TBT Finds Success with Regional Sites, Expected to Reach Profitability in ‘20

TBT

Carmen’s Crew (a collective of former Ohio State University basketball players) beat Golden Eagles (Marquette University basketball’s alumni team) in the championship game of The Basketball Tournament (TBT) on Tuesday night. As champions of the 64-team, single elimination, winner-take-all tournament, the OSU squad will split a $2 million prize. The game concluded the 6th edition of TBT. While the tournament has yet to turn a profit, six straight summers of year over year growth and a shrewd decision to hyper-regionalize game sites has it on the precipice of profitability. Founder and CEO Jon Mugar said that he’s fully expecting TBT to be in the black come 2020.

Howie Long-Short: TBT generates its revenues “as one would expect” a professional basketball tournament would. Sponsorship sales are the “biggest line” (+80% YoY). Ticketing revenues “are growing” (+ 350% YoY to $875K through semi-finals) and there is a “small” merchandising component (+80% YoY) to the business. While Mugar would not share details of TBT’s broadcast deal with ESPN, he did say the tournament’s media rights are “a revenue line.

Ticketing sales figures have consistently climbed as TBT has massaged its model. In 2014, the entire tournament was played in Philadelphia. From there, it expanded to four sites in major metropolitan areas before really finding success this year with eight regional locations; with a small marketing budget and so much competition for the sports fans’ dollar, TBT found it difficult to compete in the bigger cities. Of course, it shouldn’t be a surprise that fans in cities like Syracuse and Columbus would turn out in numbers – particularly in the middle of summer when there is no other game in town (save minor league baseball) – to support the home team’s stars of yesteryear.

TBT’s ability to find an organic marketing partner in each of the eight regional markets will go a long way towards ensuring its profitability. Of the regional destinations that hosted games in ’19, Wichita sold the most tickets. That’s not a coincidence. TBT’s partner was Wichita State University, which “marketed the games to their existing fan base like it was a college event.” A.D. Darron Boatright was wise to gamble on the start-up hoops property – the school grossed more than $400,000 over the course of a single weekend. Mugar deemed it “very reasonable” to believe that TBT will have other schools onboard as official partners next summer.

July and August are supposed to be the off-season, but with the WNBA, the NBA Summer League, TBT and BIG3 (plus Drew League and tours like HoopItUp) the summer-time basketball calendar has become crowded. Mugar believes each property appeals to a different segment of the greater basketball fan base leaving room for them all to succeed. That seems unlikely, but with a business model that is expected to turn a profit in 2020 and a deep pocketed owner, TBT looks like it will be a summer staple for years to come.

Fan Marino: Mugar understands that with limited history (and thus storylines) to draw on, that TBT needs to find another way to stoke fan emotions. He said that when selecting the 64 participants (from the pool of 100+ entrants) there’s “a focus on identifying the natural affinity group that will have interest in following the team.”  If you look at this year’s bracket you’ll notice that 40% of the teams are alumni based, but there are some exceptions. DeMarcus Cousins and Chris Paul sponsored teams which allowed TBT to tap into their fan bases and “there was a team from Jackson, TN – with four long-haul truckers – that took that town by storm.

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ESPN+ May Have Best Programming, But Too Early to Pronounce as Sports Streaming Leader

ESPN+

Sports Illustrated published a story entitled, ‘As the Digital Rights Battle Continues, Has a Sports Streaming Leader Emerged?’ making the case that Bundesliga’s pending move (from beIN Sports) to ESPN+ (come 2020) is indicative of a streaming battle that’s tilting in favor of the Disney subsidiary; ESPN has also acquired the broadcast rights to both Serie A and the FA Cup over the last 12 months. It’s not inaccurate to say ESPN+ currently has the best programming lineup amongst sports-centric digital providers, but it’s far too early to “pronounce a leader”; OTT adoption rates remain minuscule relative to linear television and will remain that way as long as linear television has broadcast rights to every meaningful NFL, MLB, NBA or NHL game.

Howie Long-Short: ESPN’s aggressive pursuit of global soccer rights for ESPN+ is built on the premise that a “buffet of great leagues and tournaments [from] around the world” would make it a ‘must have’ for hardcore soccer fans. While most within that group would likely agree, the pool and thus the upside in potential subscription numbers is limited; and as Yannick Ramcke (media industry observer, author of the blog OFFTHEFIELDBUSINESS.de) reminds “it’s difficult to grow a sport’s core audience if the best games are exclusive to digital channels with little exposure to the mainstream sports fan.

The worldwide leader has also chosen to pursue European soccer rights out of necessity. If the big four sports leagues aren’t going to award exclusive rights packages of meaningful scale/scope to digital-only companies “anytime soon”, then “acquiring long-tail content for retention and cyclical marquee events in boxing or MMA for new user acquisition is the best a service like ESPN+ can currently do.” Don’t think exclusivity is important? Ramcke said that the data shows if programming is available on linear television and OTT simultaneously that “digital makes up just 1% to 3% of the total viewership.” Today’s main stream sports fan, particularly those born before 1980, needs to be forced to adopt digital services; and that only happens if there is no linear alternative.

While European soccer does sell subscriptions, ESPN’s decision to outbid FOX Sports, beIN and the recently launched streaming services on international soccer rights has more to do with retaining digital subscribers than it does bringing in new ones. As Ramcke said, “the real challenge for pure-sports streaming services is keeping users in between marquee events. High-profile, cyclical events such as UFC PPVs drive sign-ups, but constant week-to-week programming is the key to retaining them.

As for FOX Sports – which doesn’t have an OTT service (Soccer Match Pass appears to be going the way of the dodo) and thus isn’t worried about churn – there is no urgency to retain rights to sports that draw a limited audience (FOX Sports pulls <100,000 fans for Bundesliga games). Instead, they’ll use their resources to acquire/retain tier one rights for the limited space they have available on the linear networks; a premium strategy that has become a go-to-move for many traditional sports broadcasters without a stand-alone digital outlet.

As S.I. writer Jacob Feldman noted, from a business standpoint, sports-centric OTT services remains an unproven commodity. Aggressively spending (due to fierce competition) for long-tail programming combined with aggressive pricing is not a viable long-term business model, so it’s worth wondering just how much runway these companies have. Ramcke says most are planning based on a one-to-three-year window, but believes none will have longer than four years to covert linear subscribers in mass. “Either they’ll land big four rights and consumers will be forced to adopt the service(s) or they won’t survive. Companies like ESPN and DAZN are burning through cash and have to get to the end-game, which is landing top-tier rights.”

Fan Marino: Tom Richardson, head of strategy and development for Mercury Intermedia (a leading mobile and connected TV app developer) and a professor at Columbia University (Sports Management grad program) suggested if ESPN+ is in fact the real or perceived leader it’s because of the marketing machine behind them. “ESPN is promoting ESPN+ ubiquitously. These other services must rely on paid media because they don’t have their own channels. That’s a huge advantage. As pure play digital media companies, your promotional platform is nearly non-existent.

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Enshrinement Extends HOF Inductees’ Commercial Viability, Could Increase Marketing Opportunities By +50%

NFL HOF

Last night’s Hall of Fame Game between the Denver Broncos and Atlanta Falcons kicked off the NFL’s annual ‘Enshrinement Week’. The Class of 2019 Hall of Fame (HOF) induction will take place tomorrow evening (8.3). For most NFL players, retirement means the end of lucrative marketing opportunities, but HOF inductees will find that a six (or seven) figure career awaits. The gold jacket represents the “gold standard” amongst pro football players – it also ensures an extension of the athlete’s commercial viability and immediately enhances their consumer marketability. Jordan Bazant, who is head of the sports talent division at WME, explained “players are commercially viable until they stop scoring touchdowns. Entering the Hall of Fame keeps the spotlight on the player in their post-playing days extending that window. The title ‘Hall of Famer’ also adds credence to a player’s message. They’re no longer just a former NFL star, they’re now recognized as an all-time great with these valuable brands attributes.

Howie Long-Short: Commercial opportunities are greatest for the highest profile Hall of Famers, not necessarily the ones who accomplished the most on-field. As a result, those who played post 1990 receive the bulk of the work. Remember, the NFL didn’t offer an out-of-market television package that allowed fans to watch every game (and thus every player) until ’94. Believe it or not, there was a time when if a team wasn’t scheduled to play on Monday Night Football (or Thanksgiving) and wasn’t on the local team’s schedule, fans didn’t see it play.

Steve Rosner, co-founder of 16W Marketing, says that the most marketable HOFs will find a variety of potential options to engage in both their pro and college markets. “There will be a lot of opportunities to do appearances and corporate events. There will also be team and league sponsors looking to activate campaigns.” Part of the reason why retired players are attractive to brands is that an injury to a current star could derail a campaign. “Of course, there are always memorabilia deals to be had too.”

Rosner estimated that a retired player’s revenue opportunities could climb +50% to +70% in the first two years following induction before leveling off. Bazant, who represents Troy Aikman, Chris Carter & Marshall Faulk among others, didn’t dispute that a +50% increase could be achieved, but he said that it would take a less heralded player to enjoy that kind of jump. Players with the national visibility the three guys referenced have are unlikely to see a jump greater than +10% to +20% because the value of their brands were already strong to begin with.

The position the inductee played also impacts their post-career earning potential. The reason brands seek out quarterbacks is because while their teammates’ faces remain mostly anonymous behind facemasks, fans see the signal caller regularly being interviewed without a helmet on. Bazant said that a high-profile quarterback could still command enough work to rake in seven-figures in marketing deals annually. While the bar is lower for other positions, Rosner suggested that reaching the mid-to-high six figures remained feasible.

Fan Marino: This year’s HOF inductees are Champ Bailey, Tony Gonzalez, Ty Law, Kevin Mawae, Ed Reed, Pat Bowlen, Gil Brandt and Johnny Robinson. The average football fan likely knows the first five names on the list, Pat Bowlen was the influential owner of the Denver Broncos and Johnny Robinson was an all-pro safety for the Chiefs in the late 60’s/early 70’s, but it is Gil Brandt’s contributions to the league that will live on the longest. Brandt, the Cowboys VP of Player Personnel of 29 years, is credited with developing the talent evaluation process that ultimately led to the creation of the NFL Scouting Combine (and the selection of 9 HOFs). He’s also recognized as one of the first front office executives to use a computer in the player evaluation process and the first to use psychological testing to measure a player’s ability to respond under pressure.

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Wanda Sports Group Misses IPO Target by 60%, Share Price in Free-Fall

WandaGroup

Wanda Sports Group (WSG), the sporting arm of the Chinese conglomerate Dalian Wanda Group, raised $190.4 million in a smaller-than-expected U.S. IPO on Friday July 26. The Infront Sports & Media AG (a Swiss marketing co.) and World Triathlon Corp. (WTC, the co. behind the IRONMAN) owner priced shares at $8 (below a previously reduced $9-$11 target, originally $12-$15), valuing the company at +/- $1 billion. The share price declined -35.5% (to $5.16) on the first day of trading and has continued to slide since (closing at $4.92 on 7.31). Triathlon participation is on the decline – the NYT reported U.S.A. Triathlon membership is down -25% over the last 5 years, but it’s the company’s debt-laden balance sheet and a geopolitical climate that has the U.S. investor hesitant to invest in Chinese businesses that explain why WSG had 2nd worst debut of 2019. The worst IPO of the year was held by another Chinese corporation, Ruhnn Holding.

Howie Long-Short: WSG had initially set out to raise $500 million. Two days prior to the IPO the company lowered their target to $308 million, so selling less than $200 million worth of shares must be considered a disappointment. The shortfall also begs the question, if the company is $300 million short of the capital infusion needed, are any of the future projects in which the IPO was based in danger of being shelved? It certainly won’t become any easier to raise the balance given how much they missed by.

Missing the company’s target by 60% – and then watching the share price immediately fall another -39% – would indicate that WSG either lacks an understanding of the U.S. marketplace or the leadership to pivot when it was determined that the market was too soft for the product. Neither of those scenarios would give an investor confidence.

Geopolitical issues are also contributing to tepid investor interest. With the Chinese government pushing down on industries deemed to be potentially harmful (see: video games), there’s a level of uncertainty currently surrounding China-based sports or leisure driven entities.

Triathlon participation numbers in the U.S. are dwindling, so it’s reasonable to suspect that too has contributed to the WSG fire sale. The NYT article focuses on the high costs associated with the sport (think: bikes, swim time), but the formation of less demanding experiential athletic events like Tough Mudder and Spartan Race is the real source of the decline. The perception exists that millennials or Gen-Z’s who would otherwise attempt participate in IRONMAN events now have other options.

President Philippe Blatter swears there is a “long-term strategy” in place, but inquiring minds would like to know what that vision is. A review of the company’s holdings reflects a hodge-podge of niche properties. Bill Squadron (former President of Bloomberg Sports, experienced in acquisitions, strategic planning and large scale joint ventures) wonders “do they want to be a global rights distributor or is their desire to own properties and operate events? Companies are typically defined by a single area of expertise. Theirs is unclear and my experience with publicly traded sports properties has been that the market responds most favorably when a company’s direction is certain.” It’s difficult for an investor to get comfortable with an equity if they’re unable to confidently forecast the future.

Announcing plans to use a significant portion of the “proceeds to repay debt” won’t excite investors, but Squadron says there are so many other factors (think: rights agreements, long-term partnerships) that an investor would look at to assess a company’s full financial picture. He’s right, debt’s not necessarily indicative of poor financial standing, but WSG saw profits decline -31% in 2018 (to $60 million), the company posted a $9.5 million loss in Q1 ’19 and as mentioned, generates its revenues from a collective of niche sports. There’s little to excite U.S. market makers.

For reference purposes, Dalian Wanda (over) paid $1.2 billion for Infront and another $650 million for WTC back in ’15.

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Perception Tennis is Struggling Misguided, Simply Case of “Rest of the World Catching Up”

USTA

U.S. men’s tennis has failed to produce a Grand Slam singles champion since Andy Roddick won the U.S. Open back in 2003. The drought, the longest in U.S. men’s tennis history, comes on the heels of a 14-year period (began in ‘89) where American men combined to collect 27 pieces of Grand Slam hardware. The disappearance of the American male from the Top 10 of the ATP rankings, along with a precipitous decline in the number of tournaments hosted on American soil has led to the perception that professional tennis in the United States is struggling. But tennis historian Randy Walker says that domestic interest in the sport remains strong and the U.S.’ diminishing influence on the game is simply a case of “the rest of the world catching up.

Howie Long-Short: The drop-off in the number of domestic tournaments – in 1978 the U.S. hosted 37 tournaments, in 2019 it will host just four Grand Slam or Masters Series tournaments – can be tied directly to globalization of the sport. Until 1974, the United States, Great Britain, France and Australia were the only countries to have won the Davis Cup, so it wasn’t as if competition to host tournaments outside the U.S. was particularly strong at that time. The turning point was the 1988 Olympic Games. Tennis was reinstated as an Olympic sport for the Seoul Games and countries throughout Eastern Europe and the U.S.S.R. began subsidizing participation in the sport.

Walker points to the strength of the remaining Grand Slam and Masters Series tournaments as an indication that interest in the sport remains strong. He said, the U.S. Open is “generating more revenue and drawing larger crowds than ever before; it’s no longer just a tennis tournament, it’s become a must-attend event. Indian Wells has exploded in popularity since Larry Ellison took it over roughly a decade ago. The Miami Open experienced a huge jump in attendance this year with Stephen Ross involved and Hard Rock Stadium hosting the event and Cincinnati has seen such a large rise in attendance over the last 6-8 years that they’ve had to increase the size of their venue.” It certainly appears as if this is a case of less is more.

The decline in the number of U.S. men in the ATP Tour rankings and the lack of transcendent American star is also contributing to the perception that tennis lacks popularity, but Walker says that if you look back at domestic television ratings for Wimbledon over the last two decades “they have been pretty consistent.” The greatness of Roger Federer, Rafael Nadal, Novak Djokovic and the Williams sisters and the emergence of several young female stars (see: Sloane Stephens, Madison Keys and Coco Gauff) have managed to prevent a ratings decline. It’s worth noting that ESPN reported ratings for the 2019 tournament climbed +30% YoY (to an average of 877,000 viewers).

If there is a cause for concern for the U.S. Tennis Association, it’s in the lack of enthusiasm surrounding lower-level WTA and ATP tournaments. The emphasis placed on the U.S. Open and the three Masters Series events has “sucked the air out of the smaller tournaments in those regions.” Without the tour’s biggest stars, many struggle to draw beyond the hardcore tennis fan. Walker believes that “charismatic promoters” can overcome that problem, citing new Washington D.C. ATP/WTA Citi Open owner Mark Ein and the success he’s had turning WorldTeam Tennis (see: Washington Kastles) into “one of the big social events in D.C. during the summer.”

Fan Marino: Did you know? Tennis’ Grand Slams (U.S. Open, Wimbledon, French Open, Australian Open) originated because of the early domination referenced in the Davis Cup. In the first half of the 20th century, the winner of the Davis Cup hosted the event the following year. Host nations began holding national championships as warmup events in the week leading up to (or following) the Davis Cup. The ability to draw the best players from around the world – they were making the long trek by boat, so they were motivated to make the most of their visits – gave the newly formed events gravitas.

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Unique Revenue Streams, Elimination of Costly Expenditures Keys to The Spring League’s Success  

TSL

The Spring League (TSL) – a professional developmental football league founded in 2017 – is wrapping up the second of two ‘Summer Showcase’ events in Mission Viejo, CA later today. Nearly one-hundred former college players paid to participate in the four-day camp that will culminate with a full-speed 6-quarter scrimmage. Those in uniform are hoping to catch the eye of a team scout and continue their football career, while the XFL executives and coaches in attendance are using the mock-game format as a product innovation lab to test rules adjustments and in-game technologies in preparation of the league’s February 2020 debut. ESPN and Fox also sent teams to Southern California to provide real-time feedback on how the proposed on-field changes would impact broadcast coverage.

Howie Long-Short: To be clear, the relationship between the XFL and TSL is that of 3rd party vendor and vendee – the XFL does not own a stake in The Spring League. However, Vince McMahon’s spring league is among TSL’s biggest clients having spent six-figures on three mini-camp like tryouts thus far. For contextual purposes, The Spring League will hit the $1 million revenue mark for the first time this year.

The Spring League has managed to survive three seasons and will reach profitability this year because its business model has eliminated the costliest expenditures associated with operating a football league. CEO Brian Woods said, “the players are not paid, they self-insure and all of the games are played in Texas, so there’s minimal travel and stadium costs remain low; essentially that’s what keeps the ‘academy model’ sustainable.

Finding ways to monetize the product without having to rely on traditional revenue streams (think: tickets, sponsorships, merchandise) has also been crucial to TSL’s success. In addition to player participation fees and the affiliation agreement referenced with the XFL, the league draws a unique annual subsidy from the State of Texas for operating out of Austin. Woods added that TSL recently signed a two-year deal with STATS, which has enabled the league to “explore a model where wearable tech companies would pay to have TSL players wear their products on the field for R&D purposes. We could also package that data and sell it to a company like Google or to professional sports leagues.

There’s no question TSL maintains an attractive value proposition. As XFL Commissioner Oliver Luck noted, “it’s really hard to find places where you have talented guys in full uniform willing to test football thesis.” He’s right. Outside of the independent Atlantic League, which has been testing robotic umpiring in partnership with MLB, I’m unable to name any other unaffiliated organization that serves as a real-time incubator for pro sports innovation. The relationship between TSL and the XFL has gone so well, that Woods said he’s had preliminary discussions “with Oliver about our league becoming the ‘Official D-League’ of the XFL.”

Fan Marino: TSL provides the XFL with the opportunity to “test rule changes in a game environment.” Luck said to properly evaluate the viability of an innovation like a 25-second play-clock, “you need to see how it looks over four quarters – if the pace is sustainable for an entire game on the field and in the broadcast trucks.” In addition to the play clock, the XFL is testing “a different kickoff, a new overtime format and a double forward pass (forbidden in CFB & NFL) – as long as the recipient of the first completion remains behind the line of scrimmage.

There’s also a scouting component to the TSL-XFL relationship. Luck said his league is “looking at the talent [on the field] and will certainly end up signing a handful of their guys.” To date, Woods said that “over 120 of our players have either signed with an NFL or CFL club or were invited to an NFL training camp.

It’s worth mentioning that The Spring League season is played between the months of February and April. TSL doesn’t permit draft eligible prospects to participate, so the ‘Summer Showcase’ gives players who went undrafted one last opportunity to impress NFL talent evaluators in time to make a training camp roster for the upcoming season.

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Pac-12 Considering 12p EST Kick-Offs, Weighing Exposure & TV Revenue vs. Gate Attendance

Pac-12

Pac-12 Commissioner Larry Scott told reporters at the conference’s media day gathering (on 7.25) that he would “like to see one or two games this season” kick off at 12p EST. The games, which would be played on campus (i.e. not at neutral site locations), would give the conference the opportunity to increase viewership in the Eastern Time Zone; Scott said that the conference’s existing late-night time slots – and the resulting lack of exposure – have been a source of “a lot of frustration” amongst Pac-12 coaches and fans, who believe an ‘East Coast bias’ exists to their detriment. The Pac-12 commissioner will need a few athletic directors to buy-in to the idea, the conference has said it will not force a school to play in the morning time slot.

Howie Long-Short: The Pac-12’s (P12) failure to place a team in the College Football Playoff the last two seasons has increased the pressure on Larry Scott to position the conference for a return to the four-team tournament. One former College Football Playoff Committee member acknowledged that teams on the west coast playing late at night “get overlooked”, so re-scheduling games for times when a larger percentage of the population (and the Committee) is awake sounds logical – but it doesn’t solve the P12’s core issue; member institutions are fishing from a smaller pond. A lack of exposure isn’t keeping Pac-12 schools from making the CFP, their inability to field teams capable of finishing with less than two losses is.

Earlier start times would theoretically appeal to a greater percentage of fans in the Eastern Time Zone and despite the competition from the SEC, B1G and ACC, could also potentially result in a increased viewership; remember, games scheduled at noon EST benefit from the reach of broadcast television vs. the smaller pay-TV universe watching late night games. Former senior Fox Sports programming & strategy executive turned industry consultant Patrick Crakes said “the total gross viewers pool in the late window across ESPN, FS1 and P12N is 1.5 million to 2.5 million. A top-level interconference matchup at 12 EST could draw 3 million – but it would probably have to include one of the Los Angeles teams.

The P12 would be making the move to appease alumni and media members on the East Coast, but former CBS Sports President Neal Pilson doesn’t believe that a 12p EST start will crush ratings in the Mountain and Pacific Time Zones. He reminds that the “folks out West are used to early starts. The NFL starts games at 10a PST on Sundays.

CollegeFootballTalk’s Bryan Fischer reported that schools located in the Mountain Time Zone would be “chief candidates” to test out the viability of a morning kickoff. That makes sense. The conference should figure out if 10a is feasible before it looks to make 9a work.

Ratings aside, Pilson believes that creating inventory for the 12p EST time slot makes a lot of sense from a media rights standpoint. He said, “ultimately the value of the remaining Pac-12 game inventory rises if its teams are getting regular exposure at 12p EST and inevitably Scott will be able to command more money from their current partners – or another network will bid for the conference’s games playing in that window.” He’s right and with 12p EST far more valuable than late nights, rights fees for those games should increase. The conference’s current Tier-1 rights holders – ESPN/ABC and Fox (which wants to put a marquee game in the timeslot) – are likely to have interest, but keep an eye on Turner/AT&T; the company is said to desperately want to acquire more premium sports rights.

Pac-12 fans have complained for years about hosting too many night games, but morning kickoffs likely weren’t what they had in mind. One former Big-12 (B12) athletic director was “certain that it’s going to be hard for schools to pull a live audience at 9a on a Saturday.” He speaks from experience. B12 schools in the Central Time Zone often host 11a local-time kickoffs and “nobody likes it – and that’s two hours later [than what the P12 is proposing].”

That same source was as concerned with the revenue that would be lost with a 9a kickoff as he was with the absence of a raucous home crowd. With ticketing revenues remaining “an important part of athletic department proceeds” and schools having just 6 or 7 home games to monetize, the thought of willingly foregoing revenues would seem like “a tough sell for athletic directors already up against the budget.”

Fan Marino: Proponents of Scott’s idea point to schools like Arizona, that practice in the early morning before temperatures get too hot in the desert, and claim that kicking off at 12p EST wouldn’t have a negative impact on a student athlete’s routine – or on the team’s on-field performance. The former CFP Committee member we spoke to disagrees. He said, “home field advantage is exacerbated with an unusual game-time, particularly when the home team is playing a team that traveled several hours the day before” (which is often the case). As for the athlete’s well-being, Wazzu Coach Mike Leach said that his players would have to rise at 4:30a to follow their existing pre-game routine for a 9a kickoff. I have a difficult time imaging athletes lacking sleep – even at 20 years old – are going to perform to the best of their abilities.

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EGF, ESPN WWOS Partner, To Host Interscholastic High School Esports Championship

ESPN_WWOS

In Early Entrants: Vol. XV (July 22), we wrote that The Walt Disney Company/ESPN plans to take a central role within the gaming space. While details remain scant, we’ve heard that the house of mouse intends on solidifying the fractured amateur video game landscape. Rumors are floating that additional details will be coming down the pike sooner than later.”

The Electronic Gaming Federation (EGF) and ESPN Wide World of Sports Complex have since announced the formation of the national interscholastic high school esports championship tournament. Participating teams will qualify by advancing through a series of regional competitions throughout the 2019-2020 academic year. The inaugural event will take place June 12-14, 2020, live from the ESPN Wide World of Sports Complex at The Walt Disney World Resort in Orlando, Florida.

The EGF is essentially striving to become the NCAA of amateur competitive gaming. Formed in ’13, the organization has put on over 2,000 high school and collegiate esports matches.

Howie Long-Short: To understand the significance of the partnership, one must realize that “the development, growth and ultimately the maturation found in the professional esports space has been missing from the high school and college ranks.” Rod ‘Slasher’ Breslau, one of two individuals tasked with launching ESPN’s esports vertical, explained that “there are high school kids – who are literally the best in the world at a game – that are playing recreationally at home because their school doesn’t have a formal esports program. The tier 2 and tier 3 leagues below the pro level don’t include an academic component. Their only focus is getting players to the top league. Many of the high school and college aged kids – oftentimes from Asia – playing in those leagues wouldn’t be competing if they went to school.”

ESPN will host an Apex Legends tournament at X Games 2019 and recently held the ‘Collegiate Esports Championship’, so Thursday’s news doesn’t exactly come out of left field. Breslau said that while the network’s “editorial coverage [on competitive gaming] gets good traffic, tournaments are always going to bring in more eyeballs, more viewers on the Twitch Stream; and you can sell video ads against that. Video ads are the bread and butter of ESPN’s products, so it’s no surprise they’re now making a bigger esports play.” The worldwide leader has the platforms, but lacks the credibility amongst gamers  – which explains their interest in partnering with EGF.

ESPN is also motivated to present esports in a manner familiar to their core audience. Aligning with an entity that serves as the ‘NCAA of high school and collegiate video gaming’ and adopting infrastructure that allows for interscholastic rivalries helps to make competitive gaming easier for the esports novice to understand.

Aside from the credibility gained, Schrodt said Disney and its ESPN Wide World of Sports Complex was the right partner because the company represents “the gold standard” within sports and entertainment. EGF seeks to provide meaningful experiences for gamers and Schrodt believes that “giving kids the opportunity to go to Walt Disney World, like so many professional athletes have over the years”, helps to accomplish that goal.

It must be noted that EGF isn’t the only organization looking to help create the next generation of esports stars. PlayVS, which has raised $46 million to date, is also looking to create a nationwide interscholastic association. Breslau said that the investment capital raised had initially given PlayVS an advantage, but that the legitimacy gained from the ESPN deal helps EGF to close the gap. Both companies are inevitably going to face competition from the NCAA, so Slasher suggested that an eventual merger could make sense to stave off a challenge from the old guard.

Fan Marino: Rick Fox recently sold his team’s spot in the League of Legends Championship Series for $30.25 million. Games that were popular in the late 80s and early 90s are no longer popular today, so paying millions of dollars to acquire esports teams tied to a specific game has always struck me as a risky proposition, but Breslau says, “it’s become a case of ‘too big to fail’. So much money has been invested into games like League of Legends, that it would take an incredible catastrophe for the game’s popularity to decline far enough that there weren’t enough people playing it for it to exist at a professional level. League of Legends, Fortnite, Overwatch and Counterstrike, they’ll all be around in 2050.

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California Bill Could Force NCAA Reform, See Athletes Profit from Name, Image & Likeness

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California’s Committee on Higher Education passed a vote to proceed with a bill that would permit athletes competing at the state’s colleges and universities to profit off their name, image and likeness without forfeiting eligibility (i.e. the rights afforded to Olympic athletes). The state’s Appropriations Committee will next review the legislation (likely in mid-August). Should it gain their approval, the bill would be up for an assembly-wide vote before making its way to Governor Gavin Newsom for final signature. Naturally, the NCAA opposes the bill. Senator Nancy Skinner has accused the organization of “bullying” and of using stall tactics to dissuade legislatures from moving it forward.

Howie Long-Short: Chargers lineman Russell Okung, advocating for the bill, told Committee members that the NCAA’s current system is akin to “how prisoners are treated – provided room and board and allowed to work without a chance to be paid fair market value for their services.” While the vote was unanimous (9-0, one member abstained), I can’t imagine that silly comparison – they don’t have facilities like this in prison – strengthened what is already a strong case for those in favor.

Len Elmore is one of the ACC’s 50 greatest basketball players of all-time, a former player agent and currently serving as a professor at Columbia University, so unlike Okung he’s able to provide an objective opinion and he’s not banging the ‘college athletes are being exploited’ drum. He says that student athletes understand “what they’re foregoing when they sign that letter of intent and if they’re looking for compensation beyond the value of a scholarship (and the additional benefits received that are ‘tethered to education’) there are other avenues to go down.” But the former Maryland great agrees that the one concession the NCAA needs to make is granting athletes permission to monetize their name, image and likeness – “those are natural rights, they can’t be taken away from a person and if a player’s name, image or likeness is used for marketing or promotional purposes they should be compensated monetarily.

Should California pass the Fair Pay to Play Act, schools within the state would theoretically gain a significant competitive advantage – it’s certainly reasonable to assume that players would begin to flock out west. The NCAA has suggested it would consider excluding the CA schools from sanctioned championship events, but it seems more likely that they’d elect to alter their bylaws (and allow student athletes nationwide to monetize their name, image and likeness) to re-level the playing field before other states follow California’s lead and force their hand; the Indianapolis based organization has already formed a ‘group’ to discuss the possibility. Either way, the NCAA is going to have to make a decision quickly; if the bill becomes law, the legislation would take effect in January 2023.

The proposed bill allows for players to hire agents and attorneys to manage their business affairs. While on the surface that may sound logical – one can’t expect a college student to be negotiating their own marketing deals – involving agents in college athletics is more likely to “add to the problem, than be part of the solution.” Elmore says that “it’s such a competitive business, once an agent gets their hooks into a player they’ll do whatever it takes to keep them. So, unless those representing athletes are going to start doing what’s right, instead of acting in their own self-interests, NCAA violations would run rampant.”

Allowing players to monetize their own name, image and likeness will lead to a scenario in which schools with the greatest resources gain even more power. The bill being considered “restricts schools from prohibiting player compensation, but it doesn’t dictate how payments are delivered. Those able to offer the most in the way of marketing opportunities are going to have an awful lot of leverage when recruiting players (even if they can’t explicitly offer sponsorship deals as part of a scholarship package).

Fan Marino: To be clear, while Elmore referenced “other potential avenues” besides college sports, he’s not advocating for kids to take them; it’s his belief that spending time on a college campus best prepares individuals for both their pro career and the remainder of their life. He reminds that “football and basketball players aren’t playing for their rookie contract, it’s their second contract that is most lucrative – and players only get that second contract if they fulfill their potential.” It’s a valid point. If you look at the NBA players with super-max contracts – Curry, Harden, Westbrook, Lillard, Wall and Antetokounmpo – all but Antetokounmpo went to school and of the remainder, only Wall left after his freshman season. Kemba Walker, who passed on a super max contract this summer is another example of a player that benefited from an extended college career.

For those who enjoy video games, good news; permitting players to cash in on their name, image and likeness would certainly result in the return of EA Sports’ NCAA Football game for the first time since ’14 – and this time with player names!

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WWE Looks to Heyman, Bischoff to Turn Sharp Ratings Decline Around

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Monday Night Raw and SmackDown Live – WWE’s flagship programs – experienced drastic year-over-year ratings declines through the first half of 2019. WWE co-president George Barrios blamed the Q1 drop-off in eyeballs on a series of injuries that prevented some of the biggest superstars from performing in-ring, but with a healthy roster – and WrestleMania (biggest PPV of year, resets storylines) – failing to give Raw and SmackDown the Q2 boosts expected, the pro wrestling promotion decided to take creative in another direction. In June, the company announced that Paul Heyman (see: ECW ’93-’01) and Eric Bischoff (see: WCW from ’91-’99) – legends of the Monday Night Wars era – would be taking creative control over Raw and SmackDown, respectively. The hope is that the well-respected duo can come up with storylines that will once again make the weekly shows appointment programming.

Howie Long-Short: WWE was a Wall Street darling in 2018. With the company signing long-term broadcast deals for both Raw and SmackDown worth a combined $2.35 billion (+213% increase in annual value), shares rose +138% over the twelve-month period. But declining television viewership, slowing network subscription growth, a drop-off in gate receipts and merchandise sales and the emergence of a formidable domestic competitor (see: AEW) has spooked investors in 2019; the company’s market cap is down -27% since it reported underwhelming first quarter results back in April.

Investors aren’t the only ones unnerved by WWE’s H1 struggles, Variety reported that executives at both NBCUniversal (Raw) and Fox (SmackDown) are “getting nervous” that they may have overpaid on the 5 year pacts scheduled to start later this year. While the two programs remain amongst the highest rated on weekly television, the downturn in viewership has been pronounced (Raw -20% YoY, SmackDown -17 YoY); tune-in figures were pretty consistent between 2017 and 2018. It does need to be noted that USA Network and Fox don’t need to pull the as large of an audience as WWE has been able to command in recent years (regularly over 3 million) – they simply need to beat the other programming in their time slots.

Barrios offering up “superstar absences” as an explanation for Q1’s soft numbers was ridiculous considering just a single male wrestler missed the entire quarter (Bray Wyatt). The balance of the names he cited on the company’s earnings call either missed minimal time or are considered early to mid-card talents (i.e. had no impact on ratings). And of course, wrestlers aren’t limited to in-ring appearances, either; with 5 hours of weekly programming to fill (NXT excluded), there are no shortage of opportunities for back-stage skits, promos and in character interviews.

Industry insiders believe that WWE has watered down its product – that there’s simply too much wrestling on television; 5 hours of live programming/week (+ NXT on WWE Network) inevitably leads to lulls in the show and viewers tuning out. “A lack of distinction between the 2 flagship shows (see: too much roster crossover), the loss of the company’s biggest draw (see: John Cena) and a women’s division that’s been poorly booked and force fed to viewers” were all also mentioned as possible explanations for the ongoing struggles.

While it may sound as if the sky is falling, “struggling entertainment properties don’t do $17 million live gates (WrestleMania 35); they also don’t generate $1 billion in annual revenues.” There is reason to believe that despite the headwinds referenced above, WWE’s Q2 earnings report will exceed analyst expectations. One source familiar with the business told JohnWallStreet that WWE’s “Q2 financials are set to include both WrestleMania and the Saudi show; and the company’s operating income goes through the roof anytime they do an event in the KSA. It’s $25 million to $30 million directly to the bottom line.” We’ll find out on Thursday when WWE announces its second quarter results.

Fan Marino: To be clear, it’s not as if the WWE hasn’t tried to shake things up to renew fan interest – it’s just that ideas like the addition of a silly ‘24/7’ title and a wildcard rule that further blurs the lines between the two programs have simply fallen flat. Heyman suggests that the keys to a turnaround are simple – longer-term planning and better promos. I’m not sure if that’s the case, but the perception that too many superstars are misused or buried on the roster and that segments often feel too scripted certainly exists.

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