Business Implications of the Iron Bowl Outcome

In the aftermath of Auburn’s jaw-dropping, upset victory over Alabama in the Iron Bowl, one of the primary questions being asked is about the outcome’s business implications.  So how has the Southeastern Conference landscape been shaken up now that Auburn is in Atlanta for the SEC Championship and Alabama’s bid for a third consecutive BCS title is a long shot?

From a bottom-line perspective, the Iron Bowl outcome doesn't help Auburn or hurt Alabama as much as one might think.  According to a SEC spokesperson, the only direct financial benefit teams playing in the game receive is a reimbursement for expenses such as travel incurred by the school for playing in the game.  The conference doesn’t award payouts to individual schools for SEC Championship appearances, and any revenue from the game – TV rights, ticket sales, or otherwise – is split evenly amongst all conference schools.

Even with Alabama’s loss, the SEC won’t be missing out on BCS revenue.  Like with the conference title game, the SEC pools and evenly distributes bowl payouts.  The SEC almost assuredly will have two teams playing in BCS bowls: Auburn or Missouri as the winner of the conference championship and Alabama as an at-large team.  This equates to $28 million in BCS payouts to be divided amongst 14 SEC schools, a number that probably wouldn’t have changed had Alabama beat Auburn.

As for licensing royalties, schools typically see a year-over-year increase of 25% after winning a football national championship.  Had Alabama played for and won the BCS title, it’s unlikely the school would have seen that much revenue growth coming off consecutive national championships. 

The city of Atlanta stands to benefit by hosting Auburn in the SEC Championship instead of Alabama.  The game produces approximately $30 million in economic impact for the Atlanta region, a number which could have been lower than usual if Alabama was back in town.  Since the Crimson Tide has played in the game in three of the last five years, the Bama faithful might be suffering from Atlanta fatigue.  With Auburn, which has only played for the conference title twice in the last decade, Atlanta seems destined to generate more economic impact than if the game again featured Alabama.

Though not a financial perk of winning the Iron Bowl, Auburn stands to be a benefactor of the Flutie Effect.  Named for former Boston College star Doug Flutie, the phenomenon refers to the increased exposure a school gets by having a successful sports team.  Coming off a season in which they ranked last in the SEC, Auburn over the next year should experience a sharp increase in college applications courtesy of their high profile Iron Bowl win.  Just because Alabama lost, they shouldn’t necessarily expect a drop in applications. The Tide essentially maxed out their Flutie Effect with two straight national titles.

If anyone stands to benefit or suffer the most out of the Iron Bowl outcome, it’s not the schools – it’s the coaches.  With a win against Missouri, first-year Auburn coach Gus Malzahn would receive $375,000 in bonuses for clinching 12 wins, winning the SEC, and playing in a BCS bowl.  He also just signed a six-year, $26 million contract extension because of his team’s overachievement.  On the other hand, whereas Nick Saban last year made $525,000 in bonuses for winning the SEC and BCS Championships, this year the most he can pocket is $125,000 if/when Alabama plays in a BCS bowl.

Financial Sponsors and the London Olympics

Arguably the most active marketing and biggest spending around the London Olympics this summer comes from the financial services sector.  Four financial firms have signed on as sponsors of the U.S. Olympic Committee: Citi for retail banking, Visa as the worldwide credit card sponsor, TD Ameritrade as the online-broker, and Deloitte as the professional services sponsor.

The reason financial service companies are so quick to align with the Olympics is simple.  Viewers with household incomes over $100,000 are 400% more likely to watch five or more hours of Olympics coverage daily than viewers with average household incomes between $50,000-$100,000.  It’s these same affluent consumers the financial firms are spending millions of dollars to reach.

A US Olympic Committee sponsorship alone costs $10-15 million and that’s before companies spend another $10-15 million on marketing and advertising.  The key for these complimentary, but competing firms will be finding a way to stand out in the Olympic marketing clutter.  The ones that do will see their investments pay off for shareholders.  The one that don’t will have made a multimillion-dollar mistake.

Sports Cable Wars

A year ago, ESPN was the unequivocal, unchallenged king of cable sports television.  Now, with NBC Sports Network up and running and Fox Sports considering its own 24-hour national sports network, could ESPN’s reign be in jeopardy?  Hardly.  It’ll take several years and billions of dollars for any media company to be even a small competitor to the World Wide Leader in Sports.

The only way to draw loyal viewers to a sports cable network is with live sports rights, and ESPN has a stranglehold on the market.  ESPN has rights to almost every major sports property with the exceptions of the NHL and the Olympics, which belong to the newly rebranded NBC Sports Network.  After going live on January 1, NBCSN averaged just 62,000 viewers at any given moment.  By comparison, ESPNews, ESPN’s 3^rd cable network, averaged 74,000.  I wouldn't exactly call that "coming out with a bang."

The reality is ESPN has an insurmountable advantage in its revenue streams.  The Disney-owned network makes $4.69 per month per subscriber from its flagship network alone, compared to just $0.31 for NBC Sports Network.  If the goal is to compete with ESPN, industry experts say NBCU-Comcast or Fox Sports might have to spend $20 billion on rights alone.  It's not that it can't be done, but it is a strategy that should scare some stockholders.

Sports TV: Who Has the Leverage?

There’s no way of knowing how big of a catalyst Jeremy Lin was in settling MSG and Time Warner’s 48-day carriage dispute.  What’s certain is that in these cable disputes, the sports content providers have the leverage.  Sporting events are one of the few things people still watch live, and with most games unavailable on the internet, having access to channels such as MSG is an incentive not to cut the cable cord.

However, increases in sports rights fees ultimately are passed onto consumers.  Disney's ESPN, which has multi-billion dollar TV deals with the NFL, NBA, MLB and several college conferences, charges subscribers nearly $4.70 per month.  By comparison, TNT is the second most expensive national network and receives just $1.16 a month in subscriber fees.

The problem for sports TV is that content providers stiff-arm their way into homes, driving up your cable bill.  For instance, 99 million Americans pay to have ESPN, whether they watch the Disney-owned channel or not.  If rights fees continue to skyrocket, non-sports fans could rebel and drop cable altogether in favor of digital “TV everywhere” models.  In response, cable operators could move towards “a-la-carte” programming, in which consumers choose specific channels they want rather than general tiers.

In any event, expect sports to drive the future of television. 

Super Bowl Ads: Are They Worth It?

With more than 100 million people expected to watch live, the Super Bowl presents an incredible opportunity for marketers.  With that opportunity, however, comes a cost. This year, 30-second commercials in the game averaged $3.5 million, with some spots reaching as high as $4 million.

The multimillion-dollar question is are the ads worth it.  From a stock market perspective, the answer is yes.  According to a study by the University of Wisconsin-Eau Claire, Super Bowl advertisers from 1996 to 2010 outperformed the S&P 500 by more than 1% on average in the week before and after the game.  The boost in share price is attributed to the hype associated with advertising in the Super Bowl.  The longer a company hyped their ad during the year, the longer they outperformed the market.  Public companies advertising in this year’s game include Best Buy, Coca-Cola and GM.

Nevertheless, given how critical fans are of the ads, corporations need to make sure they can afford to fall flat.  $4 million for 30 seconds is more than some companies’ entire ad budgets.  One of the most prominent examples of a Super Bowl ad gone bad was Just For Feet.  The shoe retailer aired a racially insensitive ad during the 1999 game and filed for bankruptcy by the end of the same year.

The moral of the story? Advertiser beware…

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.