Marquee MLB Free-Agents Remain on Market, Whispers of Collusion

MLB2

Pitchers and catchers report in less than a month, but marquee free agents remain unsigned (see: Arrieta, Moustakas and Hosmer); and with just 51 players (includes just 13 position players) signed thus far this offseason, for a total of $655 million, whispers of collusion exist. Last week, executives from MLB and the MLBPA met to discuss the concerns; with MLB issuing the statement “there are a variety of factors that could explain the operation of the market. We can say that without a doubt collusion is not one of them.” That’s unlikely to sway the opinion of the MLBPA, which believes there is a template (which goes against the concept of free agency) for superstar player contracts; 3 years or $20 million plus annually, but not both.

Howie Long-Short: Franchise values have increased from $18.1 billion to $46.1 billion over the last 5 years and MLB will generate $10 billion in revenue this year, so it’s not like there isn’t money to pay the players; teams have just come to the realization that the money is better spent on younger, cheaper ones. As one league executive put it, “we pay players the minimum for three years and arbitration for three or four years, and then they get paid more in free agency for their decline?” Team’s wisely aren’t looking to reward past performance, they’re paying for future production. Is it collusion if everyone comes to the same intelligent decision?

Fan Marino: Sure, it’s likely that a handful of teams are saving for next off-season when Harper/Kershaw hit the market, and it’s true that star young players are signing under-market long-term deals (to guarantee their big payday); but, the rest of the proposed excuses for the cold-stove are nonsense. Teams aren’t waiting on Boras’ guys to sign, Ohtani and Stanton weren’t stalling the market, teams like the Yankees and Dodgers aren’t concerned about the luxury tax threshold and there isn’t a team owner in the league that doesn’t want to win (in the name of profits). The cold stove is a product of baseballs fundamentally flawed economic system (i.e. no floor on team spending). I suspect a strike is on the horizon; the current CBA expires following the 2021 season.

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DraftKings Increasing in Size by 75%, Pivoting to Legalized Sports Gambling?

Draft Kings

DraftKings has embarked on “an aggressive hiring campaign”, designed to increase the size of the company by 75% (from 425 to 700+) over the next 18 months; with 600 employees relocating to new office headquarters (still within Boston, but 105,000 SF), in 2019. The announcement comes just weeks after the SCOTUS heard New Jersey’s argument to revoke the federal ban on sports betting; a decision that many have assumed, if it were to go in NJ’s favor, would signal the end of daily fantasy sports. Instead, DraftKings is doubling-down; looking to build on its edge over rival FanDuel and continue to expand internationally (currently in UK, Ireland, Germany and Austria). The private company would not release user acquisition or revenue figures, but says both are up YOY.

Howie Long-Short: CEO Jason Robbins referenced the development of new products and the diversification of offerings in the company’s press release, leading many to assume he’s talking about legalized gambling. While the company owns a valuable user database that would significantly help its transition into the sports betting space, several pro sports leagues (see: MLB, NHL) are invested in the company; complicating a potential pivot. Then again, you don’t increase your staff by 75% to simply license your database; I would expect DraftKings to overcome the hang-ups and look to get-in on the sports betting gold rush.

Fan Marino: While DraftKings focuses on growth, FanDuel focuses on profitability; a goal it expects to reach for fiscal 2018. Why? There are rumors the company is actively pursuing a buyer.

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Rising Cap, CBA Clauses Change NFL Team-Building Strategy

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The NFL salary cap has risen from $120 million in 2012 to $167 million in 2017, escalating $10 million annually over the last 4 years; while the value of rookie contracts has simultaneously declined after the players negotiated to increase cap allocation for veterans, within the 2011 collective bargaining agreement. The current CBA also allows for teams to roll over available cap space to the next season, creating a situation where teams can stockpile money (see: Browns, 49ers and Jets all have over $100 million to spend this offseason). Those large sums of available cap space have changed the perception that free agency is a collection of desperate teams overpaying to acquire talent on the decline, to a viable roster-building strategy with empirical data to support those beliefs; 6 of the top 10 spenders during the 2016 offseason made the 2017 playoffs, with the Jaguars (spent $20 million more than anyone else last offseason) turning it around from 3-13 to 10-6.

Howie Long-Short: NFL players are underpaid relative to athletes in other professional sports. Their careers are shorter, their contracts are rarely guaranteed in full and there are simply far more players divvying up the revenue allocated. NFL teams also don’t tie contracts to a percentage of the salary cap, so as the cap rises, star player contracts become relative bargains. Only once a player receives a franchise tender (a tactic used to retain valuable free-agents) is the contract tied to a percentage of the salary cap, and even then, it’s an average of the Top 5 players at the position or a 120% increase from the year prior; far less than a player could earn on the open market.

Fan Marino: The Jets gave up a 1st and 3rd round pick to acquire restricted free-agent (and current HOF) Curtis Martin in March of 1998. There was another 1998 free-agent signing that receives far less acclaim, but deserves to be recognized among the all-time great free-agent acquisitions. In February of 1998, the Jets made Center Kevin Mawae the highest paid player at the position with a 5-year $17 million contract. Mawae, who went on to play 8 seasons with the Jets, including 7 times as a First Team All-Pro, is a 2018 HOF finalist. Pro-football-reference.com, compares Mawae’s career to those of Mike Webster, Gene Upshaw, Jim Otto, Larry Allen, John Hannah, Gary Zimmerman, Will Shields, Walter Jones and Jonathan Ogden. What do all those guys have in common? Their busts reside in Canton, Ohio.

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11 States Expected to Pass Gambling Legislation in 2018

Scotus

The SCOTUS will decide by June 30 (likely in April or May) if it will overturn a federal ban prohibiting single-game sports betting in every state but Nevada. According to a new report by Eilers & Krejcik Gaming, should that occur, 18 states would look introduce sports better legislation before the end of 2018; with the expectation that bills would pass in 11 of them. The firm believes that upwards of 30 states will ultimately pass sports gaming laws, citing David Schwartz’s (director, Center for Gaming Research, UNLV) observation that there’s a “historical trend of states turning more to gambling”.

Howie Long-Short: Tax revenue is driving states to draft gambling legislation, but even if a state passes their bill prior to the SCOTUS issuing its decision on Christie vs. NCAA; this isn’t a plug and play situation (i.e. casinos aren’t opening a sportsbook the next day), hurdles remain. Brett Smiley, the Editor and Chief of SportsHandle, reminded a giddy Fan Marino “sportsbooks will still have to find quality personnel, including experienced sportsbook directors; which are in limited supply. There must be the right infrastructure, sensible rules and regulation; integrity monitoring, software, employees who understand it, and of course a tax structure that won’t doom the sportsbooks (i.e. 35% in PA) before they take their first bet.” In other words, don’t expect to be placing early season baseball bets at your local casino.

Fan Marino: If a bettor picks the winner of six horse races in a row, he/she is said to have hit a “Pick-6”. On December 29th at Gulfsteam Park, a bettor won 5 races in a row and appeared to be closing in on the 6th (and $571,744 in winnings); with his horse pulling away as it approached the finish line. What happened next, you must see to believe.

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Team Owners To Make Franchise Altering Financial Decisions

AC Milan

Rossoneri Sport Investment Lux acquired AC Milan in April for $905 million (Forbes valued team at $802 million), utilizing a $366 million bridge loan from Elliott Management to take control of the club and invest in high priced players. Now, with the loan coming due (and carrying a prohibitive interest rate), Li Yonghong and AC Milan are working to refinance the debt; though they just walked away from a proposed deal with Highbridge Capital, unable to come to terms on interest rates and the repayment period. If Rossoneri Lux is unable to pay off the loan, Elliott Management would take control of the Italian team. CEO Marco Fassone has promised the franchise would repay the debt before the October ‘18 deadline.

Howie Long-Short: Li Yonghong isn’t the only team executive making difficult financial decisions that will determine the ownership of a professional sports franchise; Grizzlies CEO Robert Pera must decide if he’ll be buying out the team’s minority owners or if he intends to sell the Memphis based NBA team. A unique clause in the partnership agreement gives minority owners Steve Kaplan and Daniel Strauss the ability to place a valuation on the team, 5 years after purchase. Pera then must decide if he’ll buy out Kaplan’s and Strauss’ shares at that price or if he’ll sell his majority stake to them, at their valuation. The group bought the team in 2012 for $377 million, and the Clippers, Rockets and Nets all sold within the last 12 months for more than $2 billion. While not the major markets NY, LA and Houston are, the individual(s) that sell their shares should still see a return of over 300%.

Fan Marino: Tom Dundon, who recently signed a purchase agreement (pending NHL approval) to acquire 52% of the Carolina Hurricanes at a $500 million valuation (Forbes values team at $370 million), will have a decision to make as well. In 3 years, he’ll have the option to buy the remaining 48% of the franchise from former majority owner Peter Karmanos Jr.; best known for moving the Hartford Whalers, just 3 years after he bought the team. Despite the league’s 2nd worst attendance (Islanders 31st), Dundon has no plans to relocate the franchise.

Exclusive: AC Milan’s dire financial situation is about to get much worse

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Famous Idaho Potato Bowl Gives IPC ROI of 2,000%+

ESPN and pro sports franchises certainly prop up the bowl system, but a closer look at one low-tier bowl game indicates that even with poor attendance sponsors can make money. Despite the ’17 Famous Idaho Potato Bowl drawing just 16,512 fans (in seats), the bowl was a success with 1.5 million watching at home on ESPN. According to the Idaho Potato Commission (IPC), a recent independent study indicated that a bowl television audience of 2 million viewers (the average for this game) equates roughly to a four-hour infomercial about Idaho potatoes; worth $13 million in media value. Even with just 75% of the anticipated audience tuning in (and that figure does not account for fans streaming), the Idaho Potato Commission (IPC) expects an ROI of over 2,000%.

Howie Long-Short: The returns have been so good, the IPC recently signed a 5-year extension worth $2.25 million to remain the title sponsor of the Boise based bowl game. What makes the IPC a sensible sponsor for this game, as opposed to the previous 5 corporations/organizations that paid to sponsor the event? The conferences tied to the game (MAC & MWC) contain schools located in 4 of the 5 states that consume the most potatoes. Know your audience!

Fan Marino: Lower-tier bowl games may struggle to put fans in the seats, but that won’t be an issue at Monday night’s championship game, projected to be the most expensive of all-time. With the game scheduled to be played at the Mercedes-Benz Dome in Atlanta, secondary market ticket prices jumped 15% following Georgia’s double OT win at the Rose Bowl and another 10% as Alabama rolled into the title game. Get in price (as of 7p EST on 1/1/18) for the game is $2,492, up 43% ($1,737) from last year and 1,133% ($202) in 2016. Looking to go to the game? TicketIQ, a leading ticket search engine, has a low-price guarantee on about 20% of listings for the game.

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Drew Brees, Von Miller Participate in $4 Million Fanchest Seed Round, Company Sells Team Themed Gift Boxes

Fanchest has closed on $4 million ($5.4 million total) in seed funding; capital the company will use to expand (25 more teams) its team themed gift box business and to increase customer repurchase rates. Each mystery chest (starting at $59) contains officially-licensed team apparel and other fan collectibles (valued at $80), plus a “golden ticket” giving the recipient a chance to win valuable prizes (like signed memorabilia or game tickets). Youth and baby versions are available, in addition to a premium offering that guarantees a player autograph. Drew Brees, Von Miller and DRL CEO Nick Horbaczewski participated in the investment round.

Howie Long-Short: In addition to the individual investors named, GoAhead Ventures (and Connected VC) participated in the seed round. GoAhead Ventures’ investment is noteworthy, as 2 recent Stanford graduates (both on Forbes’ 2017 30 under 30 list) are managing the $55 million venture capital fund and receiving all of the attention. While those 2 make headlines, it’s their partner TK Mori that brings the experience (and credibility) to this group; he’s 53 years old, has 3 IPOs and 5 M&A exits (from previous investments) under his belt.

Fan Marino: Speaking of autographs, Lou Holtz won 100 games and the ’88 National Title as the Notre Dame HC; but it was the 3 Championships he didn’t win (’89, ’90, ’93) that still stick in his craw. Holtz remains so upset that to this day, he signed an autograph for Steiner Sports with the note “1988 National Champs, Screwed in 89,90+93” inscribed under his name. RESPECT Magazine columnist (and friend of JWS) “Scoop B” Robinson talked to Coach Holtz, and had a chance to ask him about the custom inscription. For those wondering, Steiner Sports no longer offers the Lou Holtz “Screwed” helmet, but you can buy one with the words “Save Jimmy Johnson’s Ass for Me” for $599.99.

Fanchest raises $4M in seed funding to become the best gift for sports fans

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