MLB, Liberty Media Last Bidders Standing for 21 Fox RSNs

MLB

Major League Baseball and Liberty Media (backed by Platinum Equity and Twins owner Jim Pohlad) have submitted non-binding tenders – prior to the yesterday’s deadline – to purchase the 21 regional sports networks that the DOJ has required the Walt Disney Company unload to complete their acquisition of 21st Century Fox’s entertainment assets. It was believed that the Sinclair Broadcast Group (with backing from Apollo Global Management) had also submitted an offer, but CNBC has since reported that the pair is out of the bidding – at least as a package; the story indicated that Sinclair could join another bid. Bloomberg reported that the bids submitted valued the lot between +/- 6-8x EBITDA, roughly half of what Disney had expected when it agreed to the $71.3 billion deal with Fox.

Howie Long-Short: 21st Century Fox sold Disney 22 RSNs, but the lot for sale only includes 21 as the Yankees intend on reclaiming control of the YES Network (currently own just 20%). YES, once thought to be worth $5 billion-6 billion, is now expected to fetch just $3 billion-4 billion.

At 6-8x EBITDA, the value of the RSNs is closer to $10 billion than the $22 billion analysts had initially projected. When the likes of Comcast, Discovery and Fox are out of the bidding – and the tech giants show minimal interest, as Dan Cohen, SVP Global Media Rights Consulting at Octagon explains, “you’re left with the next set of potential buyers; and there’s large gap between Sinclair and Fox or Verizon.”

Dan isn’t so sure that Disney (DIS) would be willing to take that kind of bath on the sports networks though. He suggested that if the bids came in sub $10 billion, DIS could approach the DOJ about taking the negotiations private again – as opposed to spinning off the RSNs and ceding operational control (another rumored potential solution). Disney could “claim that the DOJ forced a public sale to the detriment of the company, that they would be taking a massive loss on the deal and that they should now be allowed to run the sales process the way any private company normally would. Remember, DIS overpaid on the Fox acquisition – by a lot – thinking they would have a $20 billion asset to re-sell that would help to offset acquisition costs; they need to recover that premium.”

Fan Marino: MLB’s interest in acquiring the RSNs is to “take control of their own destiny with regards to content distribution (remember, they already control the streaming rights). Adding 21 RSNs makes MLB network more attractive from a content perspective and packaging the network with the lot of RSNs would give the league a lot of leverage in the marketplace when they go to negotiate carriage deals. Baseball is the life blood of these RSNs. They provide the most content, the most live programming.”

MLB has backing from the Canada Pension Plan and seeks a strategic partner to help with carriage distribution, but you won’t find them partnering with any of the cable distributors. That’s because “MLB wants to remain agnostic so they have leverage in the marketplace when they go to negotiate against Comcast, Verizon, Sinclair, Liberty and everyone else. If they tie themselves to one distributor, they’re kind of pegging themselves to a discounted carriage rate; that has the potential to negatively impact the carriage rates and carriage fees they’ll be able to drive out of the other MVPDs.”

Baseball fans in small markets (think: Minnesota) should hope MLB ultimately owns and operates the networks because the alternative is not pretty. “A private Equity firm (like Platinum Equity) will come in, streamline operations, strip the business down to its bare bones and then sell it. We are in an age where content is changing so rapidly and requires such a large investment to make it meaningful (think: upgrade to HD or 4K distribution, adding enhancements to graphics, interactivity, more shoulder programming). P.E. is not going to pump a ton of money into these channels and operate them as best in class. They’re going to put money in where they need to be strategic and cut costs where they don’t. The RSNs that don’t drive value are going to be ignored and their broadcasts will suffer accordingly. Private Equity is not going to try to grow small markets like they would New York or Los Angeles.”

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Commitment to Competition, Ignoring Cost Structure Has RU, UC Athletics Under Water

Rutgers_Uconn

The Rutgers athletics department released a “comprehensive plan to reach competitiveness [in the Big 10] in a fiscally responsible manner” following a year in which it fell $47.4 million short of its $99.2 million budget, but officials at the State University of New Jersey aren’t interested in hearing about the “long-term benefits of Big Ten membership”; faculty union president Deepa Kumar derided the plan saying it “robs from our educational mission” and “saddles [students] with greater debt to subsidize.” Kumar has called on President Robert Barchi to decrease spending from the school’s operating budget on sports and to “re-prioritize the academic mission.”

Incoming President Thomas Katsouleas will face similar financial woes at the University of Connecticut when he takes the reigns in August, but despite the athletic department’s $42 million shortfall on a $80.9 million budget last year (highest among P5 + AAC schools), the current EVP of the UVA has no intentions of eliminating football – the largest contributor ($8.7 million) to the deficit. Katsouleas believes that the program helps to position the school as a “major, broad-context University”, that it provides “ancillary value for the other sports and for fundraising overall.” The school’s non-revenue generating sports aren’t on as safe ground. Athletic director David Benedict stated that while the school will work to increase revenues and look to cut expenses, “sometimes there’s inevitabilities.”

Howie Long-Short: The conference realignment that occurred back in 2011-2012 has begun to bare financial winners (Texas A&M, Missouri) and losers (Rutgers, UConn). While Rutgers’ shortfall can be attributed to their step up in competition (AAC to Big Ten) – and the expenses incurred while trying to keep up with the Joneses, Connecticut’s originates from its inability to find a home within a P5 conference (Big East to AAC) – and the subsequent decline in “conference and media licensing” revenues (think: media rights, bowl game payouts).

Ray Katz, a Columbia University Adjunct Professor and the COO/co-founder of Collegiate Sports Management Group, says that the absolute commitment to competition, rather than running a responsible business and competing at a reasonable and appropriate level, is what has UC and RU in this predicament. “Schools must start with a cost structure like any other business. They should be evaluating how much they can get their cost structure down while still achieving their goals, before figuring out what they would like to achieve, over-spending and only then trying to figure out how to elevate their revenue streams. Schools need to run their athletic departments as an integrated business and not as individual fiefdoms.”

Rutgers was ill prepared (from a resources and facilities standpoint) when it joined the Big Ten conference in 2014, but the 6 year wait for full financial distributions hasn’t helped RU to achieve competitive parity; since the school began Big Ten conference play in 2014-2015, the combined winning percentage for all school teams is a paltry .260. The school will receive +/-$27 million less than the 12 other Universities within the conference this year (note: Maryland came in with Rutgers, also receives partial share).

Connecticut’s AAC conference distribution was $7.1 million in 2017-2018, 82% less than teams in the SEC earned. That’s a hurdle Katsouleas is going to find impossible to overcome. Even if the conference increases its television contract (negotiations are ongoing) and the school manages to cut costs, there’s no way the athletic department can compete at a P5 level and operate self-sufficiently.

If that’s the case, I asked Ray why UConn should continue to fund collegiate athletics?

Ray: When schools compete at an appropriate level, it is a tremendous asset for the school, for the students, for faculty, for recruiting, for school spirit and for developing leaders. The problem is when schools compete outside of where they should be given the market they’re in, the nature of the University and the sources of funding.

Look at the University of Alabama. The athletic department makes money because they’re competing at the right level in the right venue. They know football is their athletics unique selling proposition – to use a marketing term. They’re not running out and spending $12 million annually on a coach in basketball. They’re using the money, the profits that the athletic department generates, to attract professors and to offer academic scholarships (to students with a 31 or 32 on their ACT), so their student body’s getting smarter, the school is becoming more desirable and moving up the ranks of state universities academically.  

At different levels, Butler, Tufts and countless others have used sports to elevate the university in total. Ray explained, “schools that are not well known or elite state or private schools need to market themselves. They can market themselves by putting billboards on I-95, sending out a million direct mailings or buying 30 second commercials on local or national television. The alternative is to view sports as desirable branded content and to build a strategy around them – to use a 3-hour football game as an infomercial for the University. If you think of sports as branded content for the University, then you would ask yourself, are we getting more out of the last 5 million dollars [spent] in sports then we could from 25 tenured professors that are out of touch with the vertical in which they teach, and/or are mailing it in because they have absolute job security?”

Fan MarinoAs the resource gap between the P5 conferences and everyone else continues to grow, it’s worth wondering if there’s a future for the other +/- 300 D1 programs. Ray says fans of mid (or low) major programs have no need to worry. “If everyone else wants to abide by the initial mission of student of athletics – and not try to be professional sports –  the college game can provide for a great learning experience for the athletes and great entertainment for students and alumni alike. The schools would do better [financially] too if they were smart with their media rights, if they were thoughtful and strategic with what they do with their content and wisely utilize their sports content to intelligently market the school to all key stakeholders regionally, locally, regionally, domestically and globally.”

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NBA’s $1 Billion Licensing Deal Really About Building the Next Generation of Fans

Giannis_2K

Take-Two Interactive (TTWO) will pay the NBA (and the NBAPA) up to $1.1 billion – more than 2x the value of the expiring deal – over the next 7 years, for the rights to use team logos and player likeness’ (must-haves for gamers) in its popular 2K game; as of November, NBA 2K19 was the best-selling sports game of 2018 and 3rd best-selling overall. The global licensing rights extension includes NBA2K Mobile and the free-to-play games (in China only) NBA2K Online and NBA2K Online2, games with a combined 40 million users.

Howie Long-Short: Video game licensing rights are calculated based on a percentage of product sales (typically 10%-15%) and NBA2K posted a franchise sales record in ‘18 (10 million), so TTWO’s rising costs are a product of the title’s success more than anything else. Competitor Electronic Arts Inc. (publishes NBA Live) – which sells a fraction of the units – will be stretched to move forward with a rights fees increase on their next deal, but the company won’t pay anywhere close to the same amount as TTWO because they’re not generating equal revenue.

NBA2K was first released in 1999. Few gaming titles remain relevant within pop-culture beyond their initial release, so it’s worth wondering why the 2K franchise has been able to thrive for 20 years? Tony Ponturo, EVP at Turnkey Intelligence (strategic consulting for leagues/teams/facilities), told me “there are several reasons why NBA2K has had staying power. One is the game itself. The content is so good that there’s been repeat and growth business for the NBA2K brand. The second has been the increase in young fans watching the game – the growth of the young male demographic has given a boost to the game; and the NBA’s also experienced tremendous international growth that’s helped to increase the potential audience.”

While 2K has certainly benefited from the NBA’s youth movement, it has been a 2-way street. In fact, one could argue that despite the $1.1 billion figure receiving all the headlines, the NBA’s deal with TTWO is truly about building the next generation of fans. Tony explained, “NBA2K has helped to grow awareness of the sport on a global basis and it’s resulted in more fans, more knowledgeable fans and more passionate fans of the league. Fans of NBA2K – particularly those abroad – may not be going to the games and millennials might not spend 2.5 hours watching a traditional television broadcast, but the video game helps to begin shaping their passion for the league; they can become fans through the video game.”

The NBA has invested in esports with the introduction of the NBA2K League, so it would seem as if TTWO would have had some leverage in negotiations (it’s been said they paid on the high-side of the 10%-15% range referenced), but Tony explained that it was really the NBA with all the leverage. “TTWO understands that without NBA trademarks and an association with the league’s players, that they don’t have a basketball gaming business; they had no leverage. You also can’t deny that the NBA gained leverage during this round of negotiations as there’s no longer a collegiate game for TTWO to compete against (EA’s popular NCAA Basketball game existed back in ’11); the rights are that much more valuable with the pro game now capturing all basketball gaming business.”

It should be noted that while NBA2K Online and NBA2K Online 2 are free to play, the games do offer micro transactions. That’s important as the small digital in-game purchases accounted for +/- 50% of the TTWO’s total net revenue in fiscal Q2 ’19.

Fan Marino: The NBA2K League – a JV between the NBA and TTWO – has announced intentions (no time-frame) of going global because simply put, that’s where the fans are; 53% of the 380 million esports fans around the world reside in Asia or the Pacific and another 18% live in Europe. No timeframe has been established for international expansion, but with the ability for the teams to compete without traveling – few hurdles stand in the way. 21 NBA teams will field clubs that will compete in the NBA2K League’s sophomore season. Brendan Donahue, managing director of the 2K League, has said that the league could ultimately include teams in 45+ cities.

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NHL Becomes 1st League to Deliver Real-Time Analytics to Benches for Coaches/Players

NHL

The NHL introduced player and puck tracking technology – to fans – for the first time at January’s All-Star Game, software capable of calculating statistics like player speed, shot speed and distance traveled. JogMo World Corp. captured the player information from GPS-like sensors in player shoulder pads 200 times/second, while sensors inside the rubber disk picked up location based data 500 times/second. 6 tech companies – all VR or gambling focused – had the opportunity to showcase commercial applications for the comprehensive data collected. The league has announced that it will deploy the tracking technology (full-time) for regular season games next season.

Howie Long-Short: The VR technology introduced allowed fans to project a game in 3D onto any surface (Trigger Global), watch the game from any vantage point (Beyond Sports), enjoy a broadcast offering real-time next-gen stats (VIZRT) and to create instant highlight packages using AI (WSC Sports), but in-game sports betting provides the league with the greatest opportunity to monetize the insights collected; we’ve already seen the NHL agree to a partnership with MGM Resorts International that includes access to the league’s official data. On the gambling side, Genius Sports introduced a platform for live in-game prop betting and Swish Analytics rolled out gambling software that offers real-time updates and statistics.

Jake Williams is the Head of Legal and Regulatory Affairs at Sportradar (the NHL’s global media embedding data rights partner). I asked Jake how far U.S. sports fans are from having real-time in-game tracking related prop betting available to them?

Jake: It really depends on how willing the leagues are [to sell the data]. The main issue sportsbooks have in offering tracking related prop bets is that the proprietary data necessary to set lines (and determine outcomes) is not in the public domain – at least not in the sense that the final score is. There needs to be a willingness on behalf of the leagues to distribute that data and to engage with sportsbooks. I think we’ll see gaming companies make those types of prop bets available, it’s just going to take time.

Ahmad Nassar (President of NFL Players Inc.) recently compared the potential monetary upside that proprietary league data brings to the leagues, to what television offered 50 years ago; in that, no one truly grasps the size of the opportunity. I’m not so sure. While data is certainly a commodity, most wagers are placed on results found in the public domain. I have a hard time believing that many sportsbooks could ever take in enough tracking related prop bets to warrant a costly investment in the data rights. Sportsbooks are already a low margin business.

While sports betting has since taken precedence, when the NHL first set out to develop the technology it was seen as a “broadcast application”; to enhance the fan’s viewing experience. The NHLPA has acknowledged it has allowed players to be tracked out of fear the league would fall behind from a technology standpoint. I asked Jake, if the players were to oppose the collection/sale of tracking data, what risks would it pose for the league?

Jake: With all the advanced computing power, play-by-play and tracking data, teams would be forgoing the opportunity to optimize what they’re doing on offense or defense in near real-time. The league would also be passing on the chance to stimulate fan engagement during game broadcasts. Advanced data prompts the announcers to correctly explain why a team would follow a given strategy.

Fan Marino: The NHL became the 1st and “only sports property delivering real-time video and data to the benches for the coaches and players” when (following the ASG) it began feeding teams on-ice analytics during games. Historically teams had an assistant print out game summaries and run them to coaches at the completion of each period, for review during intermission. The change, which now gives coaches access to more than 30 real-time statistics (on +/- 350 events/game) in real time, enables them to make informed adjustments on the fly. The data being transmitted today is found in the public domain, but the league has plans to integrate player and puck tracking analytics upon completion of testing.

Capturing real-time data during a hockey game has proven to be more difficult than other sports (which explains why it took 4+ years – and 7 figures – to develop). As Jake explained “puck tracking is a difficult space. If you’ve ever been to a hockey game, you know it’s not always easy to see the puck. Tracking solutions that have worked for other sports – like Second Spectrum (which relies on video to capture movement) – doesn’t work for the NHL; the video camera technology has the same problem following the puck as the fans do. Technology like Second Spectrum’s works best with the NBA game where it’s easy to see the ball, the players and track them.” Of course, the temperature of the puck/ice creates a whole other set of issues with regards to electronics.

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Mile Deep, Inch Wide: FloSports’ Solution to Cutting Through the Media Clutter

flosports-logo

D.C. United has agreed to a multi-year broadcast agreement (up to 4 years) with FloSports that will give the digital television service the exclusive rights to carry 21 of 34 regular season matches within the Washington market; league broadcast partners ESPN, Fox Sports and UniMas will carry the remaining 13 contests. The subscription streaming service plans to supplement game action with live and on-demand programming (think: pre-game/post-game, training camp coverage, player profiles). Games will air in high definition on FloFC.com, FloSports’ newest vertical dedicated to soccer content.

Howie Long-Short: D.C. United isn’t the first MLS team to bypass television in favor of a digital outlet, LAFC claimed that distinction when they elected to bypass English TV – in the Los Angeles market – last season for YouTube TV (Spanish television was available); Chicago Fire SC had a similar arrangement with ESPN+. But unlike those partnerships – limited to just game day broadcasts – FloSports has promised D.C. United “a dedicated marketing content deep dive into all things DC united as a part of the distribution strategy.” The pact is FloSports’ first with a Big 5 sports team.

YouTube TV and ESPN+ have much larger subscriber bases than FloSports. I asked Mike Levy, FloSports’ Vice President, Global Rights Acquisition – taking money out of the equation (no financial terms were disclosed) – why would D.C. United choose the OTT provider with the smallest audience (of the 3)?

Mike: Our promise to the club is that we’re going to grow their fan base. The goal of this partnership is to create some sort of emotional connection, to tap into people’s passions about DC united. Co-founder Martin Floreani used to say that the traditional media is a mile wide and an inch deep, we want to go a mile deep and an inch wide. We don’t believe that you can just throw out a live game and expect to grow your fan base anymore. The world is just too fragmented, the media landscape is too cluttered. Youtube TV or ESPN+ might be bigger platforms, but they’re not going to be generating even a fraction of the content that we’re going to be distributing daily (which explains why exclusivity is crucial for FloSports). We’ll also be deeply engaged with both ticket sales and social media.

Last Tuesday, the Formula One Promoters Association held a meeting with Liberty Media to express their concerns over the direction of the sport. Liberty’s intent to move races from over-the-air television to a paid OTT streaming service was among their chief apprehensions. The Association explained that “it is not in the long-term interest of the sport that fans lose free access to content and broadcasting.” With D.C. United making a similar move from cable/satellite to a paid streaming service, I asked Mike if D.C. United’s decision is in the best long-term interests of the sport? 

Mike: We believed that there are certain sports that are ripe for disruption and need it to grow. Sports with massive participation, vast social reach and impressive fan engagement, that remain underserved by linear media outlets. FloSports is about going deep into a sport, from the amateur level all the way up to the professional ranks; and we want to do that year-round.

In the D.C. market, fans won’t be limited to just DC United. We’d like to get involved in the community at a grassroots level. It’d be the connective tissue between youth soccer in the DC metro area and the college game. We’ve already have rights to the University of Maryland through our Big 10 deal and we’re looking to expand our collegiate portfolio in the mid-Atlantic region. Nobody has programed a local channel deal around maximizing all the interest in the sport and we believe that the digital environment is the best place to do that.  

One could argue that every pro sports league in America – except for the NFL, MLB and NBA – would benefit from FloSports’ vertical model. Mike says that “there are other bigger sports that are also underserved” implying the company plans to compete for Big 4 broadcast rights in the future. NHL rights would seem ripe for the picking. They’re relatively inexpensive and no Big 4 sports fan is more underserved – with regards to coverage – than the NHL fan.

Platform agnostic long-tail content will help with the development of some fans (and, existing ones will love it), I’m just not on board with the idea that pulling over the air broadcasts of games – in favor of a paywall – helps to grow a fan base. I don’t see how excluding potential fans is beneficial to the long-term interests of the game.

I asked, how many D.C. United fans he’s expecting to convert to the service?

Mike: I think we can do as well, if not better, than what the team was doing on linear television. You see all the investments being made in the digital landscape. Cord cutting is becoming more prevalent. Data shows that young fans are getting deeper and deeper into the sports that they love; that most people can only follow 1-2 sports at a time. We know these trends are happening. It’s going to take time, but this is an investment in the way consumer consumption habits are evolving.

Fan Marino: It’ll cost D.C. United fans who want to watch all 34 games an additional $150/year (or $30/mo.) in 2019, but the subscription will give them access – in addition to FloFC.com – to content from 24 other sports including auto racing, MMA and wrestling. Games will be broadcast in both English and Spanish.

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On Location Experiences Dictates Super Bowl Secondary Market Pricing

On Location Experiences

Mercedes-Benz Stadium will seat 75,000 for Super Bowl 53, but nearly everyone in attendance will have obtained their seat through the league office (25.2%), the Patriots (17.5%), the Rams (17.5), the Falcons (5%) or one of the other 29 NFL clubs (34.8%, 1.2% each); team personnel, players, sponsors and season ticket holders will comprise more than 95% of those in attendance. For those without access to a face value ticket, the league office and each of the 32 teams allocated a combined 9,500 tickets to On Location Experiences – the official hospitality arm of the NFL – for inclusion in packages (think: pre-game parties, on-field access) that are available to the general public. The cheapest way for the average fan to get into the game remains the secondary ticketing market. As of Thursday (1.31) evening, the get-in price was $2,300 and Stubhub still had 2,800 seats for sale.

Howie Long-Short: Since every NFL player is given the option of buying a pair of tickets to the Super Bowl at face value, no contingent has access to more seats at cost than the players do. The face value on Super Bowl 53 tickets ranges from $900 to $5,000.

The Super Bowl secondary ticketing market has evolved. For years, ticket prices were almost always exclusively determined by the game’s match-up, but now that the supply has been consolidated to On Location Experiences (and Prime Sport, acquired by OLE in Dec. ‘17) pricing has become a function of yield management strategies and how the company wants to manage the market. OLE initially priced their packages between $5,000 – $17,500, higher than the market could bear.

On Thursday afternoon Darren Rovell reported that the OLE “dumped 179 tickets at the bottom of the market – $2,232.50 before fees.” The company overpriced the ticket packages, failed to sell through their allotment and are now being forced to liquidate, but that doesn’t mean the market is about to collapse. On Location Experiences won’t liquidate in a publicly facing manner (on a site like Stubhub), they’ll sell the tickets at face value to league partners so that pricing remains stable on the public facing marketplaces.

This year’s Super Bowl secondary ticketing market has been up and down. The get-in price was $2,700 when the conference championship games ended on Sunday 1.20. Prices dipped Monday-Thursday of the following week, but never fell below $2,000. By Wednesday 1.30 prices were back up to $2,600, before dropping $300 yesterday.

Fan Marino: Fans unable to afford tickets (see: most) still have a chance (albeit slight) to attend a future Super Bowl. The NFL gives away 500 seats each year to “the most deserving fans”; a collection of “community heroes” and the league’s “most avid followers”. Last year’s recipients included an 8th grade football team from Minneapolis, a fire chief with Stage 4 brain cancer and 4 LAPD police officers. Think you’re deserving of going to Super Bowl 54 (and want to take a time machine back to 1990)? Send your written request for tickets to Super Bowl ADA Random Drawing 345 Park Avenue, New York, NY 10154. Yes, the NFL will only accept written entries to the contest via snail mail; in 2019.

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95% of Money Wagered on Super Bowl Remains Offshore, Restrictions on Mobile to Blame

SB53

Sports betting may be legal in 8 states, but an American Gaming Association survey indicated that 95% of the expected $6 billion to be wagered on Super Bowl 53 (up from $4.76 billion last year) will be placed through unregulated or illegal channels. 8% of fans (1.8 million) gambling illegally on the game will place bets with their local bookies, the balance will give their business to off-shore online sportsbooks. Super Bowl bettors have been slow to migrate to a legal means of wagering, just 2% of those who bet on last year’s game illegally are expected to transition to a licensed gaming operator this time around.

Howie Long-Short: With 15% of the country offering legalized sports betting and the regulated gaming industry only expecting to covert 2% of fans from grey markets for the Big Game, it’s worth wondering why gamblers are foregoing the legal avenues available to them. VSIN CEO Brian Musburger explained to me that “most states that are currently operating prevent bettors from funding their mobile accounts without depositing cash at a brick and mortar casino (see: NV) and others – like Mississippi – only permit mobile gambling on the premises. Once bettors can fund mobile sports betting accounts with a credit card and place bets remotely, you’ll see that number explode; you’ll see a huge surge in deposits. As it currently stands, in many states it’s still easier for people to bet offshore than it is to do it in a regulated environment.”

What can the states do to convert those betting offshore into domestic sports bettors?

Brian: It’s on the states to be competitive [with pricing]. A good sports bettor is always going to seek the greatest potential edge. If the states overtax sports betting and regulated markets can’t be competitive with the illegal markets, the big money will remain in the gray areas. Smart Money looks for prices if the state taxes are too onerous that will only keep money offshore.  

Nearly 1/10 Americans (22.7 million) will place a bet on Sunday’s game, but you won’t hear Jim Nance or Tony Romo (they’re on the call) reference the line (NE -2.5) or over/under (56.5). That’s because with sports betting legal in just 16% of the country, CBS has opted to avoid the topic. That could change by the time Super Bowl 54 rolls around though as upwards of a dozen states could add sports betting legislation over the next 12 months. Fox has the broadcast rights to the 2020 game. I asked Brian if he would expect Murdoch and Co. to include gambling conversation and/or commercials during the game broadcast – if 40% of the country were to permit sports betting within their borders?

BrianWell, after reading JohnWallStreet’s column from yesterday about Super Bowl advertising rates, Fox should be incentivized to take ads from casinos. But back to the first part of the question, the primary rights holders should probably stay away from sports betting; you don’t want to alienate your audience and there’s a lot of kids watching the Super Bowl that shouldn’t be inundated with sports betting talk. However, many of the people tuned into the game do have money on the line. Those individuals can use their second screen for sports betting information and I think they’ll find an outlet like VSIN is more informative and of far greater utility to them, than what Tony Romo (or Troy Aikman) will provide.

The NFL wants prop bets (wagers on an individual/team performance unrelated to the game’s outcome) “restricted – or even outlawed” deeming them too vulnerable to fixing/manipulation, and has asked congress to “allow professional and amateur sports organizations to identify which types of bets simply pose too significant a risk to the integrity of sports and to work with regulators not to authorize them.” Good luck with that. As Brian told me, “if there’s a marketplace for it, it will continue no matter what the NFL Commissioner says; and there really isn’t even a reason for the league to be concerned. The amount of money you can put down on a prop bet would never be enough to sway a professional athlete; most sports books place a low limit on props.”

Fan Marino: Most the money that has been bet on the game thus far has been sharp money. That’ll change by Sunday as casual bettors begin to place wagers on things like the coin toss and national anthem. As of Thursday evening, the money wagered in Las Vegas has been split between the Rams and Patriots.

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Cost of 30-Second Super Bowl Commercials Flat Since ’17, Declining Audience to Blame

CBS

The cost of a 30-second Super Bowl spot is up +700% (adjusted for inflation) since 1967 (when it cost just $310K) and +96% over the last decade (even as primetime ad rates declined -10%), but the league’s broadcast networks have been unable to command an increase in price the last 2 years as viewership declined; SB52 had the game’s smallest audience in 9 years. CBS sold Super Bowl 53 in-game commercials (+ some digital inventory) for $5.1 – $5.3 million, the same amount that Fox and NBC asked for spots in ’17 and ’18 respectively. But that doesn’t mean there’s a lack of interest in advertising during television’s most watched event of the year. CBS reportedly sold upwards of 90% of its commercial inventory before the season started and is likely holding any remaining commercial time for companies looking to buy in at the last minute – at a premium price.

Howie Long-Short: With 90% of the inventory sold months before the game, the teams playing have little impact on network profitability. Sure, viewership that exceeds expectations may help CBS sell ads next season and perhaps it will give a ratings boost to network shows (due to the added exposure), but as Neal Pilson (the former President of CBS Sports) told the Washington Post, “if you promise a 25 rating and deliver a 30, it’s the advertiser who gets the great value.”

Even if the game fails to over-deliver ratings wise, one can argue that at $5.2 million/spot advertisers are already getting a bargain. If the same number of fans that watched last year’s game (103 million) watch Sunday, advertisers will pay +/- $.05/viewer; national spots in prime-time typically cost anywhere between $.08-$.10/viewer.

A-B Inbev (BUD) will be the game’s most prolific advertiser with 8 spots (5.5 total minutes) promoting 7 products and 5 brands (Bud, Bud Light, Michelob Ultra, Stella and SpikedSeltzer); the company will also have billboards and bumpers during all 4 quarters, pre-game and post-game. 2 of A-B Inbev’s 8 spots will be used to promote Bud Light, but the company is also bringing back its city-wide beer promotion for fans of the winning team. Why? As Joao Chueiri (VP Consumer Connections, Anheuser Busch) explained to me, “5, 10, 15 years from now, we’re going to remember the experiences that we’ve lived, more than the advertising that we’ve viewed.” 

If that’s the case (and you won’t hear an argument here), then it’s worth asking why more brands aren’t tying experiential promotions to their SB campaigns? Michael Neuman, Founder, EVP and Managing Partner for Scout Sports and Entertainment, the in-house sports sponsorship and marketing division of Horizon Media (largest independent media agency in the world), agreed telling me that, “it’s a huge missed opportunity to pass on mobilizing a Super Bowl audience with a product experience. The Super Bowl is the time to experiment and take risks as the audience is highly engaged for the commercials. For Bud Light, it’s a brilliant marketing tactic. The winning fan base will be preordained to seek out the experience of drinking free Bud Light. The halo impact of such a creative tactic could resonate with fans enough to switch beer allegiances as winning a Super Bowl is as emotional as a sports experience you’ll find. Buffalo Wild Wings has also done a nice job with their promotion, offering a free snack sized order of wings (on 2.18 between 4-7p) if the Super Bowl goes into overtime; an equity attribute they’ve long included in their creative messaging.” 

CBS might be sold out of commercial inventory had they been permitted (by federal law) to sell national ads to marijuana companies. Acreage Holdings (OTC: ACRGF), a publicly traded cannabis company, was rebuffed in their quest to run a 60-second ad promoting the drug’s legalization. While CBS won’t approve national spots from advertisers in the marijuana (or gambling) space, Michael says it’s not unexpected for companies, from either industry, to run commercials for the first time in local markets during the game.”

I asked Michael, if marijuana and gaming companies were permitted to buy national advertising time, how would it impact the demand/cost of the spots?

Michael: Networks, leagues and teams are all awaiting the gold rush that comes with the consistent acceptance of those categories. Looking back on how the DFS category depleted premium inventories in 2015 with a combined $200 million media investment, it’s quite possible to expect tighter media inventories with greater investments required for non-upfront commitments.

Fan Marino: AB-Inbev might have exclusive category rights – which (in theory) prevents competing alcohol companies from advertising during the game – but, at least one has found a loophole; Yellowtail Wine bought local ads in 81 markets (will reach approx. 90% of total audience). Those spots will get Yellowtail in front of (most of) the audience they desire, but it’s going to cost them. Local spots go for +/- $100,000/per. If they’re buying in 81 markets, they’re spending $8.1 million; or 55% more than CBS is charging.

Fun Fact: Did you know that +/- 25% of Super Bowl viewers tune in solely for the commercials?

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Atlanta Spending +/- $50 Million to Host Super Bowl

SB53

Super Bowl bids can cost the host city as much as $70 million (NYC, SB48), yet the “competition to host one [remains] significant”. In fact, the Atlanta Journal Constitution reported that the city of Atlanta volunteered to provide “enhancements” (including: $2 million for game expenses and $375K for a media party) on top of the NFL’s lengthy list of demands, to earn the right to host SB53. Atlanta’s bid, valued at $46 million, provides for the use of local law enforcement (public safety, hotel security, anti-counterfeit enforcement), hotel rooms (150+ for the teams), promotion (for the NFL experience), insurance and décor; costs associated with the use of Mercedes Benz Stadium, team practice sites, venues for ancillary events and 10,000 parking spots are also to be covered by the city.

Howie Long-Short: It’s important to understand that cities interested in hosting the Super Bowl have little room for negotiation and often must include in “enhancements” to differentiate their bid from the pack because of how many locales want game. Atlanta beat out Miami, Tampa and New Orleans for SB53.

Atlanta’s bid will be covered by a mix of public and private money. Two local businesses have donated $20 million, $16 million will come from the city’s designated hotel-motel tax fund (designed to draw marquee events) and the remaining $10 million is awarded in the way of a sales tax exemption on tickets. Enhancements – which could drive costs to as high as $49 million – include reimbursements up to $2 million for any additional state/local taxes incurred by the teams and another $1 million to “complement” state/city “efforts” should there be inclement weather (snow is in forecast for Tuesday).

While many of the requirements to host the game are the same, there’s a significant difference between the CFP Championship Game and the Super Bowl in terms of who’s entitled to the revenue generated from game tickets sold. On the college side, the host committee retains ticketing revenues to offset costs; on the professional side, the NFL controls “100% of the revenues from all ticket sales” (including all suites/club seats).

The Atlanta host committee has estimated that this year’s game would bring $185 million to the region, a far more realistic (and obtainable) figure than the $450 million Minneapolis claims to have generated in ’18. There are several reasons why that $450 million figure is misleading. First off, it didn’t include the $80 million lost in displaced tourism (i.e. locals who would have spent money, but left to avoid the chaos); so, the starting point for the conversation is really $370 million. “The added hotel revenues go almost exclusively to corporate profits, same with retail sales” (the retail markup and sales tax remain local) and of the $179 million spent by the league broadcast partners, operations teams and event planners — the most ever paid to put on a Super Bowl — a large portion is assumed to have gone into NFL owner pockets (i.e. never passing through Minnesota economy).

Fan Marino: Cold weather cities with domed venues can host the Super Bowl (see: Minneapolis, Detroit and Indianapolis), but NFL cities north of the Mason Dixon line without climate controlled stadiums can forget about it; league rules require the city’s average temperate in February to be north of 50 degrees (NYC was an exception) if the game is going to be played outdoors. It’s worth noting that despite the snow, the average temperate in Atlanta during February is 58 degrees; Sunday’s game will be played indoors.

If you build a new stadium, the Super Bowl will come; every stadium built since ’06 has hosted the game. Atlanta’s bids were rejected in both ’09 and ’10 when Falcons still played at the Georgia Dome, but the city landed their first Super Bowl since ’00 upon the opening of Mercedes Benz stadium. South Florida (’20), Tampa Bay (’21), Los Angeles (’22), Arizona (’23) and New Orleans (’24) will host the next 5 Super Bowls; expect Las Vegas to get a game over the next decade as well.

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Mercedes-Benz Stadium Using LED Lighting to Create “Big Game” Atmosphere

MercedesBenzLighting

Mercedes-Benz Stadium Using LED Lighting to Create “Big Game” Atmosphere

As teams and venue operators look to “bring more fans out to the games and then keep them engaged and entertained” once they arrive, state-of-the-art sports lighting has taken on a more prominent role in game (and broadcast) presentation. Those providing fans with a 1st class experience have transitioned from the old metal halide bulbs – standard for over 50 years – to LED lighting fixtures capable of creating atmosphere, dynamic light shows and special effects. Super Bowl 53 will be the third “Big Game” lit with Eaton’s Ephesus’ LED Sports Lighting system since 2015. JohnWallStreeet had the chance to connect with the company’s Director of Business Development, Mike Quijano, to discuss sports lighting trends, additional use cases for the technology and to find out what kind of impact the power outage at the ’13 Super Bowl had on venue operators.

Howie Long-Short: Venues have been using LED lighting to enhance player introductions and halftime shows. What’s the next trend in sports lighting as it relates to improving the fan experience?

Mike: Lighting fixtures are becoming part of the fan experience. Venues have digital scoreboards, ribbon boards, and now LED lighting, which resides physically above all of that, as tools to entertain fans. I caught a game at Amalie Arena, home of the Tampa Bay Lightning recently and during the national anthem, they have the ability to project red, white and blue light from our fixtures in the rafters onto the ice surface. In the past, venues would need a separate lighting system for this type of functionality, while the Lumadapt system has color functionality in the same fixtures that generate white light.

Are there any other use cases for LED lighting technology?

Mike: Sure, it’s used to set the scene for “special nights” or promotions. For example, on “hockey fights cancer” night Bridgestone Arena in Nashville turns the whole venue pink. They also use it to light the outside of the venue to promote events – for example they turned the outside lights pink when the artist Pink came through town to notify the public the artist was playing; they’re able to monetize it. NYCB Live (aka the Nassau Coliseum) which installed our new Lumadapt sports lighting system in December is now intrigued with the idea of adding our exterior lighting to let those in the community – driving by on Hempstead Turnpike – know when the team scores a goal; one of the coolest things we’ve seen is the Minnesota Vikings choreographed a light show at U.S. Bank Stadium to the tune of the rock Christmas song God Rest Ye Merry Gentlemen which they shared via numerous social media platforms.

Teams are installing these robust lighting systems (cost: $600K+) for fan-experience purposes, but the operational and energy efficiency provided (saves 70%) is also appreciated by venue operators (see: pays for itself within 2-3 years). Did the power outage at the 2013 Super Bowl motivate the industry to upgrade its lighting technology?

Mike: It made the adoption of LED happen faster. At the time, we were focused solely on indoor venues. When we saw that happen, we set out to develop a solution specific for stadium applications to ensure it never did again. One year later we installed our lights at the University of Phoenix Stadium (Super Bowl 49) and we’ve been installing them at stadiums, arenas and race tracks across the country since.

Which sports/leagues have best addressed the in-venue fan experience?

Mike: The NBA and NHL teams that play in arenas are the most advanced just because they’re set up to be more dynamic. They’re really figuring out how to maximize the capabilities of our system with all the various acts that come through. When you look at outdoor stadiums, it’s been more limited from a usage standpoint. Later this year we’re going to introduce a solution to the market that brings what we’ve done indoors to the outdoor stadiums. So, part of the reason NFL and MLB teams lag behind is the LED lighting solutions currently available don’t have the same capabilities as the indoor solutions. 

Fan Marino: Maroon 5, Travis Scott and Big Boi will have a couple of more minutes to perform on America’s biggest stage than halftime acts at the first 48 Super Bowls enjoyed because Mercedes-Benz Stadium invested in Ephesus’ adaptive LED lighting system. Historically, performers would need to allocate time to set-up/break-down the on-field lighting systems needed to create the special effects desired for their show (and to turn the stadium’s sports lighting on/off), but with Esphesus’ system capable of being incorporated into an act (see: Super Bowl 49 halftime show) venue operators can minimize on down time.

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