Adidas Signs Beyoncé as “Creative Partner” with Women’s Footwear, Activewear Markets Growing

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Beyoncé Knowles has signed a long-term deal to serve as a “creative partner” to Adidas. The star singer will collaborate with the brand on “new signature footwear and apparel” across both the performance and consumer lifestyle categories. The multi-layer partnership will also see Adidas help Knowles relaunch her Ivy Park athleisure brand. Financial terms of the agreement were not disclosed.

Howie Long-Short: NPD Group’s Matt Powell wrote last July that the “paid endorser model is simply broken”; that the U.S. consumer had wised up to the pay-to-wear sponsorship model, realizing that celebrities/athletes “will endorse whatever they are paid to wear.” So, high-profile partnerships, like this one, should always be looked at with a sense of skepticism on the brand side. Beyoncé will have a larger role though than just endorsing Adidas; she’ll be involved in the creative process. That should help in projecting authenticity, which will enable the brand to better connect with its consumer, but it is no guarantee of success. Remember, the “Kanye effect” was a myth until a recent increase in distribution “led to unexpected gains” for ADDYY.

Back in September ‘18, we noted that sneaker/apparel brands were failing to earn returns on their investments in American athletes (note: there wasn’t a single performance shoe or signature sneaker in the Top 10 sold in ’18), so it makes sense that those companies are looking for influencers outside of sports. To date, most of these deals have managed to generate buzz, but few have found commercial success – at least in part because the collaborations are typically limited to artificially create demand (see: Kanye Effect). There is precedent for success, though. Rihanna joined Puma (in ’14, she’s since left) as a creative director and global ambassador to the brand and was able to almost immediately contribute to its top line growth.

Without the numbers, it’s impossible to gauge if Beyoncé will ever be able to sell enough shoes/merchandise to make the math work, but Adidas was wise to align with the female artist. Women have been historically underserved by sports brands, so there’s a tremendous opportunity in the marketplace relative to the men’s side; significant revenue growth is anticipated within both the female footwear (CAGR of 4.2% through ‘27) and the female activewear markets (CAGR of 7.7% through ’25) over the next half decade. The rise of the health-conscious, sports and fitness enthusiast is driving sales.

As for Knowles, it truly is “a partnership of a lifetime.” She likely landed a massive pay day and the Adidas marketing machine will expand her athleisure business “on a truly global scale”, while she gets to retain sole ownership of the company (she bought out TopShop in ’18). There’s no downside for her.

Fan Marino: ESPN’s Nick DePaula recently said on an episode of “The Jump” that Beyoncé had been in talks with Reebok about a similar partnership, but the company’s lack of diversity drove her to end conversations; Reebok has denied those claims. Under Armour and Jordan Brand also reportedly had interest in the singer.

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Digital Native Content, International Programming to Drive Future WWE Growth

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WrestleMania 35 will take place on Sunday evening at MetLife Stadium in East Rutherford, NJ; the annual event marks the culmination of the World Wrestling Entertainment calendar year. Live events remain a staple of the wrestling business – WWE put on 560 events in 2018 – but those shows were responsible for just 15.5% of all corporate revenues last year (down from 19% in ’17). The majority (73.5%) of the incoming cash flow was generated by the company’s media division and newly signed billion-dollar agreements with NBCUniversal (for RAW) and Fox (for SmackDown) ensure content will comprise an even larger percentage of corporate revenues moving forward. But core content rights fees (see: RAW, SmackDown) only accounted for 39% ($130 million) of the total taken in last year. The balance came from WWE Network (29%), advertising and sponsorship sales (10%) and “other” (21%) forms of distribution (think: digital native, international programming). With more than 1 billion followers worldwide across social media platforms (including 40 million on YouTube, alone), it’s “content creation, digitization and international development” that provide the company with greatest opportunities for revenue growth moving forward.

Howie Long-Short: Live shows aren’t as critical to the company’s bottom line as they once were – which is good, U.S. attendance declined YoY during each quarter in ‘18 – but that doesn’t mean the company is any less focused on delivering a memorable experience for ticket buyers. HHH explained at the SBJ World Congress of Sports that because “live events are the most expensive investment [for a fan], we constantly have to over-deliver to show value.”

The increased demand for live sports programming and the rise of streaming services (that seek desirable programming) enabled WWE to negotiate a dramatic increase (3.6x) in the average annual value of their U.S. distribution deals (for core content) in the face of declining ratings. That’s because even with the decline, both RAW and SmackDown “can guarantee television stations 2 million to 3 million viewers/week.” Those numbers may not be impressive by WWE standards, but the shows were still the highest rated on USA Network and bring a weekly audience that would be welcomed by any network.

WWE’s ability to monetize “content across platforms” (and international locales) pushed the promotion to its “highest level of revenue ($930 million, +16% YoY) and earnings” (adjusted OIBDA $178.9 million, +31%) in company history last year. The revenue generated from digital native content (see: Mixed Match Challenge) and large scale shows in both Saudi Arabia and Australia (see: Greatest Royal Rumble, Crown Jewel, Super Show Down) drove the growth of the operating segment.

WWE shares are up +/- $150% (to $89.73) since WM34.

Fan Marino: Licensed reality series are also included within the burgeoning “other” category and McMahon noted during the company’s most recent earnings call that the company would continue to promote that kind of content; WWE has had success with Total Divas (8 seasons), Total Bellas (4 seasons) and their newest series Miz & Mrs. was just picked up for a second season.

Mike “the Miz” Mizanin is the star of that show (along with wife Maryse) and says he’s conscious of his role within the organization. “My job is to be the face of the WWE. To be out there promoting the company. For so long, non-wrestling fans just looked as us as rasslers. My job is to make sure that people don’t look at us like rasslers, that they look at us as entertainers. The show is an opportunity to show who we are, what were are; first time parents in the entertainment business.”

Readers of a certain age might remember Mike as a cast member of The Real World (circa 2003). Mike also participated in several Real World/Road Rules challenges and believes – much like Bill Simmons – that The Challenge is America’s 5th pro sport. Mike told me “C.T., Cara Maria and Bananas are their stars, you have athletes from all over the world competing and they have head to head bouts. It’s truly a battle of the best.”

Mike will take on Shane McMahon in a “falls count everywhere” match on Sunday evening. The feud between the two is personal after the boss’ son put his hands on Miz’s father. Mike says that moment “unleashed a fire inside me that I didn’t know I had. Shane’s going to see a new Miz at WrestleMania, one that takes the fight to a person. I’m glad it’s a falls count everywhere match because the ring can’t hold what I want to do to Shane McMahon.”

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Zion May Set-Off the “Biggest Bidding War Ever”, But the “Math Simply Can’t Work Out”

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Sonny Vaccaro told ESPN that he believes Zion Williamson is about to set-off “the biggest bidding war ever” – between competing footwear companies – for a professional athlete; suggesting as many as 6 brands could be after the 18-year old’s services. When Williamson takes the floor again in October, he will become just the 10th rookie in NBA history and the first since LeBron James in ’03 (if you ignore Lonzo Ball, BBB) with a signature shoe deal. It’s a rare combination of strength, speed and likability, that Vaccaro says makes Williamson “the most marketable athlete I’ve seen”; the famed sneaker marketing executive even suggested “what Michael did for Nike, Zion could do for somebody new” (see: Puma, New Balance, Anta). But NPD Group retail analyst Matt Powell tells JohnWallStreet that “the math [on a 9-figure contract] simply can’t work out. Even if you look at the deal as an investment in marketing and not in merchandise sales, I don’t think he can create a return in proportion to $100 million.” The Duke star is currently fielding offers and is expected to make his decision before the May 14th NBA draft lottery.

Howie Long-Short: Vaccaro has an eye for talent – he’s responsible for Nike inking Jordan back in ’84 and Adidas signing Kobe Bryant a dozen years later – but suggesting Zion is more marketable than Jordan (or even Kobe) is a stretch. Historically speaking, big men (see: Shaq, KG, Dwight Howard) have never sold a ton of shoes. That’s because the designs tend to be “less aesthetically attractive” due to structural constraints and the target consumer (+/- age 12) isn’t necessarily identifying with the league’s most physically imposing players; “they’re more inclined to try and emulate Steph Curry than Dwight Howard. Simply because of the style of game played at that age.”

The sheer number of brands courting Zion make it likely he’ll see a deal worth $100M+, but as Powell mentioned, don’t expect the company that lands the hoops star to generate a positive return on the signing – at least not in merchandise sales. “Brands spend 10-11% of sales on marketing expenditures. If he’s earning $17 million annually, that means he needs to earn out $150 million. He would need to sell 150 million pairs at wholesale or about 300 million at retail to hit that mark; the entire U.S. basketball business did 860 million last year. He would have to grow the market by 1/3. It just doesn’t make sense.”

The Knicks, Cavs and Suns have the highest probability of landing the #1 selection in the 2019 NBA draft and the right to select Zion Williamson. Where the player lands will have an impact on how many shoes he can sell, which is why his decision is anticipated before the lottery. “New York City and the mid-Atlantic region (Philadelphia, Boston, D.C.) is the epicenter of basketball in this country, so the Knicks would be the preferred destination from an endorser standpoint. The further west you go, the less interest there is in the sport and in basketball shoes; a small market would also impede Zion’s ability to sell sneakers. But even if he lands in NYC, he’s not going to sell 300 million pairs.” 

Brands offering $100 million pacts will point to the 7-year $87 million contract that James signed and argue that Zion is worth more because of the tremendous social following that he’ll enter the league with; Williamson has 3 million IG followers. It’s a valid distinction, but rookies don’t come into the league and move merchandise. Even LeBron’s shoe “didn’t start selling until the 6th iteration. It took time to establish himself as a superstar in the league, Nike was putting forth a bad product and when James entered the league, much like today, we were in a down cycle for basketball shoe sales.”

Many – including Vaccaro – have pegged Nike as the “odds on favorite” to land Zion (despite the highly-publicized blowout), after all, Williamson chose to play at a Nike school (Duke) this past season.

Fan Marino: Brands would be better off investing big money in teams than in individual players. As Powell pointed out “European soccer teams are getting massive amounts of money, but those deals provide for the opportunity to generate a return on investment – in terms of merchandise sales – because they’re going beyond shoes into the sale of jerseys that can be lucrative.”

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Dundon Cuts Losses, Shutters AAF

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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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McMahon Cashes in $270M Worth of WWE Shares to Give XFL Necessary Runway


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According to the Securities and Exchange Commission, WWE Chairman Vince McMahon sold 3.2 million shares (+/- 4% of the outstanding total) of company stock worth +/- $272 million last week, capital he’ll use to help fund XFL 2.0. To date, he’s unloaded +/- $400 million worth of WWE shares or roughly 80% of the $500 million pledged to the league over the next 3 years; $500 million would represent a war chest 7x greater than what was spent on a single season back in ’01 ($70 million). Coincidentally, the regulatory filing posted on the same day that Alliance of American Football (AAF) majority owner Tom Dundon (pledged a max of $250 million) announced that his league would fold if the NFLPA continues to oppose the allocation of players. It’s being reported that the Carolina Hurricanes owner could make a decision to shutter the competing spring football league as soon as today.

Howie Long-Short: Vince McMahon isn’t interested in building a developmental football league like the AAF – he wants to build a sustainable standalone entity, but Commissioner Oliver Luck told me “we understand where we stand in the football ecosystem. We know the goal for most players is to play in the NFL, so we’ll make sure our players and coaches have the ability, if the opportunity arises – after our season – to sign a contract with an NFL team.”

Some have taken the league’s decision to take up residence in 8 NFL markets as a shot across the NFL’s bow, but the XFL isn’t looking to compete with the football behemoth, either. The cities selected were identified by McKinsey Consulting as the ones with the greatest density of “passionate” football fans. “There’s about 85 million football fans in this country. 40 million self-identify as hard-core fans and all our research indicates that those people will continue to consume football after the Super Bowl. A secondary rationale [for selecting the markets chosen] was that prospective national television broadcast partners favor leagues where the large markets are represented.”

Luck acknowledges that “the graveyard is littered with tombstones of failed spring football leagues” and that the odds of success aren’t in the XFL’s favor, but McMahon has “committed significant capital” – enough to get the league through at least the first 3 years (perhaps as many as 5). That’s critical because “if you think back to the USFL, after 3 years they had begun to build a brand. Had they had the discipline to stay in the spring and continue to grow their franchises and get the kinds of quality players they were getting, that league might still be around; and if that league were still around, it would be a pretty valuable sports asset.”

McMahon’s investment will give the league the necessary runway, but Luck says that disciplined decision making and a laser-like focus “on the handful of things that really matter” will enable the start-up league to grow. For the XFL, that’s “playing good quality football, getting the best talent and the best coaches that we possibly can, and selling tickets. I still think that [selling tickets] is the single biggest indicator – even more than television ratings – of the interest level the local marketplace has in a franchise.” Perhaps that explains why the AAF is on the brink of collapse. While the league has put up respectable television viewership numbers, it has struggled to draw fans to the stadium; I heard back in Dec. that one franchise had sold less than 500 season ticket packages.

Fan Marino: The AAF drew nearly 3 million viewers in the first week, but Oliver says there was never any concern expressed within the XFL offices that the league might have lost out on a “first mover advantage.” “If you’re prepared to take advantage of it, there might be an advantage to getting out there first, but if you’re rushing into it then there’s not.” Considering a start-up pro football league needs to hire personnel, sign stadium leases, get coaches on board, negotiate broadcast agreements and sponsorship pacts, sell seats and mesh 45+ guys into a cohesive unit – and that the Alliance tried to do all of that in 7 months – it’s safe to say the XFL was wise to let the AAF serve as the sacrificial lamb.

Editor note: Keep an eye out for Part 2 of our XFL story with Oliver Luck next week.

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Sports Betting Revenues Falling Short of States’ Expectations

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Legalized sports betting has failed to generate the revenue expected in Rhode Island. The state initially budgeted for $23.5 million in gambling related revenues for the fiscal year ending in June 2019 (began in Nov. ’18). The target was lowered to $11.5 million in January, but R.I. lottery officials are reporting that the state has posted just 1.3% of that total ($150,000) to date. Governor Gina Raimondo attributed the shortfall to “a little bit [of a] later start than we thought”; wagering volume ($250 million anticipated vs. $813 million projected) and gambler performance (better than expected) have also forced the need for a rebalancing of the budget. While it’s all but assured that Rhode Island will fall short of January’s revamped projection, it should experience significant revenue growth in 2020; Raimondo signed a bill last week that will permit online sports betting within the state.

Howie Long-Short: The Patriots Super Bowl win contributed to a tough February for Rhode Island’s sportsbooks – the pair lost a combined $890,000 on $20.7 million in wagers during the month. They’re off to a better start in March, having raked in +/- $1 million over the first weekend of the NCAA tournament. The state is entitled to 51% of sports betting revenues (after expenses).

Rhode Island is certainly not a proxy for the country – it has just 2 licensed casinos – but “most of the states” that have passed legislation since PASPA was struck down have fallen short of projections. It’s certainly no coincidence that like Rhode Island, all but New Jersey (which out-earned Nevada for the 1st time in Jan.) failed to establish mobile/online as an option.

Rhode Island’s 2020 budget assumes sports betting will bring in $30.3 million in revenue, including $3 million in mobile fees. Democratic Senate President Dominick Ruggerio has acknowledged that the financial forecasts will need to be rebalanced (see: lowered) in the wake of fiscal 2019 results, but the nominal revenue Raimondo attributed to mobile – relative to the total income projected – makes me think they’re still getting bad “information” (or that they simply don’t understand the marketplace). New Jersey sportsbooks generated 80% of their January revenue from mobile and online platforms.

Once Twin Rivers begins taking online/mobile bets, business will pick up. It will become easier for residents of the state to place wagers and with Massachusetts yet to legalize sports betting, the Rhode Island licensee should pick up some action from residents of the neighboring state (via the William Hill app). For reference purposes, FanDuel claims 9% of its New Jersey business comes from those living in New York and another 4% from those based in Pennsylvania. The 2020 budget assumes mobile sports betting will be available next winter, but there’s a current push within the Assembly to have it in place by the start of the NFL season.

Rhode Island’s 2 casinos (Lincoln and Tiverton) are owned by Twin River Worldwide Holdings. On Friday, the company (which also owns the Hard Rock Hotel & Casino in Biloxi, MS) “added to its geographic base” closing on the purchase of Dover Downs Gaming & Entertainment. Shares of Twin River common stock subsequently began trading (at $29) on the New York Stock Exchange under the symbol TRWH.

Fan Marino: 75% of those who placed bets (against the spread) on the Super Bowl at Rhode Island’s 2 brick and mortar casinos took the hometown Patriots; as a result, the pair lost $2.3 million on the game. It’s not atypical for a sportsbook to take a loss on a big game – like the Super Bowl – when the hometown team covers. Fans bet with their hearts and the action tends to skew “towards the geographically favored team.” The books don’t move the lines to reflect the heavy action though, because doing so would leave them susceptible to sharp money (going the other way) taking advantage of mispriced odds.

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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

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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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Marlins Selling the Fan Experience, Not Wins or Hope

Marlins

FanGraphs projects the Miami Marlins will finish the upcoming MLB season a National League worst 65-97. The team is expected to score the fewest number of runs in baseball (3.65/game) and finish with the game’s 2nd worst run differential (-146). Marlins CEO Derek Jeter knows he has little to market on the field, so the team has taken an unorthodox approach – at least for pro sports teams – to selling tickets; promoting the fan experience. Jeter recently told reporters “we want people to enjoy themselves. A lot of times people come [and] they don’t [recall] who won or lost, sometimes they don’t even [remember] who was playing, but they do know if they had a good experience and that’s what we’re focusing on.”

Howie Long-Short: The Marlins have traded away young talented players Marcell Ozuna, Christian Yelich and J.T. Realmuto over the last 12 months, so one can understand why the club has chosen to turn its focus to the fan experience instead of its on-field product. Chris Lencheski (founder of sports consultancy group Phoenicia and an adjunct professor at Columbia University) believes the team is taking the right approach, telling me “it’s always smart – regardless of if a club is winning or losing – to ensure the fan leaves the game feeling that their time and money was well spent. The Marlins want fans to say that the customer service they received [at the park] was off the charts. It’s the Enterprise Rent-A-Car approach. All rental car companies provide roughly the same services, but Enterprise consistently wins business – even if they’re not the lowest priced, or in this case a very good team – because their customer service is exemplary.”

Minor league teams go to great lengths to ensure a premium fan experience, so it’s worth wondering why more major league teams haven’t taken the approach. Chris said that the league’s revenue sharing system “makes it less of a priority for some clubs; they’re content taking what the league gives them. Others simply don’t need to do as much marketing because the team is a draw.”

While some teams may not need to invest in fan interaction and fan engagement during the good times, they should be because failing to do so is a surefire way to ensure the fan base dissipates during the hard times. “The Phillies are a prime example of that. In the late 90’s and early 00’s, the team sold out every game; they had a good team and had moved into a new building. But their failure to engage fans during those times accelerated their decline when the team’s performance started to slide. Those customers were no longer there.”

Fan Marino: There’s nothing inherently wrong with selling entertainment value – sports are supposed to be fun, but as a fanatic the idea that a team’s primary focus wouldn’t be on winning is difficult to swallow. Unfortunately, teams aren’t catering to the super fan. As Chris explained, avid [fans] will remember the score, but they’re going to come to the game regardless; you aren’t bending the curve for them. You’re doing it for average customer.”

Howie mentioned the team’s decision to trade away several young stars. Some argue it is star power that drives fans to the ballpark and thus the team would have been better off signing Ozuna, Yelich and Realmuto to extensions, but it wasn’t like the team was a league leader (or even average) in attendance with those guys on the roster. That doesn’t mean the Marlins won’t (or shouldn’t) sign high profile players in the future. The team’s previous fire sales are not indicative of future failures, “everything needs to be held in the context of time in baseball.”

Moving your best players typically doesn’t result in an attendance increase (team drew a major league low 10,013 fans/game last season), but that doesn’t mean Miami is going to lose even more money in 2019. It’s feasible that the team’s revamped approach “could raise the KPIs of the individual consumer. They could lower ticket prices, draw fewer fans and still grow revenues by making more money per head.”

Chris added that the team’s decision to lower ticket pricing this year is “the appropriate retail approach. The Marlins are a challenger brand in South Florida (see: many alternative forms of entertainment), so they must take an aggressive approach to the market. Their pricing last year was not aligned with the fans perception of its worth. The rescaling of tickets is a smart and measured approach to re-aligning value for customers – both current and future”

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In-Stadium Technology Just “an Expensive Dot Along a Continuum”

UnitedCenter

Over the last 5 weeks, it was announced that 3 U.S. pro sports venues will replace their existing scoreboards with larger, flashier entertainment systems (Capital One Arena, Wells Fargo Center & United Center); Oracle Park is also set to unveil its “fancy” new 4K scoreboard on opening day. Teams are investing tens of millions of dollars in LED screens and other technological enhancements (like lighting systems) because it’s becoming increasingly difficult to draw people to the stadium. TeamWorks Media co-founder and CEO Jay Sharman said, “psychologically fans need to be able to say to themselves, I want to go to the game because the experience is better than what I can get at home. Most teams know they’re not clearing that bar right now – and that the bar is only going to continue to rise – which is why you’re seeing a little bit of shiny rattle (see: teams spending big $ on scoreboards) going on.”

Howie Long-Short: The venues referenced are marketing the scoreboards as “the largest high definition screen in an arena”, “the first Kinetic 4K center-hung scoreboard” and “the first indoor sky ring”, but Jay says,“marketing greater resolution and the size of screen is missing the point. Fans don’t care about the size of the platform. What is important is the messaging [on the screen] and how you use the platform to make the game experience better.”

Jay’s right, no one is coming out to the ballpark because of a screen, no matter how large it may be – and “I think you’d be hard pressed to find data that shows big screens are responsible for increasing fan engagement” – but that doesn’t mean it’s a bad investment. A state-of-the-art scoreboard is simply “an expensive dot along a continuum – how you’re greeted at the door, the ease in which you can park, the length of the concession lines, the entertainment during TV timeouts – that makes the entire game day experience something memorable; something that makes you want to come back.”

One thing that ensures fans won’t come back is an inability to use social media at the game, so it would seem that at least some of these teams are putting the cart before the horse. “There are many arenas and stadiums where the bandwidth is so poor that you can’t get an out of town score on your phone. When you’re at a venue spending all that money, the last thing you want is to feel like you’re missing out. Teams need to cover the technology basics before they get into the messaging piece.”

If used for fan engagement – and not just for advertisements – the additional scoreboard real-estate could be a difference maker for the hardcore fan (and for the team). “Teams can use the additional space to hypercharge the in-stadium experience – to give those fans access to all of the information that they want” (think: Second Spectrum like analytics/presentation). Jay also thinks there is the potential to use the additional real-estate to cater toward the sports bettor saying, “that would be utilitarian and make for a really interesting use case because now you’re offering a separate experience.”

I mentioned the team because the Tampa Bay Lightning have managed to use their center-hung scoreboard (along with ribbon boards, lighting etc.) to create a “must watch” pre-game show. Eaton’s Ephesus Sports Lighting, Director of Business Development Mike Quijano said the result has been “fans entering the building earlier” (and presumably spending money during that time), “so they’re definitively seeing an ROI on it.”

Fan Marino: It’s unclear why [more] venues aren’t using their “shiny rattle” to draw fans to the building when the team is on the road. The experience of watching away games on a 5,000 SF display would seem far superior to viewing at home on a 50 inch and in-arena watch parties would give fans that “sense of community that they can’t find on the couch.” There’s also the element of conditioning fans to “come to your venue when your team isn’t there, which is a trend you’re seeing across the sporting landscape with these mixed use real-estate plays.

While a 5,000 SF screen would make for a great place to watch an away game, the sheer size of some of these scoreboards (see: Jerry World) makes them less than ideal for home games; fans find them to be districting. Which makes you wonder, if the goal is to create a raucous home environment why are teams investing money in something designed to pull attention away from the field?

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