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

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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”

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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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Islanders Returning to Long Island as Barclays Center Opts for Concerts Over Hockey

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Crain’s New York Business has reported hearing rumors indicating that the New York Islanders will play the entirety of their 2019-2020 home schedule (and presumably the ’20-’21 home schedule) at NYCB Live’s renovated Nassau Coliseum, the club’s home from 1972 through 2015. The team’s 4-year lease at the Barclays Center expires at the completion of this season and with the venue experiencing +/- $50 million in hockey-related losses over that time, it would seem highly unlikely that the pact will be extended; Barclays Center believes it can generate more revenue booking concerts (it’s the 4th most popular concert venue in U.S.) than it can hosting hockey games. The Isles hope to move into a permanent home – a new privately financed $1.2 billion arena at Belmont Park – in time for the 2021-2022 season; as the rumor goes, the team has already “secured state approval” to build on a site next to the racetrack and plans to break ground this spring.

Howie Long-Short: The Barclays Center’s deal with the Islanders has contributed to its underperformance (at least relative to internal projections). The building guaranteed the club $55 million/season in exchange for control over team ticketing and concession revenues, but during 2017-2018 season Barclays Center failed to break-even – taking in just $43 million in ticket and F&B sales. Barclays reported a net cash loss of $21 million last season.

Ticket sales revenue is underwhelming because the team is drawing less than 12,000 fans/game (a league low), but that figure has more to do with the building’s architecture than it does the team’s fan base. Remember, Barclays Center was built to host Nets games and concerts – hockey never figured into the plans. As a result, +/- 20% of the seats (17,000+ for basketball) have obstructed site lines and are intentionally left unsold when the venue is configured for hockey.

The Islanders won’t play another game at Barclays Center unless the club advances past the first round of the playoffs. The team will play out the balance of its regular season schedule and its first-round playoff series on Long Island. Of course, should the Brooklyn building host playoff games it would be a tremendous boon to its bottom line – it’s been estimated that each home playoff game could be worth upwards of $1 million in revenue.

While the Islanders are on the way out, the Crain’s piece cited a Nets representative who indicated the team is gaining momentum within the borough. Ticket revenues are up +20% YoY and the club has sold twice as many “early-bird season-ticket packages” for the 2019-2020 season.

Fun Fact: The Barclays Center was the first arena to cost over $1 billion.

Fan Marino: The Islanders have acknowledged The Barn “does not qualify as an NHL major league facility”, but with no other viable options and a rabid fan base on the Island, it’s sensible for the team to return to Nassau county for the next 2 seasons. The building won’t seat any more people (capacity is 13,917) and there still isn’t nearly enough luxury suites (11 vs. Barclays Center’s 101), but it should look better – and it has new bathrooms – after having undergone a $180 million renovation. There’s no question where Islanders coach Barry Trotz prefers to play. He’s suggested that the Coliseum’s atmosphere “is worth at least 10-12 points [in the standings].”

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Stadium Shrinkage En Vogue as “Time Has Become More Valuable Than Money”

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Pro sports venues are shrinking. The Braves, Marlins, Twins and Yankees have all downsized since ‘09 and the Tampa Bay Rays plan to reduce seating at Tropicana Field from a league low 31,042 to between 25,000-26,000 this season. The Falcons, Vikings, 49ers, Colts, Cardinals and Rams (+Chargers) all opted to go small (71,000 seats or less), as well, with their new venues and the 65,000-seat building that the Raiders are building in Las Vegas will be among the league’s 5 smallest; only the Cowboys and Jets/Giants have built stadiums with more than 80,000 seats this millennium. It’s not just American franchises looking to create a more intimate environment for their fans, either. Italian rivals AC and Inter Milan have signed a memorandum of understanding to either modernize the 80,000 seat San Siro or build a new venue; either way, the clubs plan to reduce capacity to 60,000 seats.

Howie Long-Short: Shrinkage is en vogue because fewer people are going to games. Advancements in the in-home viewing experience (everything from HD to VR) have made it more difficult “for the clubs to attract fans to the stadium” – as has the increased competition (see: esports) for fans’ time, money and attention. Those dynamics won’t be changing, so pro sports venues will continue to get smaller and more efficient. Raiders President Marc Badain insists there’s an NFL “team who is looking to build a stadium in the next 10 years, talking about going to 50,000 seats.” That’s a shocking low figure when you consider that no team (playing in a permanent home) seats less than 61,500 (Bears).

To draw fans, pro sports teams are going to need to create an in-stadium experience more rewarding than what a fan receives on their couch. Andy Dolich, president of the sports consultancy Dolich Consulting, explained that “time has become more valuable than money, so fans simply aren’t going to attend as many games as they used to – and when they do visit the ballpark, they expect an incredible experience.” Creating that memorable experience begins with bringing fans closer to the action, but it also must include better service (think: food options, parking), access to mobile technology (think: sufficient Wi-Fi) and non-traditional seating (think: social spaces); Millennials and Gen-Z’s with shorter attention spans aren’t going to sit in a seat for 3+ hours, they want to interact with each other.

Event psychology has also begun to play a larger role in consumer decisions (like buying tickets), so it’s crucial that teams treat each game as a marquee “event”. Andy says “show fans that what you’re offering is special and they’ll be back – if it feels routine, they won’t. Fans want to go – and will go – to the biggest games and the biggest events.”

Moving to a smaller venue doesn’t necessarily hurt a team’s bottom line. For NFL clubs that will take in $255 million in broadcast revenues in 2019, selling fewer tickets will have little impact. Ticket prices will rise – to help off-set losses – in leagues where clubs are more dependent on gate receipts (+ food, beverage and parking), but Andy said that teams will make up most of the lost revenue from “all of the digital applications that enhance remote game viewership and with the proceeds from the commercial components (think: retail space) of these stadium real estate plays.”

Speaking of real-estate, the trend of teams moving away from multi-purpose suburban venues to downtown stadiums is another factor contributing to the shift in building sizes – there’s simply less property to work with in the city.

I asked Andy for his thoughts on how large the next generation of NFL stadiums, NBA/NHL arenas and MLB parks would be. He told me that, “baseball will likely drop down into the mid-30s, perhaps a little bit less. The indoor winter sports venues will probably cut seating down to between 14,000 and 15,000 and I think the outdoor stadiums will be cap capacity around 50,000.”

Fan Marino: There’s a case to be made that shrinkage has been a critical factor in MLS’ success. When the league launched in 1994, 80% of the league played in venues with 60,000+ seats (Spartan Stadium in San Jose and RFK Memorial Stadium in Washington were the outliers). By 2002, the league was contracting teams and on the brink of failure. It wasn’t until the LA Galaxy introduced the soccer-specific Dignity Health Sports Park (then the Home Depot Center) in 2003, did the league’s fortunes begin to change. Since that time 14 other clubs have built 25,500 seat (or less) venues and league expansion fees have risen from $10 million in ‘07 to $150 million in ‘18.

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EPL Considers Introduction of OTT Service, Opportunity to Treble Broadcast Revenues

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The English Premier League has reportedly considered the launch of an exclusive direct-to-consumer streaming service that would replace traditional broadcast channels. The league is eager to grow revenues after the value of their domestic broadcast rights package [for 3 seasons] declined from $6.6B to $6.0B during the most recent negotiation cycle. The Sunday Times indicated that the top-flight league intended on testing the OTT streaming service in Singapore, but shelved those plans in favor of extending Singtel’s television rights through May ’22.

Howie Long-Short: Former Crystal Palace chairman Simon Jordan initiated the push to follow the NFL’s lead and “become a broadcaster in its own right.” Jordan envisioned a day where the league “controls its own product”, which would enable it to treble “the revenues it currently gets.” Jordan figured “if you had 100 million subscribers [to an OTT service] at $10.45/mo., you’d be bringing in $13.06B/year – not $11.36B every 3 years like the current [television] deal does.” When the EPL ultimately launches its exclusive OTT service, it’s going to have a devastating impact on the league’s current pay-TV broadcast partners (think: Sky) who rely on soccer rights to attract subscribers.

Simon Jordan’s math is correct, but Wayne Sieve, EVP of Thuuz Sports, explained that an OTT platform isn’t necessarily the attractive proposition it appears to be. “For the EPL to really capture the revenue figures [Jordan] projected, it would have to go exclusive and put all league matches behind a paywall. Club owners would need to be able to stomach the loss of billions of dollars in traditional broadcast revenues as the league works to convert cable viewers to its new digital service; a process that won’t happen quickly. And don’t forget all the marketing muscle (think: tune-in promotions, shoulder programming) that the league’s current broadcast partners bring to the table. There’s an attraction to what an OTT service could one-day bring to the league, but I don’t see how taking on all the risk in the short-term would be a smart move. If the EPL is going to introduce a direct-to-consumer relationship with fans, it would be better served by making it additive (think: NBA’s 4th quarter option) and migrating fans over slowly.”

If the EPL were to introduce a subscription based streaming service, it makes sense to do it in a non-domestic market (like Singapore) without a lot of value – a market where there is zero (or limited) opportunity cost. That dynamic would give the league the opportunity to learn from the data it collects and to iterate and fine tune its technology without feeling the pressure from lost revenues. That said, a market like Singapore brings on its own sets of challenges. “With live sports, charging the consumer only really works if there is no free alternative. If you can’t ensure exclusivity and control access to the programming – and in markets where piracy is rampant [like Singapore], that’s going to be a challenge because any individual can create that pirated stream – it’s very difficult to feel comfortable operating a consumer subscription service.”

The sky isn’t exactly falling on the EPL. While the league’s domestic rights took a haircut, global media rights continue to grow. The Premier League will take in $11.7 billion over next 3 seasons.

The value of domestic and international rights may be headed in opposite directions, but it’s important to understand that the packages are not comparable; the league’s U.K. television offering pales in comparison (200 games available via live broadcast) to the overseas rights package it sells (all 380 games).

Fan Marino: The U.S. market is among the EPL’s most valuable, but the value of its broadcast pact with NBC (worth $1B/6 years) lags far behind the league’s domestic package – despite the U.K. having a fraction of the population. An OTT service might provide the EPL with the opportunity to increase revenues in the U.S. market, but Wayne doesn’t see that as a viable solution to growing the bottom line. The time zone is going to be a challenge as long as the best content experience remains watching live, especially on the west coast where you’re 8 hours removed from the broadcast window. There’s always going be a limitation on demand.”

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Start-Up Football League Sees Trevor Lawrence As Its Answer to AFL’s Joe Namath

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The Pacific Pro (Pac-Pro) league (to debut in 2020) wants Clemson quarterback Trevor Lawrence – the projected #1 overall selection in the 2021 NFL draft – to be its Joe Namath; the University of Alabama star left school early to join the New York Jets and be the face of the start-up AFL. While NFL rules prohibit players from entering the draft until 3 years after from H.S. graduation, Pac-Pro league founder Don Yee said his league “would like to make [the CFP National Championship MPV] an employment offer [and] professionalize him right away”; to date, elite underclassman have lacked an alternative to the NCAA. Yee (Tom Brady’s agent) insinuated that Adidas (a founding sponsor of the Pac-Pro league) would also “make [Lawrence] an endorsement proposal” if the freshman were to turn pro after next season. Lawrence has yet to acknowledge the opportunity.

Howie Long-Short: Trevor Lawrence is going to have the opportunity to make significantly more money than Joe Namath did as a professional, so while his addition to the Pac-Pro league might provide a comparable boost to the league’s legitimacy, Lawrence faces a far more complex decision. Eric Winston played 12 years in the NFL and has served as the NFLPA President since 2014. I reached out to Eric to gain perspective on the decision Lawrence will face after next season, to learn of any risks associated with foregoing a collegiate football career and to find out how the NFL would view a prospect that opted to take the Pac-Pro route.

Yee’s pitch to Lawrence sounds attractive. Is there a case to be made for a projected Top-10 selection to pass on a payday, further risk injury (more demanding schedule) and forego the coaching meant to prepare players for the NFL – to play college football?  

Eric: I always tell guys, you’re a business – you should be making decisions in the long-term interests of your business. So, how much money are we talking about here? If the Pac-Pro league is offering Trevor [or another top prospect] $10 million for the 2020 season, well that’s a different conversation than if they’re offering $50,000 and the ability for him to market his own likeness. As funny as it may sound, a college education still matters to a lot of guys – more so than people realize. Every player is going to become a retired athlete before the end of their 30s, so, there is value in a degree.

Top players like Trevor also need to consider if the preparation they’re getting at programs like Clemson, Michigan, Alabama and Miami (Eric’s alma mater) is better than what they would get in a subpar league relative to the NCAA. It’s not helping a player’s long-term potential if they come into the NFL under-developed. If you’re thinking of yourself as a business, you can’t be thinking about where you can maximize your money next year – you need to be thinking about how you can maximize your money for the next 20 years.

You referenced preparation, but what specifically would a player who bypasses college football for the Pac-Pro league be missing out on?

Eric: You can assume that the coaches in a start-up league aren’t going to be as accomplished as coaches leading P5 programs. It’s safe to say that the medical personnel won’t be as talented. The strength and conditioning programs and prehab regimens aren’t going to be as advanced as what a player would find in the NCAA; and you’re not going to find many NFL teams with better facilities than what the elite college programs have. 

If Lawrence were to become the Pac-Pro’s version of Joe Namath, should he be concerned about how NFL teams would view his decision to play against lesser competition?

Eric: Isn’t that the argument that teams were making three years ago when guys started skipping bowl games – that they wanted players who would compete? Then guys like Fournette and McCaffrey called their bluff and they’re still being taken in the top 10. The majority of NFL teams are going to field the absolute most competitive team that they can. Let’s say Trevor plays next year and then decides to sit out his junior season [and not play at all]. Is there any doubt he would still be among the top overall selections in 2021? Sure, he’ll face questions about why he sat out the season, but if an NFL team thinks that he can make them better, they’re going to pick him. 

Unless Adidas is willing to write a check that Lawrence can’t refuse, expect him to suit up for the Tigers the next 2 seasons. Playing for Dabo should keep the 6’5 QB on track to become the top overall pick in 2021, when he would be in line to sign a rookie contract with a total value close to $40 million.

Fan Marino: Looking strictly at the Pac-Pro league from a business standpoint, the model is fascinating. All 4 of the league’s teams will be in Southern California – eliminating costly travel expenses, player salaries are manageable (avg. $50K vs. $250K/3 years in AAF) and unlike the AAF and XFL, they’re not pulling players from the NFL scrap heap.

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Can a Customized, Interactive Viewing Experience Solve Sports’ Existential Threat?

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Sports broadcasts have remained virtually unchanged over the last 50 years – 2-3 guys in a booth, a long shot, a bunch of replays and some commercial interruptions. But fundamental shifts in the behavior of digital natives has forced rights holders to offer a more customized, interactive viewing experience. ESPN has announced that “portions of the X Games Aspen 2019” will be available on Caffeine (a social broadcasting platform) and the G-League announced it has extended and expanded its streaming pact with Twitch; both platforms will give viewers the chance to “host their own interactive streams” with commentary free broadcasts. The NFL has yet to make the leap into user generated content, but Amazon Prime Video has announced that Hannah Storm and Andrea Kramer will return to call Thursday Night Football games on a secondary streaming feed in 2019 (Joe Buck/Troy Aikman have the call on the main feed).

Howie Long-Short: Tom Richardson, a former media exec at the NFL, NHL and AOL, is the head of strategy and development for Mercury Intermedia (a leading mobile and connected TV app developer) and a professor at Columbia University, where he teaches digital media in the Sports Management grad program. To give you a better idea of what a customized interactive viewing experience would entail, Tom says “envision private viewing rooms. Essentially a Skype or Zoom-like experience where you and your friends can take the party. The environment would enable you to see everyone’s faces, offer real-time commentary, share content and post emojis.”

It sounds like you’re describing Caffeine and Twitch. Are one of those companies (or another social streaming platform) the future of live sports broadcasting?

Tom: There have been various attempts throughout digital media history to create alternative digital consumption environments for content, but aside from the big social platforms, the only one that has really had success at scale is Twitch. The TV outlets realize that to appeal to and attract younger millennials and Gen-Z digital natives they’re going to need to provide customization elements – we’ve raised a generation of viewers who’ve had the ability to dictate how they consume media. So, the question is, even with new viewing options and user experiences, will it be enough to attract and retain young fans. It’s an unprecedented challenge for the business.

Doesn’t the fact that Caffeine and Twitch have 21st Century Fox and Amazon, respectively, backing them, create an advantage?

Tom: Yes, but there are no guarantees. Looking back, there’s a fair amount of roadkill – startups that came in with the expectation that the property – because if its promotional reach and clout – would be able to change user behavior. But alas, there have been very few examples of success. 

If viewership for live sports programming is declining, how can any rights holder justify additional broadcasts?

Tom: It’s about evolving the core product. We can’t assume millennials, Gen-Z, with a very different mindset about media, are going to sit in front of the TV and watch a 3-hour broadcast with 70 30-second commercials – especially with so many grazable highlights, GIFs and memes available.. Rightsholders need to look at it as a marketing challenge vis-à-vis audience segmentation – and to draw this young crowd you need to give them more options. Choice is an essential ingredient in modern media.

So, you would continue to throw good money after bad (as it relates to a declining audience)?

Tom: I would think of it as an investment in audience development. If you are a major sports league and you’re thinking about the future, then the answer is you absolutely put money into it. What other option do you have? Do you want to look at a potential barren wasteland of significantly fewer fans 10, 15, 20 years from now? Because it will be if you don’t actively develop the millennial/Gen-Z fan. I think we’re looking at a serious maybe even existential threat, at least for some sports – over the next couple of decades; especially with sports that don’t translate well to modern media or are relatively unpopular with young people. Remember, another huge factor is the rapidly growing competition from native digital sports – most notably video gaming.

Don’t these alternative platforms pose a threat to traditional broadcasters – and ultimately to the billion-dollar TV deals the leagues have with them? (lower ratings = lower media value)

Tom: If the viewers are not there in the first place – which is the case with certain leagues and demographics now – then, what is there to lose? It’s not like they’d be siphoning off existing users. Maybe you appeal to a percentage of millennials or Gen-Z that aren’t currently tuning in. I don’t want to be overly glib about it, but if young fans are not watching your games and they’re disengaging from your sport – forget about TV ratings, you need to be proactive in warding off a future disaster scenario.

Fan Marino: While on the topic of rights agreements, Sports Illustrated recently announced it has inked an agreement with Liverpool FC to carry matches on the subscription streaming service SI TV. However, with NBC holding the exclusive rights to broadcast Premier League games in the U.S., Liverpool game broadcasts on SI TV will be subject to a 7-hour delay. The premise of taking a club that has among the biggest audiences in the U.S., buying their broadcast rights and building shoulder programming around them is logical. “Like all skinny bundles, the primary way they can have any success is to get exclusive or semi-exclusive third-party content, but broadcasting on delay doesn’t make much sense. Serious fans will purchase Liverpool TV and casual fans seeking out highlights, can find them on social.”

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