2011 Sports Business Year in Review

As the calendar turns to 2012, we close the book on a historic sports year.  Here's a list I put together of the five best, worst and most creative sports business stories of 2011.

The Good

• The NFL extended TV rights agreements with CBS, Fox and NBC for a total of $27 billion over the next nine years.  The league also extended ESPN’s Monday Night Football contract for $15 billion over eight years.  Annual NFL TV revenue is expected to reach $7 billion a year by 2014.
• The New Meadowlands may have landed MetLife for a naming rights partner, but the biggest stadium entitlement of the year – and sports business history –belongs to Farmers Field.  With neither the commitment of a NFL team nor a shovel in the ground, Farmers Insurance signed a 30-year, $600 million for the proposed downtown L.A. stadium.
• NBC bet big to keep its Olympic TV rights, securing rights to the four Olympics Games from 2014-20 for $4.38 billion.  According to NBC Sports Chairman Mark Lazarus, the network will show all events live rather than saving the best ones for primetime tape delay.  NBC/Comcast beat out ABC/ESPN and Fox Sports for the rights.
• EPL club Liverpool FC signed a $41 million per year kit deal with New Balance’s Warrior Sports, breaking the previous record of $38 million annually set between Manchester United and Nike.  Liverpool sells approximately 900,000 jerseys a year, fourth-most amongst international soccer teams and behind only ManU, Barcelona and Real Madrid.
• UPS signed sponsorship agreements with 68 NCAA schools, valued at a total of $100 million over the next four years.  The deal, which was brokered by IMG College, is being heralded as the largest non-TV network college sports sponsorship in history.  By pooling multimedia and sponsorship rights, IMG College is revolutionizing the business of college sports.

The Bad

• If the 2011 sports calendar is remembered for anything in particular, it’ll be as “The Year of the Lockout.”  For the first time ever, three collective bargaining agreements expired in the same year.  Though Major League Baseball reached an extension with ease, the NBA and NFL both had prolonged lockouts before agreeing to deals.
• As if the state of college sports wasn’t hectic enough with NCAA investigations and conference realignment, no story is worse than the sex abuse cover up at Penn State.  The scandal cost legendary football coach Joe Paterno his job and saw athletic director Tim Curley charged with perjury.
• Nearly 1,000 fans were denied entry to Super Bowl XLV at Cowboys Stadium after the City of Arlington refused to issue a permit for some temporary seating.  The Cowboys reportedly were warned in advance about a possible seating issue for the game.  Arlington officials requested Super Bowl seating plans in September, but didn’t receive a permit application until January.
• Nassau County residents rejected a $400 million bond issue that would have built a new hockey arena and minor league baseball stadium.  With the chances of landing a new arena all but dead, New York Islanders owner Charles Wang has indicated that the team likely will relocate when its Nassau Coliseum lease expires in 2015.
• The inaugural NASCAR Sprint Cup Series race at Kentucky Speedway was marred with excessive traffic problems before and after the race.  Several fans were stuck on the highway for more than six hours, and when they finally reached the racetrack, they were turned away because no parking was left.  Kentucky Speedway officials are giving fans that missed the race free tickets to a future event.
  

The Creative

• Two U.K. female beach volleyball players will sell advertising space on the backside of their bikini bottoms for the 2012 London Olympics.  The players will have a QR code on their bikinis, enticing photographers and fans to take pictures of their butts.
• In stark contrast to all other naming rights deals, MLS club Sporting Kansas City is paying Livestrong to put the cancer foundation’s name on its new soccer stadium.  The club plans to donate $8 million to Livestrong over the next six years.  This is the first known naming rights deal in which the team is paying the sponsor.
• Not only is the Pac-12 Conference creating its own national TV network, in a unique twist, the conference also is creating six regional affiliates.  The networks, which will generate millions of dollars for the conferences member schools, will carry about 850 conference events annually.
• Qualcomm Stadium temporarily changed its name to Snapdragon Stadium to promote one of Qualcomm’s brands during the facility’s busiest period of the year.  Millions of people watched the two bowl games and San Diego Chargers game at the stadium over an 11-day period, giving Snapdragon great exposure.
• EPL club Arsenal gave free tickets to its more than 3,000 fans who attended the team’s 8-2 at Manchester United in August.  The defeat was Arsenal’s worst loss since 1892, and prompted club manager Arsene Wegner to issue a public apology to fans.

Looking forward to 2012, the London Olympics have the potential to be a huge success, while the Miami Marlins and Brooklyn Nets open new home facilities.  The labor mayhem continues when the NHL’s collective bargaining agreement expires.  Regardless of how it all plays out, I wish you a happy, healthy 2012.

Heisman Winners NFL Contracts

Robert Griffin III is the newest member of the Heisman Trophy fraternity.  The Baylor QB last night was named the 77th winner of college football's most prestigious trophy.  NFL analysts already are debating where RG3 could go in April's NFL draft.  Though not all Heisman winners have succeeded in the NFL, some have received massive contracts on the pro level.  Let’s go Inside the Numbers to see the five biggest NFL contracts signed by Heisman trophy winners.

Starting with number five is 2005 Heisman winner Matt Leinart.  His rookie contract with the Arizona Cardinals was worth $51 million over six years.  Leinart, now playing for the Texans, never lived up to his billing and is out for the year after breaking his collarbone.

Following Leinart is his college teammate, Reggie Bush. Bush’s rookie deal with New Orleans was for six years and $53 million. Unfortunately for Bush, he has the dubious distinction of being the only player in the history of the Heisman Trophy to forfeit the award.

Next is the only defensive player to win the Heisman Trophy, Charles Woodson.  The veteran cornerback inked a five-year, $55 million dollar deal with the Packers, then went out and helped lead Green Bay to their 5th Super Bowl win.  A fun side note – Woodson has intercepted four Heisman winners in his NFL career.

The runner-up on this list is St. Louis Rams quarterback Sam Bradford.  The 2008 Heisman winner out of Oklahoma, Bradford signed the richest rookie contract in NFL history, a six-year, $78 million deal.  With incentives, the contract has a maximum value of $86 million.

Finally, the most lucrative NFL contract signed by a former Heisman winner belongs to… Carson Palmer.  Back in 2005, Palmer signed a nine-year, $119 million extension with the Cincinnati Bengals.  Apparently, money doesn’t buy happiness.  Palmer retired this offseason rather than play another game for the Bengals.  He’s since been traded to Oakland, where the Raiders renegotiated his contract.

NBA Lockout: Winners and Losers

Now that the NBA lockout is in the books, here are some of my winners and losers.

NBA Lockout Winners

David Stern- The longest-serving Commissioner in professional sports, Stern’s legacy depended on getting a deal done.  In Stern’s tenure at the NBA helm, he’s overseen 28 new arenas, the addition of 7 teams and revenues top $4 billion.  His most lasting accomplishment may be saving this NBA season.

NBA Owners- Arguably the biggest point of contention in negotiations was the division of basketball related income (BRI).  Players received 57% of BRI in the last labor deal, which resulted in hundreds of millions of dollars lost annually for owners.  In the new CBA, the players cut of BRI won’t top 51%.  For owners, that amounts to nearly $3 billion in savings over the length of the deal.

Small Market Cities- Portland, Memphis, Oklahoma City and others rely on their NBA teams as the only major league professional game in town.  Sacramento is looking for a new arena, or else the Kings might move to Anaheim. And in Orlando, where the NBA All-Star Game is scheduled for late February, $100 million of local economic impact hung in the balance.

(Most) Players Overseas- Deron Williams went to Turkey, Tony Parker to France and Rudy Fernandez to Spain.  They made some extra money, stayed in game shape and head home without major injury.  There is, however, one exception to this “winner” (see Losers).

Player Movement- Sign-and-trades, a mid-level exception and a soft salary cap all are preserved in this new CBA.  More opportunities for movement mean more money for players.  Earlier CBA proposals didn’t include some of these provisions.

NBA Lockout Losers

Billy Hunter- The NBPA eventually got a deal, but a) it wasn’t the one Billy Hunter wanted, and b) it wasn’t without lots of division amongst the players association ranks.  His decision to hold off decertification is the biggest reason a deal wasn’t reached sooner.  If the last couple of CBAs favored the players, this one likely will favor the owners.

Small Market Teams w/ Superstars- Dwight Howard and Chris Paul both are free agents next season.  Neither seems likely to stay with their current team beyond this year.  Early CBA talks included a NFL-like franchise tag that would allow teams to keep their superstar players.  Without one, Howard and Paul could be gone next season.

Players in China- When NBA players began signing overseas, guys going to China went with the understanding that they would have to play in China until the regular season ends in March.  That’s tough luck for guys like Kenyon Martin, Wilson Chandler and JR Smith.

NBA TV- During the football lockout, NFL Network did wonders for its credibility and viewership by tackling the issues head on.  The same can’t be said for NBA TV.  Instead of talking about the lockout, NBA TV showed dozens of reruns of Teen Wolf and other old basketball movies.  At one point in October, the network had the second lowest viewership on cable.

Agents- If NBA players are “giving back” $3 billion over the next 10 years, that’s more than $100 million in agent commissions lost.  No wonder they tried so hard to oust Billy Hunter before he agreed to a less-than-desirable deal.

NBA Lockout: (No) Pay Day

Since NBA players are paid in 24 equal installments throughout the year, today is the first day that guys are missing paychecks for the 2011-22 season.  Unfortunately, that money isn’t being reimbursed whenever the lockout does eventually end.  Given that 60% of NBA players go bankrupt five years after they retire, every lost paycheck exacerbates their need for a new labor deal.  Here’s an idea of what some notable players lost today (and will continue to lose every two weeks until a new CBA is reached).  The totals are gross amounts that don’t take into account taxes or escrow payments.

2011 All-NBA First Team
Kobe Bryant- $1,051,833

Dwight Howard- $745,225

LeBron James- $667,604

Kevin Durant- $566,833

Derrick Rose- $291,404

2011 All-NBA Second Team

Dirk Nowitzki- $795,536

Pau Gasol- $779,756

Amar'e Stoudemire- $759,071

Dwyane Wade- $646,333

Russell Westbrook- $211,767

2011 All-NBA Third Team

Chris Paul- $681,658

Manu Ginobili- $540,876

Al Horford- $500,000

LaMarcus Aldridge- $491,666

Zach Randolph- FREE AGENT

Rookie of the Year: Blake Griffin- $238,795
Sixth Man: Lamar Odom- $370,833

Most Improved Player: Kevin Love- $192,071

What Lockout? NFL Business Thriving

Four months ago, the NFL season was in jeopardy.  Nearly 3,000 jobs and $160 million in local economic impact were at risk in each NFL city.

Today, the league is enjoying one of its most successful campaigns in recent memory.  All it took was the prospect of missing games because of the lockout.

Fans this year are watching NFL broadcasts in record numbers.  Through the first nine weeks of the season, Fox is averaging a network-record 19.8 million viewers per game, while CBS is having its second-best season since reacquiring the NFL in 1998.  ESPN has committed $1.9 billion a year to extend Monday Night Football rights through 2021; and no TV partner has had more success this year than DirecTV, whose NFL Sunday Ticket product led to 327,000 new subscribers in the 3rd quarter, the company’s best quarter in seven years.

On the sponsorship front, PepsiCo signed a 10-year extension of its deal for a total of $2.3 billion, Marriott signed on as the league’s exclusive lodging partner, and the United Services Automobile Association became the NFL’s first official military appreciation sponsor.

With NFL sponsorship revenue expected to increase 15% this season, league-wide revenue could reach a record $9.5 billion.  That would make the NFL bigger than Fortune 500 companies eBay, Whole Foods and Visa.  Not bad for a business that nearly shut down for the year.

The NBA Lockout: By the Numbers

 

The NBA season should be underway right now.  At this very minute, the up-and-coming Chicago Bulls should be on the court against the defending champion Dallas Mavericks. Instead, you know the trending Twitter topic #ThingsLongerThanKimsMarriage?  Well, the NBA lockout is longer.  Literally, twice as long.  Kris Humpheries was out of work for 72 days before being married to Kim Kardashian for 72 days.

Regardless of when the NBA season starts, the lockout is doing some serious damage to the business of basketball.  Over the last couple weeks, I've compiled some stats indicating what’s being affected.  Let's take a look at The NBA Lockout: By the Numbers.

3- Three NBA teams have been sold during the lockout.  Though these new owners of the Hawks, Pistons and 76ers knew what they were getting into, they certainly wished their teams would be back on the court by now.

14- Last month, mayors in 14 of 29 NBA cities wrote an open letter to the league and its players asking – well, more like pleading – that they end the lockout.  An Indiana real estate consulting firm estimated $55 million in losses to the state if the Pacers don’t play this year.  Not surprisingly, Indianapolis Mayor Gregory Ballard signed the letter.

400- Although progress reportedly is being made on a new collective bargaining agreement, job losses attributed to the work stoppage have reached 400.  The losses are estimated at 200 at league headquarters and 200 amongst the 30 teams.

$500,000- Miami Heat owner Micky Arison was fined $500,000 for his candid tweets about the state of labor negotiations.  Arison’s tweets indicate a divide in the ownership group, but the tension supposedly is far worse on the union side.

$600,000- The National Basketball Players Association spent $600,000 in the year leading up to the lockout on legal, consulting and public relations fees.  With the lockout ongoing and players losing the PR battle, the money doesn’t appear to be well spent.

$1.5 million- Each NBA team could lose up to $1.5 million in ticket revenue for every regular season game lost to a lockout.  Adding to the potential losses, all NBA teams have promised refunds plus interest for cancelled games.  Consider this: your money is safer in NBA tickets than it is in the stock market.

$18 million- Memphis taxpayers could be on the hook for $18 million in FedEx Forum bond payments if the entire season is cancelled.  The city-owned arena relies on taxes from game revenue to cover the annual debt service.  If the lockout extends into December, Memphis could file a lawsuit against the NBA to recoup the money.

$100 million- The city of Orlando projects $100 million in economic impact from hosting the 2012 NBA All-Star Game.  Should the game no take place, losing the money would be devastating for the Orlando economy.

$400 million- To date, the NBA has canceled the first month of the regular season.  In losing nearly 200 games, the NBA is forgoing more than $400 million.  That money isn’t coming back.

$500 million- Financial analysts predict the shoe industry could lose $500 million this year if the league cancels the entire season.  That’s approximately a quarter of the annual basketball shoe market.  Some of the brands with the most at stake: Adidas, Nike, Champs and Foot Locker.

$700 million- TV networks and the NBA stand to lose nearly $700 million in ad sales if the entire season is lost to a lockout.  Recently released data indicated advertisers spent $627 million on national NBA broadcasts last year, and thanks to high ratings, the total was expected to increase by 10% this season.

$4 billion- The NBA is a $4 billion business.  To put that into perspective, the NBA is a bigger business than Hasbro Toys, JetBlue Airways or MetroPCS.  Try imaging one of those companies shutting down operations for a whole year.  However, if as many as 22 NBA teams are collectively losing $300 million annually, losing a season to revamp the business model isn’t just reasonable – it’s critical.  

Would you invest hundreds of millions of dollars in a sports team that essentially was guaranteed to lose you money?  Neither would I.

TV: The Driving Force Behind College Football

One of the main reasons college athletic conferences are pursuing expansion is money – in particular, TV money.  The Pac-12 Conference a couple months ago announced it will create a national TV network plus six regional affiliates.  The networks, which will generate millions of dollars for member schools, will carry about 850 conference events annually.

To see how a conference TV network can positively affect Pac-12 schools, look no further than Washington State.  The Cougars have the second-smallest operating revenue in the conference at just $39 million.  That’s well below the Pac-12 average of more than $60 million per school.  However, once the new TV revenue starts flowing in, Washington State could use part of the money to fund an $80 million renovation to its football stadium, which is the smallest in the conference.

Although realignment has gotten crazy, at least this Washington State move shows tangible results from the madness.

 

If realignment is maddening, this story is downright quirky.

In one of the more unusual sports business moves of the year, CBS, ESPN and NBC made a “three-network” TV rights trade.  The driving force behind for the deal was CBS, who wanted to show next week’s big Alabama-LSU showdown in primetime.  The problem was that CBS only has the right to one SEC primetime game per year, and the network already aired Alabama-Florida at night.  ESPN holds the conference’s remaining primetime rights.

Per the deal, ESPN is allowing CBS to show the game in primetime in exchange for “future considerations,” the TV equivalent of a player to be named later.  However, with the Alabama-LSU game moving from the 3pm time slot, CBS needed to find a new game.  So it dealt rights to the November 19 game between TCU and Colorado to NBC’s Versus channel for rights to tomorrow’s Army-Air Force game.

I like this move for several reasons.  First, kudos to CBS for thinking outside the box.  Getting Alabama-LSU moved to primetime should be huge for ratings.  ESPN, knowing that Arkansas-South Carolina will draw marginal interest at best, possibly has leverage to showcase a more high-profile SEC game next season.  Meanwhile, Versus gets a TCU game, which should draw more viewers than sub-.500 Air Force and Army.

Thought the deal may be complicated, the takeaway here is that rivals can always find a way to work together.

The World Series: A Tale of the (Financial) Tape

Game One of the World Series is tonight, and without knowing who will be crowned champion, here’s some of the things we can take away from the 2011 season.  Despite ongoing economic turbulence, league-wide attendance increased 0.8% over last season to 73.4 million, the most since 2008.  Thanks to sponsorship renewals from Bayer, Chevrolet and others, MLB gross revenues are at an all-time high of $7.5 billion+.

However, interest in this World Series could be slim compared to recent years.  This is just the third time since 1995 that neither World Series team has a top ten payroll.  Also hurting matters, the top seven most popular MLB teams, according to Harris Poll data, were eliminated before the League Championship Series or didn’t make the playoffs.  Additionally, TV ratings for both MLB League Championship Series were down double-digits compared to last year.  Hurt by rain delays, postponements and day games, Fox’ coverage of the ALCS was down 20% from the 2010 NLCS.  TBS’ NLCS telecasts fell 43% from the network’s ALCS coverage last year.

But what does the World Series mean to a team?

In the cases of the Rangers and Cardinals, winning (or even losing) the World Series could mean $30-50 million over the next five years in incremental ticket, merchandise and sponsorship sales.  Both teams have room for improvement on ticket sales.  The Rangers played to a stadium at 74% of capacity, while the Cardinals played to 89% capacity.

If the Cardinals play through the end of the World Series, St. Louis projects economic impact from the playoffs to exceed $56 million.  Each game in the division and league championship series was worth $5.2 million.  World Series games likely are worth $1-2 million more.

Here's a financial breakdown of the World Series:

St. Louis Cardinals

Wins: 90

Payroll: $105.4 million

Value: $518 million

Value % increase after last World Series appearance: 7% (2006 World Series champs)

     *Below MLB average growth of 14%, but Cardinals saw big increase the prior year when the opened new Busch Stadium

Operating income: $19.8 million

Texas Rangers

Wins: 96

Payroll: $92.3 million

Value: $561 million

Value % increase after last World Series appearance: 24% (2010 World Series runner-up)

     *Above league average of 7%, but inflated by bankruptcy auction that took place mid-season

Operating income: $22.6 million

Payroll/win

St. Louis Cardinals: $1.17 million

Texas Rangers: $961,000

Value/win

St. Louis Cardinals: $5.76 million

Texas Rangers: $5.84 million

Operating income/win

St. Louis Cardinals: $222,000

Texas Rangers: $235,000

**All values, operating incomes according to Forbes

Rome Wasn't Built in a Day

Tired with slow moving NBA collective bargaining negotiations?  Delonte West is.  Since the free agent can’t sign with a new team until the lockout’s over, he instead took a job at a furniture warehouse in Maryland. 

Worried about life after basketball?  That’s top of mind for Brandon Jennings.  The Milwaukee Bucks guard has been interning in Under Armour’s footwear department since the summer.  Jennings goes into the office regularly and sits in on meetings with top executives.

Things have gotten so out of hand with the NBA season on hold that even the King, LeBron James, is flirting with the idea of playing in the NFL.  Never mind the fact the last time he put on pads and a helmet was for a State Farm commercial.

Furniture stores?  Internships?  The NFL?

With the first two weeks of the NBA season cancelled, and much more of it in jeopardy, the absence of basketball is causing players to think and do crazy things.  The craziest of them all?  The notion that someway, somehow, the players might walk away from the negotiating table to form their own league.  There’s a better chance of LeBron catching the winning touchdown in February’s Super Bowl.

Despite what the players may think, starting a league from scratch is much more complicated than throwing together the occasional exhibition game.  They’d need to find places to play, and a majority of arenas are owned or operated by NBA teams.  They’d need to generate enough revenue to cover salaries – remember this dispute is about money – and players made a collective $2.176 billion last season.  They’d also need to hire a couple-thousand person support staff to do everything from producing TV broadcasts to selling concessions on game nights, as well as experts in traditional management functions such as corporate sales, international affairs, marketing and retail operations.

They say Rome wasn’t built in a day.  Well, neither was the NBA.  It’ll take several years and boatloads of money for players to create a successful, rival league.

Their best option?  Drop the pipedream and stay at the negotiating table.

Don't Call it a Comeback...

I been here for years!