Early Entrants: Vol. VIII – Is the NFL “Quietly Collaborating” with the XFL?

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Editor Note: Early Entrants is a bi-weekly series of sports business “rumblings” before the news breaks.

Is the NFL “Quietly Collaborating” with the XFL?

The Alliance of American Football’s inability to secure a formal partnership with the NFL (beyond its relationship with NFL Network) led Tom Dundon to shutter the league after just 8 weeks. While the media fixated on the NFLPA’s opposition to the idea, the NFL’s lack of interest may have had more to do with the discussions they’re holding with a different upstart football league; JohnWallStreet has heard that Vince McMahon’s XFL is “quietly collaborating with the NFL on a variety of rules and technology initiatives.” There’s no reason to expect the NFL to swallow up the startup league before McMahon burns through his $500 million war chest and any allocation of players between the two leagues remains “years away”, but it’s apparent that the XFL is closer to becoming the NFL’s minor league than the AAF ever was.

The Athletic “Hemorrhaging Capital at a Faster Rate Than Ever”

The pivot-to-video was considered a failure for many sports publishers (see: Fox Sports), but The Athletic is betting that original video programming (and their new podcast network) will convert fans into subscribers. They better be right with sources telling JohnWallStreet that the company is “hemorrhaging capital at a faster rate than ever”, but we wouldn’t count on it; as one industry insider professed, “video doesn’t work without live rights” and The Athletic doesn’t have live rights.

NASCAR Envisions the Opportunity to Generate Gambling Revenues Abroad

NASCAR has formally entered the gambling conversation with Friday’s announcement of their first data partnership (with Genius Sports). Most think of NASCAR as an American racing series, but sources have told JohnWallStreet that high ranking officials within the sport believe that “gambling can be a valuable source of revenue abroad too.” The UK bettor is knowledgeable about both auto-racing and gambling and races take place at a time of day when they won’t conflict with soccer; “that leaves an interesting engagement window for the casual fan looking to bet on live racing.”

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NHL’s 1st Round the Most Watched on Cable in 25 Years, Gen-Z Key to Continued Growth

NHL

NBCUniversal reported that the 1st round of the 2019 NHL Playoffs was the highest rated (Nielsen, Adobe Analytics) in 7 seasons (778,000 viewers, +1% YoY) and the most watched on cable television in 25 years (673,000 viewers, +18% YoY). 3 Game 7s – including the most watched 1st round game on cable since ’94 (Hurricanes/Capitals, 1.75 million viewers) – and use of the Total Audience Delivery (TAD) metric that accounts for streaming viewership explains the increase in eyeballs.

For the National Hockey League to continue to grow viewership in the years ahead (’18-’19 regular season: +2% YoY across all NBC platforms), they’ll need to re-condition a Gen-Z fan that prefers highlights to games. But to do that, the league must speak to that audience in a language that they understand” – which explains why the league formed the Power Players program; a council consisting of 13-17 year old hockey fans that will “provide insight and suggestions on matters including marketing, community engagement, events, social content and understanding rules of play.”

Howie Long-Short: A recent survey of over 400 Gen-Z university students (ages of 18-23) indicated that no major U.S. sports organization – save MLS – was doing a worse job of delivering the content and experiences that the demographic desires than the NHL, so the formation of the program is a step in the right direction. For it to be more than a publicity stunt though, Beal says the NHL will need to “truly listen to these Gen-Zs, gain an understanding of how to engage them and then follow through on the ideas generated. In an ideal world, every team/market would develop their own incubator.”

Mark Beal – the author of Decoding Gen-Z and an adjunct professor at Rutgers University – has long pounded the pavement urging “leagues and their teams to create a Gen-Z incubator. To bring teenage fans into the fold so they can gain a deeper understanding – beyond the numerical data – of trends occurring in real-time.” Considering that those born between 1995-2010 will account for 40% of all consumer spending by 2020, it’s a savvy move by the NHL.

To reach the Gen-Z audience leagues need to be distributing content and programming across the platforms they reside on, but Beal notes that “their media mix is completely different than every generation before – even millennials likely read the newspaper at one time. Whereas past generations looked towards ABC, NBC, CBS, New York Times and USA Today, Gen-Zs are turning to Instagram, YouTube, Spotify, Twitch, Hulu and podcasts. Leagues need to be creating unique content across a wide variety of channels to ensure they reach fans of all ages.”

The formation of an incubator and the implementation of a targeted content strategy will put pro sports leagues well on their way to effectively engaging the young sports fans, but Beal also suggests developing a network of nano influencers; “not celebrities or stars, just individuals with a passion for the sport and a few thousand followers that they have sway over. Gen-Zs tend to pay the closest attention to their friends and individuals with followings of 1,000 or 2,000.”

Fan Marino: NBCUniversal’s TAD metric accounts for fans tuning in across NBC, NBCSN, CNBC, USA Network, NBCSports.com and the NBC Sports mobile application. While the NHL managed to show a marginal increase in viewership in the face of “changing consumption patterns and cord cutting” (see: AT&T lost 544K TV subs, 83K OTT subs in Q1), the same can’t be said for the NBA; regular season ratings declined -12% YoY on TNT (they were flat on ESPN and ABC) and playoff viewership is down -19% YoY (through April 25).

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Sports Media Company Making Waves with Social Native Content, Distributed Newsroom Model

Wave

Turner Sports (see: B/R), ESPN and Barstool Sports were the Top 3 sports media publishers across social platforms (in the U.S.) during the month of March – based on Shareablee actions (think: reactions, comments, shares, retweets & likes) – with 439.1 million, 250.7 million and 87.4 million, respectively; the only other publisher to record more than 33 million actions during the month was Wave Sports Media with 50.1 million. Less than 2 years old, Wave has positioned itself to become the “alternative to TV consumption for the next generation of fans.” CEO Brian Verne insists that the 18-34-year-old demo (and younger) “isn’t watching television and they’re not going to destination websites – 85% to 95%” of the sports content they consume is on social – so unlike B/R ESPN and Barstool, Wave does not have a “native app or native website.” Instead, the company has built a following distributing content and programming across platforms where the fan already resides. Wave has an audience of 150 million millennial (20%) and Gen-Z (80%) fans (monthly) across 120+ Instagram, Facebook, Twitter and Snapchat channels.

Howie Long-Short: Wave Sports Media was created under the pretense that traditional “one to many” sports media entities are inherently ill-equipped to “develop communities and build audiences on platforms where fans already live.” CEO Brian Verne explained that “the way the millennial and Gen-Z fan watches and discusses sports is very different than previous generations. They’re not tuning in for the game at a given time. They’re constantly viewing short-form snackable content across various social platforms where they feel like they’re part of a community [because of social media’s many to many nature] – even if that community is several million people.”

Snackable doesn’t necessarily mean highlights. Sure, Wave has a “curated highlight component just to stay relevant in the space and cater to the fan’s motivations, but on any given day – particularly on IGTV and SNAP – you’ll see personality driven original programming featuring some of the top athletes in the world.”

Where content is disseminated is important for gaining Shareablee actions (if a tree falls in the forest…) and the type of content generated certainly matters as well (BTS footage will perform better than analysis), but so too does the delivery. Verne insists that the millennial or Gen-Z fan does not want to hear from “broadcasting personalities”, that “they prefer to hear from one of their peers.” That’s the logic behind Wave’s decentralized newsroom – the byproduct of which has been some “really authentic, relatable content that has resonated with this consumer base.”

Changing consumer behavior posts an inherent risk to a company building on top of 3rd party platforms that can quickly trend in and out of favor with young people, but SVP strategy & partnerships Greg Bobolo is convinced it’s the way to “build the foundation for a sports media enterprise for the next generation – and if you build a strong enough brand, it’s going to succeed over time no matter what platform they’re on.” Of course, it’s those same changing behaviors that have provided Wave with the opportunity to “drive tune in to the leagues and rights holders struggling to get young fans to actually watch the game.”

Fan Marino: Hearing the business model is contingent upon creator submissions had me concerned that Wave might be following in the footsteps of SB Nation (and their questionable labor practices), but there appears to be a real monetary incentive for creators – athletes and fans alike – in addition to any educational or professional experience gained here. While I’m not authorized to disclose the exact figure or OPEX, I can say that the company is investing 7-figures annually in emerging talent and creating full-time employment opportunities for top performers. Verne added “history only repeats itself if you let it, and we’re taking a rising-tides mindset to building the business.” 

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Early Entrants: Vol. VII – Sponsor Logos Coming to MLB Uniform Sleeves in ‘22

Editor Note: Early Entrants is a bi-weekly series of sports business “rumblings” before the news breaks.

Sponsor Logos Coming to MLB Uniform Sleeves in ‘22

When the Cincinnati Reds “hosted” the St. Louis Cardinals for a 2-game set in Monterrey, Mexico last weekend, both clubs adorned the Ford logo on their batting helmets. The league officially says it has no plans to put corporate advertising on helmets (or jerseys) for non-international games, but JohnWallStreet has been told to “expect logos on MLB uniform sleeves – domestically – in ’22.” We’re hearing that MLB needs to bargain with the players on a few issues and they know that they’re going to have to give the MLBPA something in return for their blessing [to put sponsor logos on uniforms], so they’re targeting the ‘21 CBA negotiations (current CBA expires following ’21 season) to do it.”

Charlotte or San Diego to Land MLS’ 30th Franchise

On Friday, MLS announced plans to expand to 30 clubs (27 have been awarded to date). While the league has not yet selected its 28th and 29th markets, the league’s Board of Governors has authorized the Commissioner’s Office to advance discussions with Sacramento and St. Louis. Soccer fans in those cities can put the champagne on ice, it’s a “foregone conclusion” they’ll be awarded expansion franchises. That would leave Detroit as the lone finalist for franchise numbers #25 and #26 still without a club, but according to our sources the wait will continue; we’re hearing that franchise #30 will eventually be awarded to either Charlotte or San Diego and that the expansion fee could actually jump another $50 million to $250 million.

CBA Encourages NFL Owners to Maintain Minority Ownership in OLE

Just a couple of weeks ago reports indicated that Endeavor had agreed in principle to acquire the 80% of On Location Experiences owned by RedBird Capital, Bruin Sports Capital and Carlyle Group for a figure upwards of $700 million; with the NFL retaining their 20% stake. The NFL generates 40% of OLE’s profits, but league was never a threat to re-acquire the majority stake it sold to the P.E. firms – for $70 million – back in ’15. That’s because as a minority shareholder the league collects its cut of the profits “free and clear. There’s no risk involved, they don’t have any expenses.” If the NFL took control of OLE once again, it “assumes 100% of the corporate tax responsibilities, without an allowance for any of the expenses”; remember, under the CBA the players are entitled to 48.5% of gross (not net) revenues.

WNBA Draft Selections Further NBA’s Chinese Growth Initiative

Han Xu became the 1st Chinese player to be drafted by a WNBA team – since ’97 – when the New York Liberty (owned by Joe Tsai) selected her with the 14th overall selection (2nd round) in the 2019 draft; Li Yueru became the 2nd a round later. It is Tsai’s involvement that makes the selections particularly noteworthy. The NBA wants to do business in China, Tsai gives them the “insider” needed to do it and the Chinese government has made basketball a priority in the country, so the opportunity is ripe, but without a Chinese national on an NBA roster the possibilities are limited. With Xu and Yueru, the WNBA can now position itself as a testing ground for “Chinese native companies looking to engage in American sport, in a cost-effective way, before getting into the big dollar waters of the NBA.”

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MLS, MiLB Doing Best Job of Engaging a Multilingual Fan Base

Comunidad

The U.S. Hispanic audience will have a combined purchasing power of $1.7 trillion by 2020, so teams across the sporting landscape are taking aim at the demographic, but cursory efforts – like heritage nights – to appeal to the Latino fan base aren’t sufficient; teams that wish to establish meaningful connections with the community need to show they’re fully committed (think: participate in cultural events, follow trends and news) and share the same values (think: family, tradition). No club has done a better job of speaking to the Latino fan than LAFC, embracing their feedback on everything from the team colors and logo to stadium design.

Mario Flores is the managing director of Sportivo, a Hispanic public relations firm that counts LAFC as a client. Flores said teams need to authentically engage with fans – starting at a grassroots level – to build trust and loyalty within the Hispanic community. “You can’t just decide on Cinco de Mayo to put the Latino fan at the forefront of your marketing campaign and expect an ROI. You need to be committed to that community 365 days/year. Whether it’s reading to bilingual students at the library, hosting a youth camp or nonprofits for a game; simple things like that go a long way towards building their allegiance.”

Howie Long-Short: To reach the Latino fan teams need to speak their language and depending on who the target audience is, that varies. Flores says that “younger millennials prefer Spanglish (which is why MLS ran a campaign in the language) because that’s the way they speak to their friends; if you’re speaking to an older audience, you’re going to be speaking Spanish.” Teams also need to be where the fans are – which is on mobile; half of all Hispanic millennials are considered smartphone “power users”, meaning they use their phones at least 25% more than the average person.

Flores believes that MLS and MiLB have done the best jobs (among U.S. pro sports leagues) of engaging the multilingual fan base. “MLS teams have really embraced their local communities and have been good about putting out Spanish language media content; and MiLB’s Copa de la Diversión has been phenomenal from a marketing standpoint.” 

You’ll often see pro sports franchises wear alternative uniforms (think: Los Mets or El Heat) as part of their multicultural outreach efforts. While the gesture may not seem like much, Flores believes the temporary name change – which often reflects the nickname the announcer uses to refer to the home team – “actually speaks to the community.” That doesn’t mean that trotting out fresh threads 2 or 3 times/season is enough to build a Latino fan base, though; “it needs to be part of a bigger program.”

It’s not a coincidence that MLS and MiLB are widely recognized for embracing the Latino community.  Having Latino athletes within the sport is crucial to driving Spanish language media coverage. Teams/leagues that don’t have them find that the Spanish speaking media “only wants stories with Hispanic athletes tied to it. It’s one of the reasons why the NHL hasn’t made inroads within the community.”

If a team is going to make inroads with the Latino community’s local leaders “the front office needs to reflect what the fans look like. Teams in Los Angeles better have more than one person who is Hispanic in the front office. Oftentimes the only Spanish speaking person within a front office is the receptionist or an administrative assistant, so they’re asked to be part of the club’s multicultural group. The intentions are well, but those individuals may not understand true nuances of the Latino fan from a marketer’s point of view.”

Fan Marino: Teams need to make Hispanic sports fans feel welcome if they’re going to come to the stadium. Providing bilingual signage is one way to accomplish that. Flores said communicating in Spanish is “a welcoming nod to the Hispanic consumer. It conveys we understand you, we want you to be comfortable here.” Having Spanish speaking staff on-site doesn’t hurt, either.

During the 2018 offseason, the Marlins turned a section in right field into Comunidad 305 – a fan zone welcoming instruments, dancing and flags in an attempt to recreate the raucous environment found at the World Baseball Classic. The efforts were well intentioned, if misguided. Latinos “don’t want to feel like they’re being assigned to a specific section. They want to maintain their cultural identity, but they still want to feel like they’re a part of the fandom with everyone else.”

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XFL Will Consider College Players, Clemson Star Says Opportunity Will Be Hard to Turn Down

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NFL rules prohibit players from entering the draft until their high school class is 3 years removed from graduation, but as of 2020 football players who wish to turn pro sooner will have a viable option besides the Canadian Football League; the XFL. Commissioner Oliver Luck has said his league won’t recruit kids on college campuses, “but there are categories of college players that may be of interest to us including those who have graduated early, but are not yet ready to declare for the NFL draft or guys no longer academically eligible. Players who want to transfer but decide they don’t want to sit out a year, may also be a fit.” If Clemson WR Justyn Ross has a pulse on the average college football player, the league may not need to recruit to land underclassmen destined for NFL careers; Ross said the chance to play football for money – beyond the “cost of attendance” – is going to be “hard for an 18 or 19-year-old to turn down.” Ross personally has no plans to leave Death Valley after his sophomore season – his mom wants him to earn his degree.

Howie Long-Short: Ross reasons that players would consider the XFL over college football because “something could happen. You can get hurt. You have to take care of yourself because it can be over just like that.” He’s not wrong, but players with surefire NFL futures must consider the risk-reward. While they might be able to earn a respectable annual salary (ceiling is +/- $250K) for a season or three, it’s a pittance compared to what top NFL draft picks sign for. Even with a national TV deal (keep reading), the XFL can’t provide the platform that big-time college football can and as Zion Williamson showed this past season at Duke, success on a national stage could be worth upwards of 9 figures in endorsements and improved draft stock.

Back in June ‘18, the NBA introduced a viable alternative to NCAA basketball for elite prospects not yet eligible for the draft, but to date, not a single 5-star prospect has signed a G-League contract (Bazley ended up signing with New Balance). Luck acknowledges “that it hasn’t happened yet because most young men love the idea of playing college hoops”, so he’s certainly not under the impression that he’s building this league around “one and done” talent. Instead, the plan is to focus on the quality of play and fan access.

Luck envisions an “up-tempo, fast-paced game with fewer stoppages” and thinks one way to achieve that is to eliminate the huddle. “We’re considering outfitting the entire team – not just the quarterback – with earpieces. I always thought it was the height of inefficiency for the coach to use the communication system to tell the quarterback what the play was going to be and then have it take 5 or 6 seconds for the quarterback to tell everybody else.” To be clear, up-temp doesn’t mean no defense. Despite his experience in the Big-12, Luck says he’s “not a fan of the 65-64 games. You want it to be hard to make a 3rd and 7 in the 4th quarter when the game is on the line. Games shouldn’t be determined by who has the ball last.”

Providing fans access to content they haven’t been exposed to prior is where Luck believes he can bring innovation to the broadcast. “We’re looking at giving fans the ability to listen in on the communication between the coaches in the booth and players on the field; and there may be an opportunity to bring fans into the locker room for the coach’s pre-game speech without impacting the integrity of the game.”

Speaking of the game broadcast, Luck told me the league would be “announcing a very powerful TV deal with a broadcaster whose alphabet letters you will recognize – as well as one with a fully distributed cable broadcaster.” The commissioner acknowledged that streaming is the future, but said “for a young league like ours, the exposure we can get from over-the-air television – as well as cable – is the most important thing.”

Fan Marino: I’ve been critical of the XFL for making a big deal about coaching hires – no one attends a football game to watch the coach. That’s not to say Bob Stoops, Jim Zorn, Marc Trestman and Pep Hamilton aren’t great hires, I’ve simply argued that spending big money on coaches was missing the point. Luck disagreed saying, “quality coaches give us credibility and help us to recruit better players” and relatively speaking the league really isn’t paying coaches all that much; “we’re paying our head coaches $500,000. While that’s certainly a nice salary, it’s modest compared to what NFL and even the smaller FBS schools are paying.”

The XFL isn’t the only league considering going after players not yet draft eligible. Don Yee’s Pacific Pro League has said they’d like Clemson QB Trevor Lawrence to serve as their answer to the AFL’s Joe Namath.

Editor Note: You can find Part 1 of our interview with Oliver Luck, here.

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With Municipalities Rejecting Public Stadium Financing, International Ownership Expected to Increase

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Relocation from Oakland (where no public funds were available) to San Francisco forced Golden State Warriors ownership to self-finance the team’s new $1.4 billion venue – city statutes prevent the use of public money on privately owned sports venues – but speaking in general terms team President Rick Welts says that it’s the local community that benefits (see: “better quality of life”, “more varied cultural offering”) most from a building’s (and presumably the team’s) presence and thus it should bear the costs associated with construction. To hear Welts tell it, there really is no other choice but for teams to rely on public funding; they need new buildings to remain competitive (on the court/field and as a business) and cannot afford to pick up the costs themselves.

Florida House Rep. Bryan Avila disagrees citing Steven Ross’ decision to self-fund a $500 million renovation to Hard Rock Stadium (after the state legislature rejected a $350 million funding request from the Dolphins). Avila said, “we often forget that these sports franchises are a business” – and particularly lucrative ones at that; Jeffrey Loria bought the Miami Marlins for $158.5 million in ’02, only to sell it once he got a new stadium for $1.2 billion in ‘17 (with the help of $488 million in bonds from the County). The Miami Springs Republican is doing his part to end the handouts filing a House proposal that would both “repeal an unused pool of sales-tax dollars ($13 million/year) intended for building and improving professional sports stadiums” and prohibit the use of public funds to construct facilities used by sports teams moving forward.

Howie Long-Short: There’s no doubt that a “roaring economy, a championship caliber team and a city that never in its history has had [a modern arena]” eliminated much of the risk associated with the Warriors self-financing their new arena, but it’s disingenuous for Welts to suggest that it would take a perfect storm to replicate the model; we’ve seen stadium privatization trending on both coasts for nearly a decade now (see: Rams Stadium, Levi’s Stadium, MetLife Stadium). There’s also no shortage of wealthy individuals around the globe capable of self-funding – people that Andy Dolich, the president of the sports consultancy Dolich Consulting, says “literally have billions of dollars in disposable income that wouldn’t hesitate to spend $750 million on a stadium.”  The leagues simply need to alter their bylaws to allow for foreign ownership.

Most cities, states, counties and regional districts oppose financing buildings that house sports teams because the costs have become exorbitant and it’s difficult for an elected official to justify – to the public – giving a billionaire the money to build a palace for a privately held business that continues to appreciate; the Warriors have increased in value from $450 million in ‘10, to an estimated (Forbes) $3.5 billion in ‘19. If the Florida bill passes, expect other states to draft their own versions. Dolich explained, “within the sports world (and public sector), the line always forms behind the first one to have any success in terms of revenue generation and distribution.” 

Those that support the use of public money on stadium/arena construction talk about job creation, tourism revenue and a “sense of community” but studies have shown that the costs outweigh the economic benefits; the jobs created are low-paying and seasonal and the tourism revenue generated from most sporting events is negligible. Dolich said there are some cities like “Memphis, New Orleans and Oklahoma City, where you can make a legitimate argument that having a pro sports franchise helps to attract other business”, but even in those locales the economic upside is limited; “when those teams are playing poorly, there aren’t a lot of people coming so that means less hotels and all the associated tax revenues.” Public financing for sports venues in major metro areas is history.

Historically speaking, sports venues have done little to stimulate the local economy, but the last generation of stadiums (think: built between 1970 – 1995) were built on the outskirts of town where land was cheap. As we’ve written about, the current trend is to build downtown – as part of greater mixed-use real-estate plays – where the venue can serve as a 365 day/year revenue generator (think: NE Patriots, SF Giants). Chase Arena is being developed alongside retail, restaurants and a public park. It’s those additional money making opportunities that will make stadium ownership attractive to investors worldwide moving forward.

Fan Marino: Relocation remains the leverage that team owners hold over the local municipality. The Raiders are moving to Las Vegas because unlike Oakland, the state agreed to contribute $750 million in public funding to the new stadium; and the city of Phoenix recently awarded the Suns $150 million for renovations (that total $230 million) after their owner Robert Sarver threatened to move the franchise to Seattle or Las Vegas. Seattle and Las Vegas remain strong stalking horses for NBA owners looking to extract public funds from the local government, so I expect to continue seeing the league’s teams use that strategy effectively. That’s not the case on the NFL side, though. With Los Angeles now spoken for, no real desirable major North American city exists – unless an owner is willing to go to Mexico City.

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Dundon Cuts Losses, Shutters AAF

AAF

Less than a week after Alliance of American Football Chairman Tom Dundon threatened to shutter the start-up league, the Carolina Hurricanes owner has suspended football operations. While sources tell Pro Football Talk that Dundon has not yet formally decided to permanently disband, his inability to negotiate the use of NFL players with the NFL Players Association (and thus gain subsidies from the NFL) means the end is near; the decision to suspend league operations was made at his sole discretion. ProFootballTalk.com reported that it was going to cost another +/- $20 million (Inside The League says the league’s weekly burn rate could be as much as $8-9 million/week) to get the league through the season’s final 4 weeks.

Howie Long-Short: Credit Dundon for realizing the writing was on the wall – viewership on NFL Network steadily declined from over 600,000 viewers in Week 1 to less than 300,000 in Week 7 and in stadium attendance hit season lows in both San Antonio and Salt Lake City last week – and for the willingness to cut his losses. His decision to throw in the towel before the end of the first season isn’t about the lack of cooperation received from the NFLPA as suggested, though – Dundon’s certainly smart enough to know 3rd string QBs aren’t selling tickets. He realized he’s been sold a bunch of goods and by suggesting that the league’s viability is tied to the NFL’s participation, he’s able to save face.

There is no saving face saving face for Charlie Ebersol here. The league’s co-founder told ESPN in January that he had a “sober business plan” – a slow and steady approach to eventually becoming a minor league for the NFL – but his economic model was always a bit inebriated. There was no logic in signing players without another winter/spring football option to $70,000/year contracts ($15K above the annual household medium income) for 3 months of work (+ 1 mo. of training camp); the G-League’s minimum salary is $35,000 and their regular season is 2 months longer.

There was also no reason to be playing games in 60,000+ seat stadiums. The league had to know it wasn’t going to draw more than 20,000 fans/game (that’s the number Oliver Luck told me the XFL penciled into their budget), so why sign leases for venues 3x the size? One source estimated that the league could have paid as much as $750,000/game to cover all the stadium related game day expenses. They could have played in mid-major college football venues or minor league baseball parks and spent half the amount. Ebersol also frequently told the media that the league had enough capital for 3-5 years “if we completely screw up” – he made it just 8 weeks.

The AAF had always positioned itself as a developmental league, but it never publicly stated that its success was contingent upon NFLPA participation which is why Dundon’s announcement last week sent shockwaves through the football-sphere. Back in January, Charlie would tell anyone who would listen that the Alliance was a “tech company that owns a football league.” That description never made any sense, though. No one would commit hundreds of millions of dollars to demo gaming software and technology companies that operate as loss leaders (think: Uber), do so with billions of dollars in runway behind them; the Alliance failed to make payroll in the first week.

The AAF wasn’t a technology company, but Dundon remains bullish on its “real-time” sports betting application leading some to believe he bought the league to strip it of its assets. That seems unlikely. $70 million would be an exorbitant amount of money to spend on I.P. that’s been “plagued with bugs and setbacks” and has met with a tepid consumer response.

Dundon covered player payroll through last weekend’s games, but apparently, that’s where the buck stops. Robert Klemko reported that “AAF teams are making players play for their own flights home” and a source tells me that “plenty” of the league’s vendors have been left holding the bag (one told me his company is owed $125K); a debate between Dundon and the founding ownership group about who should have been responsible for paying expenses down resulted in invoices ultimately going unpaid.

Fan Marino: The AAF’s demise should prove beneficial to the XFL. The prospective player pool will increase in size and sources told the Action Network that the league has interest in acquiring both the AAF’s football and broadcast equipment (remember, Charlie worked to put forth an NFL quality broadcast, so the equipment is valuable). Commissioner Oliver Luck said the league will also pick up a few of the AAF’s on-field advancements including “fewer stoppages of play so we can get the game done in under 3 hours and offering fans access to insights and experiences not previously available within a football telecast (see: listening in on replay reviews); we might take our fans into the locker-room for a pre-game talk. We want to provide content that you don’t see very often unless you’re a football player.”

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MLB’s Competitive Balance Tax, Revenue Sharing System Create Divide Amongst Teams

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28 Major League Baseball teams opened their 2019 season on Thursday (the Mariners and A’s opened with a 2-game series in Japan on 3.20), but payroll disparities between the league’s top spenders and everyone else has dampened the hope that typically accompanies Opening Day in many cities. While 3 teams (Red Sox, Yankees, Cubs) will operate with a 40-man payroll of more than $200 million, 11 others plan to compete with payrolls at least $60 million under the league’s $206 million competitive balance tax threshold; including 8 with total payrolls less than $100 million. The league’s use of a competitive balance tax in place of salary cap – and a salary floor – and a revenue sharing system that provides a cushion for clubs unwilling or unable to field a competitive team is at the root of the divide.

Howie Long-Short: Major League Baseball is the only big 4 sports league that does not have a salary cap as a term of their collective bargaining agreement and Indians pitcher Trevor Bauer said “for a long time” the lack of one contributed to the game’s “competitive integrity.” But with few teams willing to assume the penalties that come with crossing the competitive balance tax threshold, it’s now viewed by the players as the pseudo “salary cap [that] it was supposed to prevent.” It’s also resulted in a tremendous divide between the league’s “haves” and “have nots.” According to USA Today, while the Cubs will spend $211 million on players this season, Tampa Bay has less than $54 million in salaries on the books.

The MLB free-agent market operated at a crawl for a second straight winter. High-profile stars Manny Machado and Bryce Harper didn’t sign their 9-figure contracts until they were less than 6 and 4 weeks out from Opening Day, respectively and quality veterans like Dallas Keuchel and Craig Kimbrel remain unsigned as of print. Veterans are finding it difficult to land big money, long-term deals because the teams hold too much leverage. With players having to put in 3 years of service time before they are arbitration eligible and then another 3-years under the team’s control at salaries below market value, there’s a plethora of inexpensive players available. Front offices across the league have wisely decided they’re willing to spend for the elite free-agent who can move the needle, but are no longer willing to break the bank to fill out the roster; and with good reason, the league’s revenue sharing system affords teams the leeway to be bad and still turn a profit.

MLB Deputy Commissioner Dan Halem told us back in January, that despite the slow start he expected teams would allocate more money to free agents during the 2018 off-season than any other. He was right – the 30 teams collectively committed $3.8 billion (previous high, $3.4 billion) to player salaries, but much of that money was awarded to just a handful of players and “many veterans” were forced to take salary cuts. As a result, according to AP studies, the league’s average salary ($4.36 million) as of Opening Day declined for a 2nd consecutive season ($4.41 million in ’18, $4.45 million in ‘17); and for just the 3rd time since the ’94- ‘95 strike.

Even if “every team [wasn’t] acting like its capped out” [on payroll budget], the luxury tax threshold is lower than it should be and that discrepancy is costing veterans money. The current luxury tax system has been in place since 2003 when teams were given a soft cap of $117 million, but while league revenues are up +188% (to $10.3 billion) since that time, the soft cap has failed to keep pace; only rising +68%. Of course, increasing the luxury tax threshold would only grow the imbalance among teams as the big market clubs would be able to spend even more without penalty.

MLB’s existing CBA expires in 2021 and the players’ association is going to need to negotiate some significant changes to it if free agency, “which drives baseball’s economic system”, is “to remain a meaningful option for the players going forward.” Raising the min. player salary in line with league’s revenue growth since ’03 (from $545K to $850K), cutting down on the service time required before arbitration eligibility (so players get to free agency faster) and on service time manipulation (which would also expedite a player’s path to free agency) would all help to tilt the scales back in the player’s favor.

Fan Marino: It’s tough to watch pro sports teams focus on profits, when the penalties for spending too much are a relative pittance to the upside of winning the World Series. It cost the Red Sox just $12 million and 10 draft spots to operate with the league’s highest salary in 2018 and it paid off with their 9th World Series title.

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AAF Majority Owner Threatens to Fold League

alliance-of-american-football

Alliance of American Football majority owner and chairman Tom Dundon has warned that the start-up league is in danger of folding if the NFL players association refuses to allocate young players to its teams. AAF ownership has held on to the hope that the NFL would use the league to get its 3rd string QBs, back-up lineman and practice squad players much needed reps, but the NFLPA, concerned about player safety (and the financial ramifications of injuries suffered), opposes the plan. Dundon, who is “exploring all options, one of which is discontinuing the league”, plans to announce a decision on its future within the next 48 hours.

Howie Long-Short: Wednesday’s announcement came as a surprise. The AAF has always positioned itself as a developmental league, providing players (and coaches) with the best option “if your goal is to get back to (or to) the NFL”, but it never publicly stated that its success was contingent upon NFLPA participation. Founder Charlie Ebersol told us just a few weeks ago that the league’s investment in the “quality of football” and the broadcast presentation was why his league would succeed where others failed before him.

If the AAF business model was predicated on a formal affiliation with the NFL, why spend tens of millions of dollars to play the 2019 season without their support? According to Darren Rovell, it’s because the league strategy changed once Dundon took control. While Ebersol and Bill Polian had hoped to take a slow and steady approach, “potentially becoming a feeder system to the NFL by year 3”, Dundon wants to immediately serve in that capacity. The problem is as we told you in Early Entrants: Vol. V, the NFL is going to take a wait and see approach here and there’s been no indication that the NFLPA would ever agree to such an arrangement.

When the Carolina Hurricanes owner “bought the league” 5 weeks ago he suggested that the “stunning growth in-stadium and across TV, mobile and social media” had convinced him to increase his stake, but gate attendance and television viewership has been trending downward since. It’s likely the billionaire businessman now sees that the writing is on the wall for the AAF and wisely wants to cut his losses (Action Network reported he’s pumped in $70 million to date). Dundon knows 3rd string QBs aren’t saving this league, NFL Europe had NFLPA participation and the league still failed. He also knows the NFLPA isn’t on board and suggesting that the league’s success hinges on their involvement gives him easy out. The 48-hour timeline (by Friday 3.29) is in place because if they are going to disband, there’s no need to burn millions putting on this weekend’s games.

If Dundon does decide to drop the curtain on the start-up league, we can’t say he didn’t warn us. He told reporters back on February 19th that his participation remained a week to week proposition and that he could stop funding at any time if it became apparent that “nobody wants the product.”

The NFLPA opposes an alliance with the Alliance because the risks far outweigh the rewards. NFL players use the off-season to rest and recover and the league’s CBA forbids teams from holding mandatory workouts/practices to ensure the players are afforded that time. Forcing players to compete during the off-season would place them at risk of an injury that could negatively impact their future earnings; remember, NFL player contracts aren’t guaranteed.

Fan Marino: The AAF has drawn respectable television numbers through 7 weeks, averaging 603,000 viewers/game across CBS, TNT and NFL Network, but last weekend’s highest rated game drew fewer 350,000. 600,000 fans/game is impressive relative to what NFL Network would typically draw on a Saturday or Sunday evening, but considering what the league is spending to put on the games (one source suggested it could be as much as $5 million/per) the business model remains a losing proposition.

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