Early Entrants: Vol. 3 – Blazers Vice Chair Angling for Ownership?

Blazers

Blazers Vice Chair Angling for Ownership?

Portland City Commissioner Nick Fish told reporters on Thursday that the word he’s “received from Blazers management” indicates that the team “will be put on the block” – and that he’s concerned a new ownership group would look to relocate the franchise. That’s news to my sources. Jody Allen (Paul’s sister, executor/trustee of his estate) may be willing to sell the NBA club – if she has an allegiance, it’s to the Seahawks and the city of Seattle – but no decision has been made. Some suspect that Blazers Vice Chair Bert Kolde is the source of Fish’s story. There’s a belief that Kolde is angling to buy the franchise and is looking to gauge the interest of PNW investors.

F1

Potential SPAC Exploring Purchase/Option of Multiple F1 Tracks

There are rumors circulating of London and/or New York based groups of high-level motorsport executives (think: creditable promoters, former team owners, advertisers within the sport, agency heads, real estate developers) – with access to capital – considering the formation of a special purpose acquisition company (SPAC) to purchase or option multiple Formula One (FWONK) tracks. FWONK currently takes in +/- $600 million in annual promoter fees.

The feeling is that if any one group were to acquire enough tracks (in the right markets), they’d be able to lower promoter fees (the reason races operate at losses) to the collective benefit of advertisers, fans and FWONK (less tracks to negotiate with); most importantly, it would give the sport some long-term stability. The Formula One Promoters Association has increased its pressure on FWONK over the last several weeks, disappointed with their plans to co-promote the Miami race (see: reduced or no fee) and upset with indications that 2019 could be the last running of the Mexican Grand Prix.

DAZN

DAZN’s 2019 Media Rights Budget Revealed

In Early Entrants Vol. 2, we noted that DAZN Group was considering selling off the company’s B2B play – Perform Content (think: data, news, game prod.) – to fund additional rights acquisitions. Well, Jochen Lösch – the former CEO of MP & Silva – has since shed some additional light on DAZN’s grand ambitions for 2019. Lösch, speaking on a panel at the SPOBIS conference in Düsseldorf, Germany, said he’d been told first-hand by a DAZN executive that the company would be spending $2.5 billion on global media rights this year. That total wouldn’t place DAZN in the same league as ESPN (spent $8 billion+ in ‘17) or Fox (pays $1.75 billion/year just for NFL rights), but it compares favorably to what Amazon and Facebook are projected to spend – neither has ever paid more than 8-figures on a sports rights agreement.

ESPN+.png

Metrics that Matter

Disney CEO Bob Iger disclosed on the company’s Q1 2019 earnings call that ESPN+ had surpassed 2 million subscribers – less than 4 months after hitting the 1 million mark – a proclamation that has more than a few industry insiders wondering about the OTT service’s cost of user acquisition and churn rate. As one industry analyst said to me, “you can get to any number [of subscriptions] you’d like by essentially putting more marketing dollars against it. What matters is does your audience hold.” A second remarked, “great timing on the announcement considering they added 568K subs around their first UFC event on January 19th, subscribers received a 30-day free trial, have the option to cancel at any time and they didn’t have to mention churn on the call.” For what it’s worth, OTT video service churn rates are +/- 20%.

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Early Entrants Vol. 2 – Formula One For Sale, Again

F1

Formula One For Sale, Again

Less than 3 years after Liberty Media acquired Formula One, the company is reportedly exploring scenarios that would decrease their stake in the international racing circuit; everything from an exit to the introduction of new equity partners in on the table. Liberty has failed to add races (see: Miami) and/or major sponsors, attract younger fans (fact: just 14% are < 25 years old) or drive digital revenues (.06% of total revenue in ‘18); issues that collectively indicate the C-suite is in over their heads and taking direction from the wrong places. Keep an eye on former owner Bernie Ecclestone, the British business magnate has the capital, know-how and can likely reclaim the asset back for a fraction of the $8 billion he sold it for. 

DAZN Looking to Unload Perform Content

Sources indicate that UK-based DAZN Group, rich in fight sports broadcasts rights (in U.S.), is piling up the losses on its P&L and is considering selling off the company’s B2B play – Perform Content (think: data, news, game prod.) – to fund additional rights acquisitions. The initial plan was to use Perform Content’s cash flow to cross-finance the company’s D2C sports-centric streaming service, but skyrocketing rights fees for live sports content (see: $1 billion commitment for Matchroom Boxing, $350 million for Canelo Alvarez, $300 million for MLB) has created the need for some short-term financing; look for the company to add some long-tail content in the near-term to complement the cyclical nature of its live MMA/boxing events.

Ticketmaster on the Market

A decade after acquiring the ticketing giant, there are rumors that Live Nation could be looking to shed Ticketmaster at a profit. Ticketmaster wants to be in the marketplace business, but a decision by eBay to spinoff Stubhub (see: activist investors urging split) would force the company to become a market maker. By cutting ties with Ticketmaster, Live Nation – a content rights holder – would be able to take advantage of a more robust ticketing engine (note: TM technology is dated) and open distribution (see: sell as many as many tickets as possible); Ticketmaster wants all sales to go through Ticketmaster.

Fox Sports’ Home for Gambling Content

5 years after the launch of FS2, Fox Sports may finally have a programming solution (besides NASCAR and UFC repeats) for the supplemental cable sports channel; gambling content. The talk is certainly preliminary, but it’s not difficult to imagine a future where New Fox looks to marry live rights with sports betting; the company has already introduced its first daily gambling show – “Lock It In” with Rachel Bonnetta, Cousin Sal and Clay Travis (on FS1). Could ESPN (with ESPN2) be far behind?

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Epic Games Asking $25 Million for Fortnite World Cup Sponsorships, a New Industry Record

Fortnite

Chris Pursell (Cynopsis Media) has reported that Epic Games is seeking “up to $25 million for partnerships for Fortnite World Cup, obviously a new record for the (e-sports) industry”; title sponsorships and “regular spots within the event” are among the opportunities available to brands. The Fortnite World Cup, which will have players competing for their share of a $100 million prize pool, will begin in late ’19; qualifying tournaments, open to the public (i.e. you do not need to be a professional gamer) are scheduled to start in early ‘19.  Back in June, it was estimated that 125 million people worldwide play the battle royale game.

Howie Long-Short: Some are comparing the cost of a Fortnite sponsorship to a 30 second Super Bowl LII spot ($5 million), but a better comparison would be the $30 million that Formula One asks for a circuit sponsorship; F1 claims to have 500 million fans worldwide. Of course, just because Formula One is asking for $30 million, doesn’t mean it’s getting it (though F1 did recently sign a $100 million deal with Interregional Sports Group); in fact, the racing circuit grew sponsorship dollars less last year (+$11 million) than any time in the past decade; reporting just $273 million in sponsorship revenue.

Back in early August, Liberty Media reported rising costs (+$27 million) and declining revenues (-$31 million to $585 million) caused F1 operating income to decline a staggering -69% (to just $14 million) in Q2 ‘18. The company intends on reporting Q3 financials on November 8th. FWONK shares will open at $33.86 on Monday 10.22.18.

Riot Games is owned by Tencent (TCEHY). Company shares are down -22.5% (to $35.72) since China’s Ministry of Education recommended a restriction on the number of new video games, proposed a limit internet usage and said it would explore an age-appropriate rating system for players, back in late August; the Ministry blames video games and internet usage for the increase in reported cases of myopia amongst minors. Operating amidst heightened regulatory risk in Q2 ‘18, TCEHY reported a decrease in profits for the first time in 10+ years. The company will report Q3 earnings on November 14th.

Fan Marino: Elon Musk created a stir on Twitter (take a drink) Friday, by posting a screenshot of a MarketWatch story appearing to indicate he had purchased and subsequently deleted Fortnite (a move that would prevent others from playing). While Musk’s use of Photoshop was good enough to could convince readers that the story was true, inclusion of the quote “I had to save these kids from eternal virginity” gave away the prank (though it made me chuckle). It’s unclear if the joke violated newly issued guidelines (set by the Tesla board) for Musk’s social media use.

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F1 Signs $100 Million Sponsorship and Data Rights Pact, To Develop In-Race Betting Platform

F1

Formula One has announced a 5-year $100 million+ sponsorship and data rights deal with Interregional Sports Group (ISG) that will enable the development of a live in-race betting platform. The deal gives the sports marketing agency the ability “to sublicense betting partnership rights around the world”; rights packages said to include regionalized on-screen promotion, trackside signage and exposure across F1’s digital and social properties – where the promotion of sports gambling is legal (i.e. not all 21 race locations). Sponsors will not be permitted to offer odds within ads that run during grands prix. ISG will use Sportradar to create betting markets and provide its “integrity” monitoring services.

Howie Long-Short: The $100 million figure makes “the cost of acquisition per player very high”, leading some to believe ISG is using F1 as an entree to sports bettors hoping they’ll gamble on other sports. They’d better, the $100 million fee ISG will pay up front is more than the company’s annual revenue.

F1 teams are expected to split $921 million in ’18 prize money, which would be $45 million less than they received in ’16; despite an increase in the number of races. That’s because F1 teams split 68% of the circuit’s underlying profits and costs have increased significantly (think: rebranding, new headquarters, eSports) since the Liberty Media acquisition. The $921 million figure may represent a best-case scenario. F1 is facing the difficult decision to re-brand againcompensate 3M or engage in a costly legal battle with the manufacturing company over its new logo; though, that decision may not be made anytime soon. The European Union Intellectual Property Office (at the request of both sides) recently delayed the start of the adversarial part of the negotiations by 22 months (a “cooling off” period).

Rising costs (+$27 million) and declining revenues (-$31 million to $585 million) drove F1 operating income down a staggering -69% (to just $14 million) during the most recent quarter. FWONK shares closed at $37.59 on Thursday, up nearly 10% from when the company reported in early August.

Fan Marino: The deal comes at a time when the involvement of gaming companies in sports (around world, not U.S.) is being scrutinized more than ever before. Italy and Australia have already implemented bans/restrictions on betting advertisements during live sporting events and there is now talk similar bylaws could be set in the U.K., F1’s most lucrative broadcast market.

On Wednesday, Tom Watson, Deputy Leader of the Labour Party, called for a ban on all gambling advertisements during live sporting events, to address what he’s tabbed “a public health emergency” (gambling ads rose an estimated 600% between ’07 and ‘13). Watson’s plan also calls for a tax on gaming operators (1% of gross gambling yield), money that would be used to offset a portion of the recovery efforts and a prohibition on the use of credit cards to pay down bets.

One U.K. gaming operator, Sky Bet (TSG), is on record supporting the levy, but vehemently opposes a “blanket ban” on advertising and credit card payments saying those initiatives could push gaming companies to drop their license in the UK (as in theory, it would become a less appealing market); leaving gamblers vulnerable to “disreputable operators.” Good luck selling that, the odds of Sky Bet closing its U.K. division are infinitely long.

Did you know? 60% of clubs within England’s top 2 divisions (9/20 in EPL, 17/24 in Championship) have a gaming company represented on their kit. The Labour Party previously called for all to put an end to those sponsorship agreements, threatening legislative action should they fail to comply.

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F1 Experiencing Significant U.S. Viewership Growth, Operating Income Declines -69%

F1

Formula One returned to ESPN (ABC and ESPN2 also have races) this season following a 2-decade absence from the network and the racing circuit is experiencing significant viewership growth; particularly impressive, considering F1’s audience increased +70% over the proceeding 5 years. April’s Bahrain Grand Prix saw an average of 683,000 viewers tune in, making it the largest U.S. cable audience for an F1 race since ’12; while May’s Monaco Grand Prix recorded 809,000 viewers, the largest audience to watch an F1 race on cable-television since 1995. The encore presentation on ABC drew another 2.1 million viewers, reflecting a +40 YoY increase on the live and tape-delayed broadcast audience figures. It’s worth mentioning that ESPN is running a simulcast of Sky’s F1 broadcast coverage.

Howie Long-Short: F1 teams are expected to split $921 million in ’18 prize money, which would be $45 million less than they received in ’16; despite an increase in the number of races. That’s because F1 teams split 68% of the circuit’s underlying profits, and costs have increased significantly (think: rebranding, new headquarters, eSports) since the Liberty Media acquisition. The $921 million figure may represent a best-case scenario. F1 is facing the difficult decision to re-brand again, compensate 3M or engage in a costly legal battle with the manufacturing company over its new logo.

Rising costs (+$27 million) and declining revenues (-$31 million to $585 million) drove F1 operating income down a staggering -69% (to just $14 million) during the most recent quarter. FWONK shares closed at $35.15 on Friday 8.17.

Fan Marino: When Liberty Media took over Formula One in January ’17, it touted the “enormous” opportunity to add sponsors “in the short term.” Well, nearly 2 years later that prediction has yet to come to fruition. In fact, the racing circuit grew sponsorship dollars less last year (+$11 million) than any time in the past decade; reporting just $273 million in sponsorship revenue.

The circuit lost marquee sponsors Allianz and UBS in ‘17 and has yet to replace them, but annual escalators in existing pacts have prevented sponsorship income from declining in ‘18. For those wondering, the most notable deal F1 has signed this year was with Amazon Web Services; the agreement includes both traditional sponsorship and technology services that will enable the circuit to build out its digital capabilities.

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Fanatics to Replace Nike as Exclusive Manufacturer/Distributor of NFL Fan Gear

Fanatics 200x200

Starting in 2020, Fanatics will become the exclusive manufacturer and distributor of all Nike-branded, adult-sized (i.e. no kids), NFL fan merchandise. The league wants a partner with on-demand production capabilities so it can provide fans with “instant gratification” (think: Chiefs fan who seeks rookie Kareem Hunt jersey after 246 total yards/3 TDs in season opener) and maximize revenues; as opposed to the consumer finding the product “out of stock” (Nike would not have printed the jersey of a 3rd round selection in quantity before the season) and leaving money on the table. Fanatics produced Nike fan gear (to include the Swoosh) will be sold on NFL Shop (Fanatics controlled), on all team sites and in all team stadiums (some of which Fanatics controls), through Fanatics.com and also at brick and mortar retailers like Dick’s, Modell’s. Nike will continue to manufacturer jerseys and the balance of their on-field product line for players and coaches. The deal runs through 2029.

Howie Long-Short: Sure, fans will benefit from Fanatics printing on demand, but this deal doesn’t happen unless everyone involved was going to benefit. Nike had been compensating NFL owners with a percentage of the wholesale price on all merchandise sold, but the new deal entitles team owners to a percentage of the retail price on products sold through Fanatics — in addition to their cut of the wholesale price on sales to brick and mortar retailers. Increasing the take on retail sales will help the league continue to grow the pie, particularly with Fanatics’ ability to increase sales by an estimated 50% over the life of the deal (thanks to its wide product line and on demand availability). Commissioner Goodell has openly stated the league’s intention to generate $25 billion in revenue by 2027 (currently at +/- $14 billion). NFL owners will receive ancillary benefits (think: increased valuation) from Fanatics’ “higher sales base”, as the league is a minority investor in the company.

As for Fanatics and Nike (NKE), they’ll come out on top too. Fanatics will increase sales (and ultimately their valuation), while Nike can refocus on what it does best – develop best in class sports performance footwear and apparel. Nike may not make more money with this deal, but any losses will be negligible since they’ll gain extra exposure with more Nike NFL product sold. MLB was the first to pursue this on-demand DTC model that split the rights between a performance brand and Fanatics, but with the NFL now on board it’s safe to say we’re looking at the future of fan gear sales – one’s an accident, two’s a trend.

There are a couple of ways to play Fanatics, as Alibaba Group Holdings (BABA) and Softbank (SFTBY) are stakeholders. In September ‘17, Softbank invested $1 billion in to the company at a valuation of $4.5 billion (+/- 2x revenue), bringing the total capital raised to $1.7 billion. Fanatics is well positioned for long-term success, maintaining exclusive long-term licensing agreements with all the major U.S. sports leagues through at least 2030.

Fan Marino: Fanatics has had a busy month, doing a deal with Aston Villa to become the exclusive licensing rights holder for all club merchandise (noteworthy as they’ll be competing with the big apparel brands) and another with Formula One (FWONK) to become the exclusive merchandise retail partner on race-day (they’ll have an enclosed Superstore in the Fanzone) and online. F1 fans can expect a wider range of merchandise for each of the 10 teams and custom gear designed for each of the 21 Grand Prix.

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Formula One Coming to Miami in 2019

F1

The Miami City Commission and Miami Dade County’s Economic Development and Tourism Committee voted 5-0 to “bring the Formula 1 Racing Circuit to the City of Miami for the Formula 1 Miami Grand Prix from 2019 to 2028”. The unanimous vote means Formula One will now draft a host city contact for review prior to July 1. Assuming the deal is consummated, the Miami Grand Prix will take place in October 2019 (between circuit stops in Austin and Mexico); with a 2.57-mile street track proposed to run through downtown Miami, by American Airlines Arena (home of the Heat) and over Biscayne Bay. Liberty Media Corp., which has spoken extensively about increasing its presence in the U.S., is also reportedly exploring the potential for races in Las Vegas and New York/New Jersey.

Howie Long-Short: Liberty Media Corp. (LMCA) reported Q1 ’18 earnings of $131 million on $1.5 billion in revenue (+9% YoY), but Formula One Group didn’t contribute to those profits; F1 reported an operating loss of $118 million during the first quarter.

The F1 TV Pro streaming service launched ahead of this past weekend’s Spanish Grand Prix, but unfortunately it made a less than stellar first impression. Subscribers of the $89.99 (annual) service complained of issues with audio, buffering and video display. F1 (FWONK) has since announced they will be refunding subscribers 2 weeks’ worth of subscription fees, but that’s unlikely to appease fans unhappy about missing the race. Of course, while that will hurt Q2 revenue, it’s not a reason to panic; you may recall Amazon’s NFL coverage got off to a rocky start and they managed to quickly resolve the issues.

Fan Marino: Formula One has applied for a trademark on the “shoey”, a traditional Aussie “celebration” (stemming from early 2000’s surf culture) where one drinks alcohol from a worn shoe (it looks as strange as it sounds, here’s video). While Daniel Ricciardo, an Australian driver who competes for Red Bull racing, has been credited with popularizing the tradition within the sport; it was Australian MotoGP rider Jack Miller to first do it on the podium back in June 2016.

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DRL Announces Global Expansion, Title Sponsorship Extension

DRL 200x200

The Drone Racing League (DRL) announced global expansion and a new major media partnership. On Saturday June 16th, the DRL will bring the first pro drone race to Allianz Riviera Stadium in Nice; Level 5 of the 2018 Season. Groupe AB, a French content producer/distributor/aggregator, will carry the race; becoming the first broadcast network to bring DRL to the region. In related news, the drone racing organization announced the extension of its partnership with the circuit’s title sponsor Allianz to 5 years.

Howie Long-Short: There are several ways to play DRL with Liberty Media, Allianz, World Wrestling Entertainment and Sky all maintaining stake in the circuit. While DRL does not share equity details, it is known that the U.K. satellite provider (SKYAY), John Malone’s Liberty Media complex and Lux Capital (privately held) led the organization’s $20 million Series B round in March 2017.

As for Groupe AB, the company was acquired by the production-distribution group Mediawan for +/-$290 million in January 2017. GroupAB, widely distributed throughout French speaking Europe and Africa, is now at the center of Mediawan’s business; which is rapidly expanding as the company scoops up content generators across fiction, animation and documentaries. Mediawan trades on Paris’ Euronext under the symbol EPA: MDW.

In late March, MDW reported FY17 financials; including $198 million in revenue (3% above target) and $49 million in EBITDA. CEO Pierre-Antoine Capton noted that a “substantial international appetite for original European productions” will lead to international expansion, across Europe, in 2018.

Fan Marino: Back in 2008, New Meadowlands Stadium, LLC was in discussions with Allianz SE surrounding a naming rights partnership for the Jets/Giants new venue. However, overwhelming outrage over the company’s past association with Nazi Germany (learn more, here), forced the developer to break off negotiations. I had to ask DRL CEO Nick Horbaczewski if the racing organization had any reservations about associating with the Munich based financial services company?

Nick: “We’re thrilled to have extended our title sponsorship with one of the world’s leading insurance companies, Allianz, who has partnerships with iconic brands all over the globe, including legendary art museums like MoMA, innovative sports leagues like Formula E, and historic football teams like FC Barcelona.”

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Liberty Media Details Plans for Formula One

F1

Liberty Media (FWONK) has unveiled its plans to make Formula One more competitive, in time for the 2021 season (following expiration of the Concorde Agreement). The adoption of a team budget cap (+/- $150 million, would not include driver salaries), more equitable distribution of prize money (Ferrari will retain a bonus, albeit 60% less) and technical changes designed to make engines simpler, cheaper and louder were among the changes proposed (along with modifications to the sport’s governance and regulations). To increase overtaking, FWONK is working to reduce the impact of engineering technology; as the most powerful cars have been minimizing the impact of the driver. F1 Chairman Chase Carey indicated that the individual teams would have the ability to share their opinions on the proposed rule changes before any decisions are finalized.

Howie Long-Short: In early March, we noted that Liberty had introduced F1 TV; a subscription-based OTT service that will carry commercial-free live race streams (beginning with the start of 2018 season on March 25th), live video from 20 in-car driver cameras, coverage of qualifiers, practice footage, highlights and press conferences. F1’s head of digital and new business Frank Arthofer believes the platform can eventually generate $500 million in revenue (would boost company revenue +28% over ’17 results), crucial for a sport that has all but maxed out the traditional revenue streams (see: race hosting fees, ticket sales). I asked Octagon SVP (Global Media Rights Consulting Division) Dan Cohen if it would be feasible for F1TV to generate $500 million in revenue within 12 months of launching the platform?

Dan: I don’t think so. The U.S. market is still not in love with F1 and to generate the type of revenues they’re talking about (that must occur). They’re more than 12 months away from turning the casual U.S. sports fan into an F1 fan.

JWS: They tout 500 million fans worldwide. Do they really need the U.S. market?

Dan: They need the U.S. market if they want to provide a return on investment for Liberty.

Editor Note: We’ll have Part 1 of a wide-ranging interview with Dan, on everything from ESPN+ to the first global broadcaster of sports, in tomorrow’s newsletter.

Fan Marino: In December ’17, Ferrari CEO Sergio Marchionne indicated that his team would leave Formula One “in 3 seconds” at the expiration of their contract (2020), if “simple and cheap engines like NASCAR” became standardized; Marchionne even floated the idea of forming an “alternative championship” to start in 2020-2021. I’m calling his bluff. While Ferrari chose not to publicly respond to FWONK’s presentation, Mercedes said that many of the “ideas and proposals have been either overdue or necessary or good”; while McLaren has said it’s on board with Liberty’s fan-centric approach.

Aston Martin CEO Andy Palmer said, “the prospective changes support many of the requirements needed” for their company “to enter the sport as an engine supplier.” One suspects Aston Martin’s interest in entering the sport would be to raise the company profile ahead of a pending $7 billion IPO. While more than 90% of the luxury sports car maker is privately held (Kuwaiti investors + Italian PE firm), you can play Aston Martin via Daimler AG (DDAIF); which owns 5%.

Fun Fact: Mercedes driver Lewis Hamilton wears +/-$158 million worth of sponsorship logos (12 companies) on his fire suit. To put that number in perspective, Manchester City’s jersey sponsorship deals with Puma, Etihad and Nexen only total +/-$134 million.

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