SBD/July 17, 2013/Labor and Agents

Jay-Z Profile Examines Business Diversification, Culminating With Roc Nation Sports

Jay-Z's deal with Reebok has served as a model for subsequent deals
Jay-Z the "businessman is working at a creative peak this summer," as the launch of Roc Nation Sports is "part of an ambitious diversification strategy that has shaken up the sports world," according to Andrew Rice of NEW YORK magazine. Jay-Z often forms alliances with brands -- HP, Bing, Samsung -- that are "trying to catch up to a market leader and are willing to pay a premium for his cool." The model for all of these deals is one that N.Y.-based marketing firm Translation Founder Steve Stoute "struck a decade ago with Reebok." After "painstaking negotiations," Jay-Z and Reebok "formed a joint venture to produce a sneaker, the S. Carter." Jay-Z promoted it by "sponsoring a team in the Rucker-playground summer league" featuring Tracy McGrady and a then-teenage LeBron James." Jay-Z also "insisted that his deal include a television spot." However, there were "limits to how much" Jay-Z would shill for Reebok, and company execs "were annoyed that he occasionally wore Nikes." Former Reebok exec Que Gaskins said of Jay-Z, who shared in the joint venture's overhead costs, "Even if it did cost him some money in the short term, I think it was really important to him to be perceived as an equal partner."

STRIKE WHILE THE IRON IS HOT: For Jay-Z, acquiring a stake in the Nets was "all about changing perceptions -- and making connections." Drew Katz, whose father Lewis was selling the team to Bruce Ratner, but was "planning to hold on to a percentage, helped to broker an initial meeting" with Jay-Z. Katz: "My dad said, 'Being a partner with Bruce and me, you'll learn a whole lot more about how to make money.'" Jay-Z's investment of $1M "amounted to one third of one percent" of the franchise purchase price and "allotted him a similar interest in the planned arena and the rest of the Atlantic Yards real estate." However, those numbers "weren't publicized," and Jay-Z was "presented as a major partner." Jay-Z also had a "seat on the arena's board." Ratner said, "Everyone quieted down when he spoke about anything that had to do with marketing." However, there were "tensions, particularly during the messy period when Ratner was slashing payroll and struggling to move the team." When naming rights "became available for the Meadowlands arena where the Nets played," Jay-Z wanted to name it "the Roc" after his Rocawear brand, and he "made his displeasure known when he was outbid by Izod."

MARKETER'S DREAM: Sports agents are "a paranoid bunch, always on guard against rivals," but Jay-Z's entry into the business has "incited a different order of hysteria." One agent said, "Guys are just going to Jay-Z because they fetishize him." Fees for player contracts "are set fairly modestly," but the cut from marketing deals "is considerably higher, and that will be where" Jay-Z "concentrates his efforts." Ratner: "Jay-Z sees that the important thing in the world today is content." Former Island/Def Jam Music Group President Kevin Liles said, "Sports is just another piece of a portfolio that he's building to curate culture, to challenge the status quo. Why can't they start to make different demands in the sports business?" Despite selling his stake in the Nets, Jay-Z is "retaining his interests in the Atlantic Yards real estate, and he and Ratner are now seeking to expand their partnership further, by advancing a proposal to renovate the Nassau Colisuem" (NEW YORK, 7/22 issue).
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