Digital-First Media Company Says Becoming Sports Betting Operator is “Natural Next Phase”

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Most media companies looking to profit on legalized sports betting will “simply take ad money from sports bookmakers and/or develop programming aimed at sports gamblers” (think: ESPN’s Daily Wager announcement, B/R partnership with Caesars), some will pursue affiliate commerce (think: The Action Network), but few will book bets and issue payouts; theScore (OTC: TSCRF) intends on being one of them. Back in December, the company became the 1st North American based media outlet to announce plans to launch an online and/or mobile sportsbook. The company plans to introduce their sports betting product to bettors in New Jersey by mid-2019.

Howie Long-Short: The biggest reason that most media companies are unlikely to serve as sports betting operators is that the licensure process is both difficult (several states require a brick and mortar casino presence – including NJ) and costly; particularly when you consider that sports gaming is a low-margin business. theScore managed to secure market access – pending regulatory approval – through a partnership with Darby Development, the operator of Monmouth Park Racetrack.

TSCRF founder John Levy called the decision to become a sports betting operator the “natural next phase” for a company that has long embraced sports betting as part of its “DNA” (think: push notifications w/ the spread and O/U), but it seems unlikely that many U.S. outlets (TSCRF is Toronto-based) would want to book bets; they’ve historically taken a far more conservative approach to gambling out of concern for the games’ integrity.

Neal Pilson, the former President of CBS Sports (and the President of Pilson Communications), agreed pointing out that “broadcasters and telecasters, for years, have had to respond and refute accusations and speculation that they somehow control or influence the selection of participants and the outcome of the sports events they telecast. If the same companies got involved in betting and gambling on those events, it would only increase the hysteria that they will benefit in some fashion from the outcome or result; so, I think they will tread very cautiously here.” That’s certainly the way the industry has trended thus far – AT&T, Disney and WarnerMedia have all said they’re not interested in becoming bookmakers. It should be noted though, that Recode’s Peter Kafka reported hearing whispers that “one or two US-based companies [would look to directly enter the sports betting business] in the coming years.”

One inherent advantage that theScore enjoys over traditional media outlets is that they’re mobile native and maintain a database of over 4 million “highly-engaged” users – a combination that allows them to offer bettors the chance to bet on games while engaging with content in-app. An existing audience that “highly indexes as sports betting enthusiasts” should give theScore a viable chance to capture market share, but Dustin Gouker, Analyst for LegalSportsReport.com cautioned “having data insights and a database and turning it into a collective of regular sports bettors that create revenue, are obviously two different ballgames”; so, don’t expect them to “come in and immediately dominate.” Ultimately theScore’s ability to cash-in will be dictated by their consumer-facing interface. Dustin said, “we’ve seen in New Jersey that the companies with the better products have taken larger percentages of the market share.”

Fan Marino: theScore is going to be the first North American media company to enter the sports betting space, but the idea has been exercised in Europe; Sky, a UK based satellite business, was in control of its own sports betting business (Sky Betting & Gaming) for 15 years until it was spun off and acquired by The Stars Group for $4.7 billion in 2018. Dustin said that while Sky – not a digital first outlet – has been a success ($265 million in adjusted EBITDA in ’17), TSCRF should temper their expectations – at least relative to the market’s biggest players (think: William Hill) – as “sportsbook operators, gaming operators and online operators have done the best in the vast majority of the European markets.”

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California, Texas and Florida Highly Unlikely to Pass Sports Betting Legislation

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+/- 40% of the country is expected to pass legalized sports gambling legislation by the end of 2019, but California, Texas and Florida – the 3 most heavily populated states – are highly unlikely to be among them. In Texas, gaming lobbyists face opposition from social conservatives who consider gambling “a regressive tax on the poor” and local tribes in both California and Florida are hesitant to open-up existing compacts that give them control over state casino gambling, fearful that increased competition (think: card rooms, race tracks) would cut into their profits. It’s believed that for sports betting legislation to be added to the state constitution in all 3 of the states, a statewide vote in its favor would need to occur (see: highly unlikely).

Howie Long-Short: California and Florida are encountering strong opposition from the Indian tribes because of the potential revenue at stake. Chris Grove (Eilers & Krejcik) explained, “the larger the opportunity – the more complex the stakeholder environment and the more political stasis sets in”; and in this case, we’re talking about the country’s “brass rings given the size of the populations” (Sara Slain, AGA). 26% of U.S. residents call California (40 million) or Florida (21 million) home.

The California Nations Indian Gaming Association and the Seminole Tribe of Florida – both politically powerful collectives – formally oppose expansion of states gaming laws, believing that the risks associated with increased competition from card rooms, race tracks and lottery dealers (and any concessions the states might require as part of negotiations) outweighs any additional profits they could earn from sports betting. That’s debatable. For a lot of tribes in a lot of states, adding a new form of gaming might not make sense – depending on the existing gaming climate”, but as Dustin Gouker, Analyst for LegalSportsReport.com told me, “if they’re fully on board, want to do mobile and retail sports books, the upside outweighs any threats a lottery or commercial casino might pose to their business.” 

The problem is that “a lot of them don’t see the upside. They see sports betting as a low margin business. Many Tribes are based in remote locations, so retail sportsbooks aren’t viable and mobile gaming is a problem for them. They’re concerned about its legality under federal law – about whether maintaining servers on tribal land would even permit them to take bets statewide.”

8 states now have legalized sports betting laws on the books and Arkansas, D.C. and New York have all “legalized sports gambling in some form and are working on regulations before bets can be placed.” By the end of 2019, as many as 33 states could be taking wagers on sporting events – though legislation is unlikely to pass in at least 10 of those locales; tribes in North Carolina, Minnesota, Wisconsin and Arizona are all vehemently opposed to sports betting unless they’re to retain control of the market, making new legislation in those states unlikely. Dustin pointed out that “despite all of the momentum for sports betting right now, it’s still politically tricky legislation to get passed. The states that have legalized sports betting thus far had a relatively easy lift – they really don’t have powerful tribal gaming lobbyists.”

I certainly don’t expect California, Texas or Florida to be among the states passing legislation this year. In fact, Eilers & Krejcik doesn’t expect Florida or Texas to have sports betting by 2023 (it does anticipate CA having it). In Florida, the Seminole Tribe (in collaboration with Disney) recently pushed a constitutional amendment through that requires 60% voter approval to expand gaming legislation in the state – all but ending any chance at legalized sports betting there. As for Texas, the political climate, along with a shortened legislative period – just once every 2 years – makes it that difficult to pass a new legislative effort.

Fan Marino: The 4th biggest state population wise, New York, has matching bills with both the assembly and the senate right now allowing for sports betting at the 4 commercial casinos upstate, but Dustin said after “reading the tea leaves and following online poker and daily fantasy sports legislation within the state the last five years, nothing gets done until the end of the session – so something passing would wait until June – and even then you face the potential of a veto from Governor Cuomo which would put them back at square one. I put the prospects of New York passing a law in ’19 at less than a coin flip.”

Assemblyman Gary Pretlow said earlier this week that he would be sponsoring a new bill that would allow for in-person betting at Yankee Stadium and MSG. That’s an interesting thought, but legislators would likely have to pass a new law to do it and remember, “they just now implemented regulations allowing for a retail sports betting almost a year after PASPA was struck down.” In other words, don’t hold your breathe waiting for it.

Fun Fact: 27% of all NFL, MLB, NBA & NHL franchises are in California, Texas or Florida.

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Cubs Marquee Sports Network Closely Resembles PRISM, Not Sports Net LA

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Sinclair Broadcast Group (SBGI) CEO Chris Ripley told listeners on SBGI’s Q4 ‘18 earnings call that he’s expecting the company’s investment in the Marquee Sports Network – a joint venture with the Chicago Cubs – to net between “$40 [million] to $50 million of free cash flow” annually. With other teams’ local broadcast deals expiring “in the years to come” and an existing presence in most major markets, Ripley said he sees an opportunity to replicate the model. The joint venture between SBGI and the Cubs closely resembles what Ed Snider and a pre-goliath Comcast built with the Phillies and Flyers back in the 1980’s – a precursor to all Comcast RSNs – a cable network called called PRISM (Philadelphia Regional In-Home Sports & Movies), so one should assume SBGI is responsible for the pick and shovel side of the business (think: operations, management of the network, ad sales), while the Cubs bring the content to the table. SBGI will pay the Cubs an up-front fee for the broadcast rights and then split profits with the club on the back-end. Marquee is scheduled to launch in February 2020

Howie Long-Short: The Cubs take in +/- $700K/game (+/- $65 million/year) in local and broadcast TV revenues, but in recent years the Dodgers (+/- $2 million/game), Angels and Phillies (+/- $1 million/game) have all signed deals worth more. SBJ reported that SBGI would give the Cubs a “substantial bump in [their] annual rights fees”, but no hard figures have been reported. If Sinclair were to pay $1.3-$1.5 million/game and the team was a 50/50 partner in the network, it could mean growing team revenues by more than $100 million/year (less their share of profits from NBC Sports Chicago). As for SBGI, $50 million would be a noteworthy boost to a company that reported $206 million in net income in Q4 ’18.

Marquee will work because “ad incumbency and ad migration will be significant” for the Cubs, but as Chris Lencheski (an experienced global sports, media, and private equity executive; founder of sports consultancy group – Phoenicia and an adjunct professor at Columbia University) reminded me “not all teams are created equal” – so I’m not sure just how many more viable opportunities are really out there for SBGI. “No matter how great one team may be in their market, they likely don’t have that same hold over the customer as the Cubs do in Chicago. It doesn’t matter whether the Cubs are successful on the field or not, there are people watching and listening around Chicago and to a greater degree around the United States. You have the Yankees. You have the Dodgers. I don’t know where else you find a team with that kind of nationally-scaled customer. You’re not going to attempt this type of investment anchored to small-market one-team platforms.”

Pessimists will cite the failure of Sports Net LA to gain carriage in the market as the reason why the Marquee Sports Network is doomed, but the “very, very high subscriber fee ask” (which caused distributors to pass) was needed “to make the financing work” for the purchase of the club; in other words, the Dodgers transaction “needed to get X dollars per subscriber based on the number of subscribers it projected it would have within the market, so that the network would generate enough revenue to finance the acquisition in the first place.” There is no “huge ask on the table” here. SBGI and the Cubs will be within a financial zone of possible alignment between anyone on the cable side and anyone on the customer side.”

If teams want to be in control of their own content, it’s worth wondering why they hadn’t taken that into consideration during their last round of broadcast rights negotiations. Chris said it’s –partially the result of a changing market, “but most importantly consumption of the product and the habits of the consumer have changed; and the costs associated with creating and operating networks have declined. The cost levers to acquire and broadcast and to create new distribution revenue strategies have dropped dramatically. Costs on the pick and shovel side have dropped because of technology (and only improving with 5G) and consumption disruption, that now more than ever, means great content actually drops more to the bottom line.”

The partnership with the Cubs is Sinclair’s first stab at a regional sports network, but Chris says that it won’t be their last. “The next one up is going to be the Detroit Tigers and Detroit Red Wings. They’re really going to cash in because they’re owned by the same owner and they also own the building.” Of course, SBGI is also in pursuit of the 21 Fox RSNs that Disney has on the block.

How does ownership of the building play into a broadcast partnership?

Chris: “The context of the word subscriber is changing. I don’t want to be a subscriber to Marquee. I want to be a member and in a world where I’m watching content through my handset, that membership has quantifiable value. If I own my building, I can bring Marquee members in on non-performing or lower-performing nights. The ability to bring in a large data-set of qualified customers via a digital turnstile would make Marquee – or for that matter DAZN – a new rail of revenue for tickets.”

Fan Marino: If you’re wondering what kinds of non-Cubs centric programming Marquee will offer, look to the high school broadcast rights SBGI has been buying up in rapid fashion. Chris said, “go to Stirr, you can see just about every high school sport and the markets that they are in. H.S. sports programming makes sense because it brings an audience and helps to develop a relationship with the community at the grassroots level.”

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PPV Boxing to “Be Bigger Than Ever” Despite Introduction of OTT Subscription Services

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On Wednesday, Canelo Alvarez and Daniel Jacobs kicked off a multi-city press tour (they’re in Mexico City today, Los Angeles on 3.4) to promote their May 4th bout – a high-profile fight that will air exclusively on DAZN. Promoters Eddie Hearn and Oscar De La Hoya insist that the Cinco de Mayo bout will mark an inflection point where consumers accustomed to paying $85+ for super fights realize that the subscription streaming model is capable of offering blockbuster showdowns without “the pay-per-view price tag”, but Ringstar Sports’ Richard Schaefer disputes the notion that this is the beginning of the end for the PPV model. In fact, Schaefer told ESPN that PPV is “going to be bigger than ever” and projected that existing PPV “records will fall.” The former CEO of De La Hoya’s Golden Boy Promotions won’t have to wait long to find out – Fox (Spence-Garcia) and ESPN (Crawford-Khan) will both host PPV cards over the next 45 days.

Howie Long-Short: Eddie Hearn’s proclamation that the PPV model is dead may be a “ridiculous message” (Schaefer’s words not mine), but there’s no denying the value boxing fans receive with DAZN’s monthly subscription package ($9.99). The Alvarez/Jacobs fight will be Canelo’s 2nd on the platform in 6 months and Anthony Joshua’s June bout against Jarrell “Big Baby” Miller will mark his 2nd appearance on the OTT service over the last 9 months. Those 4 fights as PPV events would have cost fans north of $300, but DAZN subscribers got them for less than $100 and had access to dozens of other live boxing and MMA cards over that time.

HBO is no longer in the fight game, but former executive Mark Taffet believes that the OTT subscription model will “redefine pay-per-view and probably make pay-per-view a better business.” That’s because to keep subscribers, OTT services – which offer the ability to cancel at any time – need to constantly put forth content that viewers value; if promoters start putting their most attractive matchups on PPV, subscribers won’t stick around. Mark sees a day when only “super fights” with “Super Bowl-type” demand can command a significant investment from fans, though they’ll be able to charge more.

Schaefer’s optimism stems from the fact that Fox and ESPN can promote fights in 80+ million homes – an audience 4-5x greater than Showtime (or HBO) has. He pointed out that, “it’s unheard of to have a press conference on free over-the-air network television” and predicted that the ability to broadcast shoulder programming around fights to an audience that size, is “going to change pay-per-view.” He’s not alone in that thinking. Bob Arum said, “I really believe that whatever number [the Crawford-Khan fight] would have done – under the old plan with HBO as the distributor – we’ll double it in the new era with ESPN distributing and with the ESPN megaphone pumping it.”

Fan Marino: Placing non-mega fights on PPV – where viewership is smaller – is bad for the sport, but it’s a necessary evil if the goal is to book the best matchups. With promotions (and fighters) tied to networks, PPV often serves as a distribution partner middle ground in negotiations; of course, PPV also provides fighters with the greatest monetary upside as the networks simply can’t guarantee comparable purses if the event sells well (see: 500K+ buys).

Boxing fans have historically been willing to spend on live content, but it’s unrealistic to ask anyone to spend +/- $250 in the first 6 months of a calendar year on 3 PPV events (includes Pacquiao/Broner) in addition to their DAZN, ESPN+ and Showtime subscriptions. The issue is simply the price point. PPV shows in the U.K. sell for $25. They sell for 3x as much here. As Eddie Hearn said, “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.

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Top 100 Sports Business Twitter Follows

Editor Note: With the assistance of a few well-respected industry veterans, I compiled a list of 100 twitter handles – in alphabetical order – that should be followed if you work in sports business. Some are entertaining, others are insightful, but all are well respected amongst their peers. Without further ado…

@AndrewBrandt – Lawyer. NFL business insider. Columnist for MMQB.

@AndrewMarchand – NY Post sports media columnist. On the Mike Francesa beat.

@AngelaRuggiero – Olympian. Founder of the Sports Innovation Lab. Sports tech intelligence. Market research.

@AnotherDanCohen – Heads up Octagon’s Global Media Rights Consulting Division.

@A_S12 – Adam Stern is on SBJ/SBD’s NASCAR business beat.

@barryjanoff – Executive Editor of the sports marketing website NYSportsJournalism.com. Publishes a sports marketing newsletter.

@BenFischerSBJ – Among SBJ/SBD’s most talented writers. On the esports and Olympics beat.

@BFawkesESPN – Editor of Chalk. Sports gambling trends, picks and predictions.

@Bill_Shea19 – Senior reporter at Crains Detroit. Covers sports business in the Motor City.

@brandonBTIG – Equity Analyst. Brandon Ross covers technology, media and telecom.

@brettsmiley – EIC of Sports Handle. Focus is on U.S. gambling legislation. Reporting and analysis.

@cannonjw – J.W. has a knack for finding odd-ball promotions and fan giveaways.

@carronJphillips – Columnist for NY Daily News. Plays at the intersection of social issues, race & sports.

@chadmillman – The brains behind The Action Network.

@ChrisSchlosser – SVP MLS/SUM Media. Digital strategy, content creation, and product development guru.

@chrisyates11 –  Director of Video Production & Social Media at Huddle Productions. Expertise in content marketing, social media and video production.

@Cnyari – Cristian Nyari is Head of Media for FC Bayern Munich. Offers commentary on all things sports media, digital, social and tech.

@ConvergenceTR – Former NFL and NHL exec. Tom Richardson. Digital media/marketing thought leader. Professor in Columbia’s Sports Management program.

@DarrenHeitner – Sports attorney with a niche in contracts and IP.

@darrenrovell – Among the best follows on Twitter, which explains why he has over 2 million followers. Move to Action Network means more gambling related content, but Big Cat’s arch enemy still covers everything from shoe releases to half-time acts.

@david_schwab – EVP, Octagon. Plays at the intersection of brands and influencers.

@deepenparikh – Partner at Courtside Ventures. Plays at the intersection of sports, tech and media.

@TheDonnyWhite – CEO of Satisfi Labs. Expertise in AI, robotics and machine learning.

@DustinGouker – Head of Content for LegalSportsReport.com. Has finger on the pulse of the legal online sports betting (and DFS) market. Always opinionated.

@EKANardini – Barstool Sports’ CEO Erika Nardini. Leading the podcast revolution.

@elwinter – Eric Winter is the former GM for Rivals/Yahoo Sports & SVP, UFC. Tends to focus on event marketing and fight sports.

@EricFisherSBJ – Covers MLB, digital media and technology for SBJ/SBD.

@Eric_Ramsey – News and perspective on the regulated gambling industry for LegalSportsReport.com.

@FormulaMoney – No one has a better grasp on business of F1 than Christian Sylt.

@frntofficesport – The handle associated with Adam White’s daily newsletter. FOS tends to play in the sports marketing and sports sponsorship space.

@garyvee – Entrepreneur with 1.8 million followers. CEO of Vayner Sports. Progressive thinker. Future Jets owner?

@GeoffBakerTIMES – Sports enterprise and investigative reporter for the Seattle Times. Focuses on teams in the PNW.

@Hawk – Andrew Hawkins is the Director of Business Development at Uninterrupted. ESPN media personality. NFL vet. Perspective on an athlete’s post-playing career.

@HowieLongShort – The handle affiliated with JohnWallStreet’s daily email newsletter. Offers context and commentary on the biggest stories/trends in sports business. A MUST-READ if you work in the industry.

@JacobFeldman4 – Writes for SINow. Perspective on how the internet has changed/is changing sports.

@JamesEmmett – Editor-at-Large, Leaders. Weekly newsletter is a mix of original thoughts and aggregated content. U.K. based, so there’s a European slant in terms of the sports covered.

@JayKapoorNYC – Early stage VC investor. Tweets about sports, media, tech and commerce.

@_JaySharman – CEO of TeamWorks Media. Authority on digital media and purpose marketing.

@jbooton – Jen Booton is a Senior Writer for SportTechie. Expertise in action sports.

@JeffEisenband – NBA 2K League sideline reporter. Authority on esports.

@JKosner – John Kosner built ESPN’s digital presence. President of Kosner Media. Digital media thought leader.

@joefav – Publishes a MUST-READ sports marketing and PR newsletter. Hosts a weekly sports business podcast. Long-time industry stalwart.

@kbadenhausen – Kurt Badenhausen is a Senior Editor at Forbes. Niche is athletes’ earnings and franchise valuations.

@kerrykeating3 – Former NCAA basketball coach. NBA analyst. Sports tech advisor.

@kenshropshire – CEO of the Global Sport Institute at ASU. Consultant to NFL. Well-respected educator.

@Koufish – Long-time front-office executive Andy Dolich. Sports business consultant.

@laurafrofro – Leads Twitter’s sports content ambitions.

@LemireJoe – Senior Writer, SportTechie. Has a passion for MLB technology.

@MarcEdelman – Well-respected educator. Sports, antitrust, gaming & IP Attorney.

@MariaTaylor – Fast-rising ESPN talent. Mentors young women in sports business.

@markjburns88 – Sports Business Reporter for Morning Consult. On the Barstool beat.

@MartysaurusRex – Outgoing NFL star turned entrepreneur Martellus Bennett. Founded digital story telling company for children.

@MattRybaltowski – Writes about sports betting for Sports Handle and US Bets. Covers stadium financing and sports tech for Forbes.

@mkerns – Mike Kerns is the President of Digital at The Chernin Group. Authority in social and mobile spaces.

@michaelaneuman – Managing Partner, Scout Sports & Entertainment. Sports marketing thought leader.

@MikeDSykes – Reporter for Axios Sports. SportsCenter in a newsletter format.

@MMcCarthyREV – Michael McCarthy covers sports business, media and marketing for Sporting News.

@NateSilver538 – EIC, FiveThirtyEight. Statistical analysis of sports data.

@neildemause – Co-author of Field of Schemes. Go-to source for stadium and arena news.

@njh287 – Neil Horowitz is a social media and digital marketing pro. #smsports community member.

@NoahCoslov – Broadcaster. Media and marketing authority. Equity investor.

@novy_williams – Eben Novy Williams is the junior half of Bloomberg’s talented sports business duo. Co-hosts Bloomberg’s “Business of Sports” podcast.

@NPDMattPowell – Senior retail industry advisor, NPD Group. Perspective on the footwear and apparel industries.

@OPReport – Chris Grove is a gambling industry authority. Writes for OnlinePokerReport.com, Eilers Research and LegalSportsReport.com.

@Ourand_SBJ – John Ourand Writes for SBJ/SBD. Focuses on media.

@PaulRabil – Co-founder of Premier League Lacrosse. Lacrosse’s 1st “Million Dollar Man”. Start-up investor.

@PeterChernin – CEO, Chernin Group. Invested in Barstool Sports and The Action Network.

@phkeane – Patrick Keane is CEO of The Action Network. Digital marketing authority. PE investor.

@PRyanTexas – Co-Founder, Eventellect. Patrick Ryan has been called “the smartest guy in ticketing.”

@readDanwrite – Dan Roberts covers sports business for Yahoo Finance. Host of YFi AM and the “Sportsbook” podcast.

@restivo – Matt Restivo is the head of product & engineering at The Action Network. Authority on product design and software development.

@richarddeitsch – Covers sports media for The Athletic. Will also dabble in women’s sports and Olympics.

@RichBTIG – BTIG Equity Research Analyst Rich Greenfield. Covers media and technology. Media futurist.

@RickHorrow – aka the Sports Professor. Attorney. Dealmaker. Host of the Reuters “Keeping Score” podcast.

@rscibetti – Former NFL, NHL exec Russell Scibetti. President of KORE Planning and Insights. Offers CRM and database expertise.

@RyanGMundy – Steelers alum. Venture capital investor. NFLPA One Collective board member.

@SaraSlaneAGA – SVP of Public Affairs, American Gaming Association. Industry strategist. Spokesperson.

@scottrosner – Academic Director of Sports Management Program, Columbia University. Sports business/sports law educator.

@ScottStanchak – VP of emerging technology, NBA. Insights on digital media, tech strategy, emerging platforms.

@Seth_Everett – Forbes contributor. Host of the “Sports with Friends” podcast. Sports broadcaster.

@Slasher – Rod Breslau writes about esports for ESPN. esports consultant. Competitive gaming insider.

@soshnick – Scott Soshnick is the senior half of Bloomberg’s talented sports business duo. Co-hosts Bloomberg’s “Business of Sports” podcast.

@SportsBizNews – Howard Bloom’s account serves as an aggregator of industry headlines.

@sportsdoinggood – Sab Singh brings “the bright side” of sports into the light. Social Responsibility. Development. Charity. Entrepreneurship. Great Performances.

@SportsTaxMan – Robert Raiola is the Director of Sports & Entertainment at PKF O’Connor Davies. Foremost authority on the jock tax.

@SportsTVRatings – Robert Seidman will keep you apprised of how many people watched last night’s game.

@StephenEspinoza – President of Showtime Sports. Outspoken. Boxing enthusiast.

@Sutton_ImpactU – Long-time NBA league office executive Bill Sutton. Director of the Vinik Sport Business Grad Program, USF. Highly respected educator.

@TannerSimkins – Certified sports agent. Founder of Complete SET Agency. Industry mover/shaker.

@TedLeonsis – Wizards and Capitals owner. Venue and media networks owner. Venture capitalist. Progressive thinker.

@terrylyons – EIC, Digital Sports Desk. Boston-based sports marketing and communications professional.

@thekendallbaker – Voice of Axios Sports. SportsCenter in newsletter form.

@themarkuskuhn – NFL alum. Media personality. Leading the NFL’s efforts to grow the game in Germany.

@TheRealNate – Nathan Lundburg is the Director of Global eSports Sponsorships at Twitch. Plays at the intersection of brands, esports and marketing.

@TKGore – Business Development for Comscore. Digital media thought leader.

@VegasandVine – Chris Purcell is the EIC of Cynopsis Sports. Aggregating sports business, eSports, media, and sponsorship news in a wire release format.

@WallachLegal – Gaming law and sports betting attorney Daniel Wallach. Sports legal analyst.

@WerlySportsLaw – Sports lawyer Dan Werly. Founder of the blog TheWhiteBronco.com.

@WilliamsBob75 – Sport Business is a U.K. based sports biz news, data and event business. Bob is their U.S. correspondent. Soccer centric account.

@ZidanSports – Karim Zidan covers stories at intersection of sports and politics. Authority on MMA.

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NBA’s Jersey Patch Program Generates $150M/Year, Surpassed Expectations By +50%

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The NBA’s jersey patch program – introduced in ’17 as a 3-year pilot – has been an “overwhelming success” from both the league and the advertisers’ perspectives; the 29 deals (OKC remains the only club without a patch partner) generate more than $150 million/year in new revenue for the teams, while sponsors receive 25%-50% more exposure than they would have on a comparable spend (Navigate Research). However, despite the pilot’s success – and the opportunity to further grow revenues – the NBA has no plans to increase the size of the patch (2.5 in. x 2.5 in.) or to add a secondary sponsorship opportunity to team uniforms. The league will instead focus on growing revenues through the sale of replica jerseys with corporate logos. As it currently stands, fans can only find jerseys with corporate logo patches in team controlled stores or on their websites. The league would like to expand retail distribution and is considering making jerseys with a corporate logo the only ones available for purchase.

Howie Long-Short: The patch sponsorship pilot program has far exceeded league expectations. Back in April ’16, Commissioner Adam Silver projected patch sponsorships would generate +/- $100 million in newfound revenue – so the league overshot its goal by +50%. While an extra $50 million would be welcomed by any business, $150 million doesn’t exactly move the NBA’s needle – the league generated over $8 billion in 2018. It should be noted though, that 20 of the 29 participating partners are working with the league (or their teams) for the first time – which helps to explain how sponsorship revenues grew +31% (from $861 million) last season.

Corporate sponsors are paying NBA teams anywhere between $5 million – $20 million (Rakuten, Warriors) per year, for the right to place their logo on an NBA team’s game jersey. It’s been estimated that the patches are visible for between 15-20 minutes during the average game telecast. Nielsen Sports reported that Wish (Lakers), Rakuten (Warriors) and GE (Celtics) have received the most exposure among the league’s patch partners this season.

Bucks President Peter Feigen says that the value of patches will be “worth significantly more [during the next round of negotiations, than they were during the last round] because the impression numbers have been so good”, but they’re also going to appreciate because the league has plans to make replica jerseys – with sponsor logos – more widely available, which would grow the advertiser’s reach “exponentially” and allow teams to charge more. Sports Business Journal reported that at least one team executive is expecting the value of patch sponsorships to rise +20%-30% during patch 2.0 negotiations. Fans should expect those new (or renewed) agreements to be longer in length, as well.

Opening up sponsorship opportunities to gaming companies is another way for the league to grow patch program revenues. During the first round of negotiations teams were forbidden from engaging companies whose primary product is associated with alcohol, tobacco or gambling; competitors of Nike, the league’s uniform provider, were also off limits. But since that time, PASPA was struck down and nearly 20% of the country has legalized sports betting. Growing the potential sponsor pool would result in teams signing larger deals and it’s all but certain U.S. casinos/sportsbooks would have an interest in the offering; 9 of 20 EPL clubs have enlisted a gaming company as their main kit sponsor.

Fan Marino: The addition of sponsorship patches to team jerseys has been met with fan indifference after some initial pushback, as “consumers have [just] become accustomed to it.” In fact, the presence of corporate logos on the uniform has become such a non-story, that fans who buy team jerseys are now clamoring for replicas of what their favorite stars are wearing on the floor – including the sponsor insignia – be made available at retail. It’s a no brainer for the league and its teams to stock “authentic” versions everywhere jerseys are sold.

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Creative Transportation Solutions Create Opportunities for VIP Experiences

DodgerGondola

As teams begin to recognize that declining attendance “has more to do with the fan experience than it does people no longer wanting to attend sporting events”, they’re beginning to explore alternative means of transporting those fans to the ballpark. The Los Angeles Metro signed a LOI to begin formal negotiations with Aerial Rapid Transit Technologies to build a suspended cable system that would carry passengers from Union Station to Dodger Stadium; and the Oakland Athletics introduced plans to build a similar system, to haul fans from downtown Oakland to the site of their proposed park at Howard Terminal. The Miami Dolphins are the latest organization to get in on the trend, announcing plans to install a gondola outside of Hard Rock Stadium. However, unlike the Dodgers and A’s, the Dolphins aren’t looking to address transportation to or from the venue – the team is installing it as “more of a novelty to be up above the crowd.”

Howie Long-Short: Dan Meis, the Founder of Meis Architects, told me that despite talk of “making it more convenient to reach the stadium”, the creative transportation solutions introduced thus far “are more about adding another premium experience than they are about moving a lot of people in a short time-frame. Gondola systems have limited throughput making it a real challenge to take loads of people to [or from] a stadium. Sure, every little bit helps, but you’re not going to transport 50,000 people as they exit a venue simultaneously with one.”

There is certainly hope that alternative transportation methodology will help to mitigate the load on busy existing infrastructure – “the experience of dealing with rush-hour traffic on a Friday night in LA is miserable” – but make no mistake, these projects are designed “to provide teams with the opportunity to create another VIP experience. [Most] modern venues are paid for by the VIP customer (think: suites, club seats) and those fans are willing to pay a lot to easily get to and from the building – because it is such an important part of the gameday experience.

Both the A’s ($123 million) and Dodgers’ ($125 million) gondola projects are privately funded, so there’s little for fans to lose, but Dan remains “skeptical about the efficacy of these creative solutions. Sure, teams could convince people to park further away if they had a gondola to ride, but true urban transportation is the best solution.” Dan’s right, but the regulatory hurdles needed to make improvements on highway infrastructure make that easier said, than done. “When you’re in a situation like the Dodgers and want to change the infrastructure, you need to get creative.”

If you’re on board with the idea that these projects are meant to be experiential and not a means of primary transportation, then you understand why it’s critical for the financiers have “a way of earning a return besides just taking some load off parking. Maybe it’s sponsored, maybe it becomes an experience that people will pay to use when there’s not a game; the O2 arena in London has had incredible success with their roof walk – they sell over 100k tickets per year, at $50. The attraction generates far more revenue than it cost to build it.”

While the A’s and Dodgers are spending 9 figures on their suspended cable systems, the Dolphins gondola project is estimated to cost just $3 million. It’s likely the Dolphins are underestimating the costs of installation, but it’s “distance that drives much of the differential in pricing. Geology plays into it too. The A’s and Dodgers are also building to withstand earthquakes in California – that can drive up the costs of a structure.”  

Fan Marino: It would be reasonable to assume that alternative transportation systems are being introduced to combat congestion and the lack of parking in the city – we’re also seeing a trend of teams moving back from suburbia to downtown – but that’s not the case. Dan explained, “when I first started working on Staples Center in ’95 or ‘96, there were concerns about the amount of traffic that a downtown stadium would generate. I heard the same trepidations expressed when the Jets were talking about building a stadium on the west side of Manhattan. People forget that millions figure out how get into the city every day – either by mass transit or they park and disburse – so, it was always a misnomer that you couldn’t put stadiums in cities because there is nowhere for 80,000 fans to park.”

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Dundon Confirms Purchase of AAF, Denies $250M Figure: “No Sane Person Would Do That”

AAF

The Alliance of American Football spent the last week touting a $250 million investment from Carolina Hurricanes owner Tom Dundon, but there was “no massive check.” Dundon denied making a payment to the league in that amount and explained that the quarter billion dollar figure being floated is at the “top end” of the total the league would need if it were to pursue aggressive expansion “over many years.” While the size of Dundon’s investment remains in question, the billionaire businessman did confirm that he “bought the league.”

Howie Long-Short: Charlie Ebersol is the Founder of the Alliance of American Football and spent Friday afternoon telling me that “in terms of one single check coming in from an investor, [Dundon’s investment] was way beyond what we could have expected. [It puts the league] in a situation now, where the cash on hand gives us 3-5 years of runway – if we completely screw up.” So, needless to say I was surprised to see that Dundon told SBJ that “if you just wanted to run the business as it sits today, it would be crazy to spend $250 million; it wouldn’t pass the smell test. Why would any rational or sane person do that?” Dundon confirmed rumors that his participation remains a week to week proposition and that he could stop funding at any time, but offered the caveat “every business would shut down if nobody wants its product.”

One of the reasons Dundon’s commitment drew so much media attention was that the AAF failed to make its Week 2 payroll on time. Many suspected that the league had run out of money and that the Hurricanes’ owner was bailing them out, but Ebersol insists it was a payroll error and that the timing was a coincidence. “This company is 13 months old, we’ve grown to upwards of 1300 employees league and we overestimated the ease in which we could move from one payroll system to another. We had to [change payroll systems] because the players and coaches require different insurance coverage than everybody else. We had always planned for the change to occur with the players’ first paycheck.” I should have asked why the players’ first paycheck wasn’t paid in Week 1.

Tom Dundon’s value to the AAF goes beyond the money he invested into the league. The Alliance generates its revenues through the sale of media rights and sponsorships and with live events (think: tickets, f&b, parking). The “existing infrastructure Dundon has in place [in Carolina] – to sell those tickets and sponsorship packages – gives us the ability to consolidate down. Remember, we’re a single entity – most of our organization is centrally located and that group drives revenue for all our teams.”

It’s unclear just how much revenue the AAF is generating, but Ebersol seemed to confirm rumors that CBS is not paying the league to carry games. “The league’s relationships with our broadcast partners is not just predicated on television. We negotiated multi-year broadcast partnerships with networks that could offer sponsorship sales and other infrastructure. Traditional media deals – you write me a check, then I let you put my product on your channel – were less interesting to us. We saw more value in a larger relationship.”  

Fan Marino: NFL Network viewership is up +450% YoY on Saturday and Sunday evenings – without the league “spending any money on marketing.” That’s promising and supports Charlie’s thesis that people want to consume live football in the winter/spring.

The league’s greatest success thus far has been “showing people we could put quality football on and that we could get people to watch, not just on television – but on our platform.” The league averaged over a million users during its first weekend and grew that figure by almost +50% during the second weekend. The 3.5 million fans using AAF digital platforms – in real time – are also a particularly “engaged audience; they’re not just passively consuming video, they’re interacting with each play on our free to play platform. That engagement has led to significant sponsorship dollars because sponsors see them as more valuable consumers. We know who they are, we know where they are and we know what their appetites are, which enables sponsors to interact with them in a different way.”

The AAF has been able to draw viewers through the first few weeks, but a long history of failed pro football ventures and competition from other start-up leagues (think: XFL, Pac-Pro) has me wondering if the league has staying power. Charlie insists that “everyone who has attempted [launching a startup football league] before me has failed because they failed to invest in the quality of football. We invested heavily in the quality of football. They did not invest in the quality of the broadcast. We invested heavily in our broadcasts. The quality of the content is what matters. Anyone who tells you differently is delusional. The fact that our league looks, feels and acts like real football is a function of the granular detail we took.”

NFL Europe failed, so I would debate that mimicking the NFL is a surefire path to success, but if the league’s goal is to be “a developmental league for the NFL” then it makes sense to target people with NFL experience. As Charlie pointed out, “all our head coaches have coached in the NFL (see: Mike Singletary, Mike Martz). All our GM have been NFL GMs. The league’s entire scouting department comes from the NFL. 35 of our 80 officials are ODP certified. Mike Pereira and Dean Blandino are our head officials. All our rules committee members have either served on the NFL rules committee or are currently serving on it. This is the best place to play if your goal is to get back to (or to) the NFL.” The message is getting across. 81% of the league’s players have played in an NFL game.

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Pac-12 Owns 100% of Conference Media Rights, Plans to Cash-In In ‘24

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Pac-12 Universities have been paid just $9.7 million/per in Pac-12 Network distributions since the conference launched the series of cable networks back in 2012. That figure pales in comparison to the distributions – estimated to be 3-4x more lucrative – paid out to Southeastern and Big Ten Conference schools from their respective conference networks and fails to account for the costs each school incurred to re-acquire their local football and basketball broadcast rights (+/- $6 million) from existing sponsorship and marketing partners (think: Learfield, IMG).

The Pac-12 Conference’s decision to forego a broadcast partner and operate a wholly-owned media entity has cost its member institutions much needed revenue and domestic exposure, but league officials maintain that the strategy to retain control over all league content has put the conference in a position of strength heading into the next round of media rights negotiations in 2024. In the meantime, the Pac-12 Conference is reportedly exploring selling a 10% stake (for $500 million) in a newly formed holding company (Pac12NewCo) – that would control all Pac-12 media rights at the completion of ’24 – to solve the schools’ short-term cash needs.

Howie Long-Short: To understand why Pac-12 Networks lags behind some of the other conference networks, one must understand its charter. Pac-12 Networks was constructed on a mission of gender equity, on the exhibition of the student athletes. The business model calls for the network to deliver 850 live events/year – content that aids recruiting efforts and elevates the schools’ brands, but delivers little in the way of revenue. Delivering profits back to schools has always been a secondary priority for Pac-12 Networks. President Mark Shuken explained it was the conference’s belief that its “partnerships with Fox and ESPN would deliver most of the fundamental economic expectations and address national distribution for football and men’s basketball.” Remember, when the conference inked those deals with Fox and ESPN in ‘11, no conference was set to take in more in media rights revenue.

The Pac-12 is tied into its existing broadcast partnerships through the ’23-’24 academic school year, so the conference’s schools are going to have to make do with less until then, but Shuken sees a pot of gold at the end of the rainbow. “Everybody believes that top tier rights are going to continue to gain financial value and we’ll be able to maximize rights fees when we can monetize all of them concurrently in 2024.”

One of the reasons Shuken is excited about the conference owning 100% of its broadcast rights is that it gives them the ability to “slice and dice” content for targeted audiences. The conference has “seen momentum in gymnastics and volleyball, so there also may be the chance to package and promote some of those events.”

The Pac-12 also has a diverse student population relative to the other 4 P5 conferences, so “country based content offerings may provide another opportunity for us. We have established Pan-Pacific relationships. Our agreement with Alibaba has turned China into a big market for us. Washington, Washington State, Oregon and Oregon State have all made concerted efforts to create a presence in Asia and the conference has done some things in Canada. We see international waters as fallow ground from both a recruiting standpoint and the fan acquisition perspective. International viewers are clamoring for programming about student athletes from their countries.” 

Pac-12 conference schools can expect greater distributions come ’25, but “it’s important to understand what drives revenues for athletics departments. Media revenues are certainly part of it, but filling up 100,000 seat stadiums to capacity – no matter who’s playing – as some conferences do, has a tremendous impact on the overall economic picture.” In other words, the Pac-12 may be able to close the gap in terms of media rights fees distributed, but there’s little chance conference athletic departments will take in more total revenue than their Big Ten and SEC counterparts.

Pac-12 Networks doesn’t just generate less revenue than the SEC and B10 Conference network, it lacks the distribution that they have. Joint ventures with ESPN and Fox have helped the SEC Network and Big Ten Network gain carriage in more than 60 million households. Without that leverage, the Pac-12 Network has been able to find its way into just 17.9 million homes (down -7% since ’16 peak). To put that figure in perspective, The Pursuit Channel, The Sportsman Channel and Fox Deportes are all more widely distributed.

Fan Marino: As an Arizona football fan living in NYC, I frequently find myself watching games that end past 2a EST on Sunday morning. I had to ask Mark why the conference plays many nationally televised games after the east coast media goes to bed (hence, the east coast bias)?

Mark: Evening events taking place on the west coast offer broadcasters the opportunity to carry A1 content against very little competition, so the late-night EST windows are important to Fox and ESPN. But playing games on Fox and ESPN also provides tremendous reach for our schools. We often draw audiences larger than we would if we were competing against 15 other games on a Saturday afternoon.

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Early Entrants: Vol. 4 – Zion Williamson is OUT of the ACC Tournament

Editor Note: Below you’ll find Volume 4 of “Early Entrants”, a bi-weekly newsletter from JohnWallStreet that will introduce sports business “rumblings” before the news breaks. Have a tip for the 5th edition? Send it to JWS@JohnWallStreet.com.

Editor Note II: In Vol. 2 (Jan. 27) we told you that Formula One is for sale, once again. Apparently, former Pirelli boss Paul Hembery has since heard the same thing. Early Entrants had that story before anyone else, folks.

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Zion Williamson is OUT of the ACC Tournament

Duke University has officially listed Zion Williamson as day-to-day with a Grade 1 right knee sprain, but Atlantic Coast Conference tournament organizers are acting as if the Blue Devils will be without their freshman phenom. Sources tell JohnWallStreet that organizers – concerned about their ability to sell seats without the country’s biggest draw – have begun looking to liquidate inventory in bulk.

AAF.jpgDundon’s Investment Week-to-Week, May Not Be Sole Investor

Much has been made about Tom Dundon’s investment in the Alliance of American Football, but the league did not receive a $250 million bailout. The Carolina Hurricanes owner “committed” to an investment in that amount, but sources say it’s a week to week agreement and if the AAF fails to show progress, the financial backing ends. JohnWallStreet has also heard that Dundon is may not be the sole investor in the round (as reported). Former Padres owner Jeff Moorad has reportedly been interested in taking a stake in the start-up football league for some time.

MLB StubHub.jpgMLB Urging Clubs to Sacrifice Ticket Sales to Keep League Partner Happy

MLB attendance dropped below 70 million for the first time since ’03 in 2018, but a valuable partnership with StubHub has the league office encouraging teams to forego future gate receipts in favor of exclusive partnerships with the resale giant. StubHub allowed MLB’s 30 clubs to take a larger percentage of fee revenue as a term of the 5-year renewal agreement it inked with the league in November 2017, but the company failed to grow secondary market share in 2018 – at least not to the level it needed to offset the reduced margins – making them an unhappy partner just one year into the new deal. Sources tell JohnWallStreet that the Angels, Cardinals, Pirates & Indians have all taken MLB’s directive and inked exclusive deals ensuring secondary market sales go through StubHub. Each will see their fee revenue continue to increase as they contribute to league’s attendance decline.

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Liga MX Considering Centralization of League Media Rights

JohnWallStreet has heard that Liga MX is exploring the idea of centralizing the league’s media rights. As it currently stands, each team controls their own rights and negotiates broadcast deals both domestically and abroad. While that independence has been beneficial to clubs owned by Mexican television companies (see: Club América), it has also prevented Liga MX from growing its international audience and reaching its revenue potential. While I won’t speculate on what centralized Liga MX broadcast rights might be worth, it must be noted that La Liga clubs have watched its rights fees climb +80% (to $1.5 billion) since adopting a centralized model between the ’13-’14 and’14-’15 seasons.

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