’20 Tokyo Games, a new entity called United States Olympic Paralympic Properties (USOPP) will be formed to negotiate sponsorships on behalf the United States Olympic Committee (all existing deals expire after ’20 Games), the U.S. Paralympic Committee, the Organizing Committee of Olympic Games, all national governing bodies and the participating athletes through ’28. I asked Michael Neuman why the USOC and US Paralympics were moving towards a fully integrated model?

Michael: Standard operating procedure when a city is awarded the games is for the host city, the NOC (National Olympic Committee) and the IOC (International Olympic Committee) to enter a joint venture with the power shifting from the NOC to the new JV, specifically to the host city organizing committee; the creation of USOPP is a simple consolidation of the marketing arms. 

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Eddie Hearn Explains Why Boxing is Reliant on PPV, DAZN the Single Exception

Eddie Hearn

WBC/WBA/Lineal & Ring Magazine Middleweight World Champion Saul “Canelo” Alvarez will take on WBA Super Middleweight World Champion Rocky Fielding tomorrow night, live from Madison Square Garden. Alvarez is arguably the sport’s biggest star, but he’s the challenger in this fight as he pursues a world title in a 3rd division (Super Welterweight, Middleweight). Eddie Hearn (Matchroom Boxing) is Champion Rocky Fielding’s promoter. Howie Long-Short had the chance to sit down with Eddie (his father Barry was a legendary promoter) to get his pulse on the American boxing landscape, to find out why purses are rising and to understand why more fights are heading to PPV than ever before.    

Howie Long-Short: Boxing has a larger profile in the U.K. (see: Anthony Joshua regularly selling out 80K seats) than it does in the U.S. Why is that?

Eddie: The major issue in U.S. boxing is the price point for pay-per-view (PPV) events. We have PPV shows in the U.K. for $25, it’s not that expensive; $75, $100 is a lot money. Fury/Wilder was a good fight and a good event (several other champions fought on card), but only 300K people watched it on TV; had it been priced at $25 or $30, it might have done 1 million buys.

Another problem with American boxing is the fighter’s profiles aren’t being built up as their careers progress, so when they get to the top, they’re not the stars that they should be. You can’t keep people off TV (see: PPV) and then first start to promote them when they win a title. Fans want to follow that journey.

Even at just 300K buys it made sense for Fury/Wilder to go PPV (break-even was 250K buys), but we’re seeing fights (see: Pacquiao/Broner) that no one is calling for, headed to PPV. Why are we seeing more fights hitting PPV than ever before?  

Eddie: There’s now so much money in the sport that other promoters have no choice but to go PPV. There isn’t enough money in TV rights to pay the extortionate purses that are being generated. If fights cost $1 million, you don’t have to go PPV, but they’re not; they’re significantly more. With DAZN coming into the industry and overpaying fighters, Fox and Showtime have had to do the same. The problem is that they don’t have the rights fees to pay the fighters the way that DAZN paid Canelo. The only way they can sign marquee fighters is to offer them a PPV.

DAZN is different in that it has the funding. They’re putting up your (the fans) PPV money. If you look at Canelo/GGG (for example), it did 1 million buys; that’s roughly $45 million into the promoter (split between the sides). DAZN is paying that on the fans behalf.

As you noted, U.S. boxing fans now have a PPV nearly every month. It’s certainly not reasonable to expect fans to spend $1,000/year on PPV fights. Do you expect the price point to come down?

Eddie: Yes, I really do because a good fight like Errol Spence Jr./Mikey Garcia is going to do just 200K buys; that is not good for their profiles and it’s not good for the sport. The purses have just gotten so far out of control. They’ll plateau slightly (and the price of the PPV will drop) when everyone realizes that we can’t maintain this, it (purses out of control, followed by plateau) happened with the PBC launch a couple of years ago.  

The price point of PPV events also encourages illegal streaming (see: 10 million illegal streams of Fury/Wilder). When the fight is $20, fans are willing to spend the money; when it’s $80, they’re willing to watch a stream where the quality may not be very good. That $60 difference might be enough to fill your car up for the week, it might help pay for your groceries.

Canelo signed the largest contract in sports history with DAZN. Your biggest star Anthony Joshua has a similar exclusive agreement to fight on DAZN (he’s an equity shareholder, no contract terms have been released). Taking money out of the equation, explain why boxing’s 2 biggest stars are wise to align with the OTT network?  

Eddie: If this fight (Canelo/Fielding) was on HBO PPV, it would do 350K-400K buys at $80/per. On DAZN, where you can watch the fight for free, it should (assumes greater awareness) do over a million viewers.

Fan Marino: As the promoter for Anthony Joshua, Eddie was closely watching the Fury/Wilder fight that ended in a controversial draw. I was eager to ask, what did your final card look like?

Eddie: I had Fury winning quite comfortably. The 2 knockdowns made the scoring reasonably competitive. I only gave him like one or two rounds outside of those (2 knockdown) rounds. He got schooled.

When Joshua fights the winner of Fury/Wilder 2, will DAZN carry the fight exclusively?

Eddie: That’s what we want. It’s not necessarily a requirement for us to take the fight. We’ll go to the broadcaster that puts up the most money, hopefully that will be DAZN. We’re not interested in pipe dreams though, as in this fight could do a million buys. Give me a million dollars’ worth of revenue and we have a deal.

Editor Note: Eddie may not have committed to a Joshua v Fury/Wilder airing on DAZN, but he certainly implied (or let one slip) that would be the case when explaining the OTT service’s value proposition to Howie. Eddie said “You’re going to get Anthony Joshua. You’re going to get all our (Matchroom) shows. You’re going to get all of the Golden Boy shows, you’re going to get Canelo/Fielding, Canelo/Danny Jacobs, Wilder/Joshua, all these big fights for $120/year ($9.99/mo.)”

HBO is exiting the boxing business making GGG a free-agent. Will he be signing with Matchroom Boxing?

Eddie: He’s talking to everybody, but the big money fights are the Canelo fights (and with Canelo exclusive to DAZN and Matchroom Boxing tied to DAZN, no promoter could put the fight together more easily).

DAZN Offers Fans Canelo v. Rocky FREE

WHAT: Saul “Canelo” Alvarez v. Rocky Fielding
WHEN: Saturday December 15, 2018
WHY: Why not? Boxing’s biggest star is fighting and it’s FREE
WHERE: DAZN
HOW: Join DAZN free for 30 days and live-stream fight night anywhere!

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Suns Owner Threatens Relocation, Seattle and Las Vegas Named Front-Runners

Suns

The Phoenix City Council opted to delay a vote Wednesday that would decide if $150 million in public resources would be allocated to the $230 million planned renovation of Talking Stick Resort Arena (home of the Suns); had the City Council voted, the measure would have faced a “lopsided defeat.” Council Michael Nowakowski, considered to be the deciding vote, said “I want to make sure the community understands the economic impact of the arena, what renovations are needed to continue operating the arena and the source of the funds that would be used for renovations” before votes are cast. Team owner Robert Sarver has threatened to move the franchise should he fail to receive the financial support necessary to bring the building up to current NBA standards (currently league’s 5th oldest arena). The Phoenix City Council is likely to vote on the renovation plan on January 23rd.

Howie Long-Short: The Phoenix community remains in the dark about the arena renovation project (which would take place between ’19-’21) because its supporters tried to rush the proposal through before a new mayor assumes office; plans were announced just 6 days ago, there have been no public hearings on the project and the city has yet to detail how the funds would be allocated. Those that are aware, are not in favor of the renovations; 66% of the 450 polled oppose the plan, just 20% would support its passing. As of Wednesday, 3 council members were prepared to reject the plan, while Nowakowski remained undecided; 4 no votes would kill the proposal.

Threatening relocation is common tactic to secure public funding for a pro sports venue and Sarver is wise to use the leverage he has here. The club can opt-out of the team’s current lease as soon as ’22 and there are viable landing spots (with new arenas) in both the Emerald City and Sin City. Suns President Jason Rowley has wisely publicly refuted the possibility of relocation, reiterating the team’s commitment to the city.

Seattle is a more “valuable” market than Las Vegas (see: NHL expansion fees), but that doesn’t necessarily mean it’s the most sensible landing spot (see: Chargers in Los Angeles). I asked Neil deMause, a New York–based journalist and the operator of the stadium news website fieldofschemes.com, which city offers the Suns the best option from a revenue generation standpoint?

Neil: Phoenix has 1.8 million TV households and Las Vegas has 700,000, so that move isn’t happening unless Sarver’s in the mood to set his bank account on fire. Seattle is more feasible demographically, but given that Oak View Group isn’t likely to be handing out any sweetheart leases on their newly redone arena – what with a hockey team and concerts already in place – I don’t see that as an especially more alluring option to staying put at Talking Stick Arena.

If the Suns move, which I don’t think they will, I guarantee you another team will be looking to move to Phoenix within a couple of years. It’s just too good a market compared to some of the lousy ones in the NBA.

The decision to renovate (as opposed to building a new arena) was an easy one for Sarver. He has a chance, despite public opposition, to convince a 7-member council (+ the interim Mayor) to allocate $150 million to keep the team in the Phoenix (Sarver will pay the remaining $80 million). There’s little chance he could convince the public to fund a new building that would cost anywhere from $375 million+ to build (see: T-Mobile Arena). Under Arizona law, plans concerning the construction of a new arena require a public vote, renovations simply need the city council to sign-off.

I asked Neil deMause of fieldofschemes.com, if opposition to public funding weren’t an issue, would the franchise be better off building a new arena?

Neil: The issue isn’t what it would cost to build a newer arena, it’s how much of an upgrade it would be. Talking Stick is only 26 years old, so how much more revenue would they get from a newer place? I can see why Sarver wouldn’t want to spend more than $80 million on Talking Stick; what I don’t get is why Phoenix should want to spend any money at all on it.

Fan Marino: Many of those opposed to the renovation plan are really opposed to giving Robert Sarver a hand-out. There’s a consensus among basketball minds that Phoenix “has been one of the NBA’s worst-run franchises since he purchased the team in 2004” and the team is off to a disastrous start in 2018-2019. Mired in a 10-game losing streak, the Suns have the league’s worst record (4-24) and their franchise cornerstones (DeAndre Ayton and Devin Booker) had a heated locker room exchange last week after Ayton accused Booker of lacking “energy” (i.e. he was dogging it) in a blowout loss at Portland.

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