SBJ/November 10 - 16, 2003/This Weeks Issue

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  • Clippers renew deal with StubHub

    The Los Angeles Clippers have renewed their exclusive, multiyear deal with StubHub.com, the online secondary ticketing company.

    The deal ensures that the Clippers, who in 2001 became the first NBA team to offer a team-sanctioned ticket resale system, will continue to do so through at least the 2005-06 NBA season, said Eric Baker, president of StubHub.

    "The renewal is a tremendous validation not only of secondary ticketing, but of the level of results the StubHub system can provide," Baker said.

    StubHub and the Clippers will share revenue from the 15 percent fee charged to the seller and the 10 percent fee charged to the buyer, Baker said.

    The Clippers, whose primary ticketing partner is Ticketmaster, last season sold nearly 4,000 tickets on the secondary market through their StubHub partnership, according to Carl Lahr, the Clippers' senior vice president of marketing and sales.

    The team was fourth among all NBA teams last season in tickets sold on the secondary market, according to StubHub's internal research, which also counted tickets not sold through StubHub.

    StubHub's system allows ticket holders to post tickets for sale in fixed-price or auction formats, and ships tickets to buyers via Federal Express. StubHub has seven professional sports clients, but it sells tickets for virtually every team through partnerships with several online newspapers.

    StubHub, previously called LiquidSeats, in 2002 raised just over $2 million in private equity financing, according to a report by Avila Partners, which showed that online ticketing systems accounted for more than $24.5 million of the $90 million in private equity financing doled out last year.

    Print | Tags: Basketball, FedEx Corp., Los Angeles Clippers, NBA, This Week's Issue
  • Elliott makes a meal of snack-food deal

    Elliott’s got an equity stake and profit-share agreement to go with his promotional role.

    The popular Bill Elliott isn't the only NASCAR driver to endorse a snack-food brand, but his involvement with the recently launched Elliott Championship Products is arguably the most involved. Elliott has a minority equity stake in the company and will receive a share of the profits in a deal that is structured to run "in perpetuity," according to Ardy Arani, president of the Championship Group, which has the majority stake in the company.

    Arani would not disclose Elliott's precise ownership stake. The deal did not call for Elliott to contribute cash to the brand's launch, which the Championship Group underwrote with a mid- to high-six-figure investment, Arani said.

    The products — beef jerky, pork rinds and other meat snacks — are expected to roll out in the Southeast soon under the "Bill Elliott's Awesome Products" moniker and to have national distribution in 2004.

    Also unusual in the venture is that a sports marketing firm, the 23-year-old Championship Group, is the full owner and developer of the product. "It grows out of our expertise in developing and promoting all kinds of consumer products via sports," Arani said.

    The company has secured a distribution agreement with logistics giant Advanced Management Solutions and is in discussions with several grocery and convenience store chains to carry the brand.

    Snack products will debut in Southeast.
    The launch follows two years of planning by the Championship Group. Arani said it considered more than 100 product categories and dozens of potential athlete partners before approaching Elliott, who has won NASCAR's most popular driver award a record 16 times and finally took himself out of the competition this year.

    Arani said the $1.5 billion meat-snack category is crowded, with a half-dozen brands garnering half the revenue cumulatively and another 20 or so rounding out the field. But Arani believes the category still has room for a competitor that differentiates itself. For starters, Elliott's products are the only ones in four-color packaging, Arani said. "Tongue in cheek, if there's a Tiffany product in this category, we're it."

    Elliott will have a management and promotional role with the brand whether or not he retires from driving for 2004. "He will be involved at every level, and if his level of involvement ever changes, our deal is structured for him and his family to retain a significant stake in the company," Arani said.

    Print | Tags: Motorsports, NASCAR, This Week's Issue
  • How McIngvale would transform pro tennis

    What does the sport of tennis need to do better?

    Mac: I think we need to have more marquee matchups. I think one of the things tennis needs to do is figure out how to get the marquee players playing each other more often. From a promoter's standpoint, it's superstar driven. How do we create more superstars? I was speaking with one of these tennis guys the other day and he made a good point. He said, "On the PGA Tour, not only do they show Tiger Woods, but they show Brad Faxon and they show everybody else. You get to know everyone because they show 10 holes at once, where we are only showing one court." I think that's a pretty good idea. Tennis needs to get on television more. I think the Tennis Channel is a good way to do that. I'm a big promoter and proponent of the Tennis Channel. I just think we need to promote the game and what great athletes these are, men and women.

    Anything else?

    Mac: The biggest problem with tennis is, it's global, but the promotions need to be local. We have to figure out a way to promote these players — and the players need to become more accessible to the fans and to the public and they need to be like NASCAR and the PGA Tour and get up there and shake hands more.

    We had one of the NASCAR drivers at the [Gallery Furniture] store a couple of years ago. He had just broken his back. It wasn't bad, but he had a broken back. He came in there and signed autographs for three hours and he was so nice and personable to everybody. He didn't have to do that. That's the way he was trained, and that's the way that he was. He kept making that connection with the fans, and I never forgot it.

    What's the most effective form of promotion or advertising?

    Mac: Television, no doubt about it. It's what built my business. When we ran those ads [for the Tennis Masters Series event] during the U.S. Open and Wimbledon, the phone just rang off the wall. And then, when I ran that ad on the Super Bowl, the phone rang off the wall. We didn't have the phone number on there then, so those people had to call Houston directory assistance to find out what the number was to our tennis club, they had to go to the Web site, they had to do something. We got calls from all over the world when we ran those Super Bowl ads. Television is incredibly powerful. It's the most powerful medium in the history of the world. It really moves the needle.

    I believe in advertising. To me, advertising is not an expense, it's an investment. ... I've invested $10 million ... in advertising this deal, but it's up to me to get that money out by monetizing it.

    Of course the best advertising is word-of-mouth. Hopefully, the people coming here are going to go tell somebody about what a great time they had. When they get back to work on Monday, they'll tell everybody in the office, "I went to the Masters Cup, it was unbelievable. I was sitting this far from Andre Agassi."

    You firmly believe your business is more successful because you've been a sports sponsor?

    Mac: Absolutely, and how do you replace sitting and talking with Pete Sampras? What's that worth? Or Andre [Agassi]? It's not all about the money, it's about the relationship with those guys. [My wife, Linda, and I will] be friends with those guys for the rest of our lives. What's that worth? Or Clyde Drexler? Or some of these other guys we've met?

    I'm sold on sports advertising. You know, I built a business with a Rockets sponsorship. I'm not a Rockets sponsor anymore, because I'm in tennis. When they won the NBA Finals in '94-'95, it was huge for the business. Huge. People told me, "I'm buying because you're Rockets sponsors."

    What other brands do you admire?

    Mac: Nike is obviously a great promoter. They've done a wonderful job. People pay to wear their merchandise. What a deal that is. It's a steal. They pay to advertise Nike.

    Is there any sport you wouldn't want to be involved in?

    Mac: I could promote any of them, because I'm a promoter and believe in the power of advertising. Look at ESPN — they took the X Games from nothing and created this deal. They created them through television, didn't they? Television is what created the whole deal, and ESPN shows it constantly.

    Customer service is paramount?

    Mac: We've got to add value to our customer's experience; otherwise we aren't going to be in business tomorrow. My definition of customer service is real simple: What can we do for our customers that our competitors can't do, won't do or aren't willing to do?

    I want to be accessible. I want to touch them. At the end of the night I'm going out to the exit, and I'm standing there shaking hands, telling fans, "Thank you for coming out." Every customer, every session. Because I want to make sure they get treated right. If they don't get treated right, we did something wrong. These people get to vote with their dollars. There's a lot of sporting events they can go to. We have to make it special for them.

    What is your advice to someone just starting out in the sports business?

    Mac: The first thing is they need to learn how to sell. Sales is what it's all about. If they learn how to sell and how to deal with customers, then that gives them a foundation for everything else they do. Because to me, and I've been on both sides of the fence, spending money on sports — I spent $800,000 a year on a Rockets sponsorship or $1.5 million on a Texans sponsorship — that is a discretionary purchase. I don't need to spend that money. I can spend that money on television and probably get the same results. But, I have to have a connection there to do it. That's what's helped me as I've tried to sell.

    What are you like as the client?

    Mac: I told the Texans when I signed up with them that I was the most high-maintenance guy they were ever going to have. We want some value for this stuff. Signs in the stadium are great, but we want some value and they have delivered a lot of value. The Texans took six of my warehouse guys on a road trip with the team. That was a big deal to those kids. These kids were 20 years old, blue-collar laborers, and for them to sit on the sidelines, that's a big deal. That's a lifetime memory. They're taking four of my guys to Hawaii for the Pro Bowl. That's big-time deliverance.

    What is your management style?

    Mac: I'm hands-on, but I let people do their job. I'm constantly telling them, "Here's what our objectives are." Our objective is to sell customers and delight customers. And we've got to do both of those every day.

    Print | Tags: Action Sports, Basketball, ESPN, Football, Golf, Houston Rockets, Houston Texans, Motorsports, NASCAR, Tennis, This Week's Issue
  • Magna will lobby for slots in California

    Magna Entertainment Corp., owner of Santa Anita Park, will lobby California Gov.-elect Arnold Schwarzenegger to allow slot machines at racetracks as part of a plan to increase state tax revenue and revive the state's economy.

    "Our goal will be to educate the new governor as to the revenue potential of slots [at racetracks] in California," Magna CEO Jim McAlpine told investors and analysts on a conference call late last month. "And I am pretty optimistic. [Schwarzenegger] looks like a reasonable guy and hopefully we will get some positive results."

    Schwarzenegger, who ran campaign ads this fall attacking California's Indian tribes for spending millions on political contributions but not paying their fair share in taxes on Indian casino profits, is scheduled to take office Nov. 17.

    McAlpine's comments came on a conference call in which he admitted he was disappointed with Magna's third-quarter results — a loss of $15.4 million, or 14 cents a share, compared to a loss of $9.7 million, or 9 cents a share, for the same period a year ago.

    California, where Magna operates Bay Meadows and Golden Gate Fields in the San Francisco area and Santa Anita in the Los Angeles area, is just one place Magna is eyeing slots. McAlpine told investors that Magna is "aggressively pushing" for slot machines at the tracks it owns in Pennsylvania, Oklahoma, Maryland, Michigan, Texas, Ohio, Florida and California.

    McAlpine said, too, that if there is favorable legislation in states, Magna has positioned itself to get the machines up and running quickly. "I don't think it would surprise you ... to know we have already designed the physical facilities," he said.

    Schwarzenegger spokesman H.D. Palmer said the governor-elect has not made any statements on the future of horse racing in the state.

    Roger Gros, editor of Global Gaming Business Magazine, said Magna has "a good shot" at getting slots in its racetracks in states like Pennsylvania and Maryland, where it owns Pimlico, host of Triple Crown race the Preakness Stakes, but gives the company almost no chance of getting slots in California.

    Gros allows there is a small chance that Schwarzenegger could turn to a plan to put slots in at racetracks if negotiations to get more revenue from the Indian tribes fail. But he said the Indian tribes donate many millions to other state legislators and those politicians would not agree to such a plan.

    Howard Dickstein, attorney for a number of California Indian tribes, said a constitutional amendment would be necessary for California racetracks to get slots. "You can be certain the tribes would ... put up all of their resources necessary to defeat an initiative of that kind," he said.

    Print | Tags: Horse Racing, Magna Entertainment, This Week's Issue
  • Rule shift helps 5 exiting C-USA

    Big East members-in-waiting Cincinnati, DePaul, Louisville, Marquette and South Florida will get a break on their Conference USA exit fees because that league's reaction to the imminent departures was to make it easier, rather than harder, for schools to leave.

    "Most policies are designed to deter people from leaving and punish them when they do," said Britton Banowsky, C-USA's commissioner. "That was certainly our former policy."

    That policy, adopted when the conference was formed in 1996, required schools that gave a year's notice of leaving to pay a $500,000 exit fee plus television damages for the five-year period immediately after the school's withdrawal.

    For the departing schools, particularly Louisville and Cincinnati, that amount could have been sizable. Although conference officials wouldn't speculate on damages to the television contract, industry sources estimated that the league's contract with ESPN could have been reduced by at least a couple million dollars.

    In addition, the amount each school would have owed because of a drop in television revenue likely would have been determined in court, since there was no clear-cut way to determine television damages for each school.

    Fortunately for those schools, C-USA presidents decided about a month ago to tweak the policy in an effort to reduce financial harm to both remaining and departing schools.

    Under the new policy, the exit fee has been abolished, but schools leaving the conference have to agree to continue to put members of their former conference family on their football and basketball schedules for five years.

    The scheduling rule was established as a way to limit negative effects on the league's eight-year television contract with ESPN, which began in the 2001-02 school year and paid the conference $8 million last year, according to the league's tax return.

    Additionally, if the league's television contract is not adversely affected, the departing schools would receive money from the conference based on their earned units from participation in the Division I men's basketball tournament over the last six years. If the contract is negatively affected, the conference would keep that money.

    Cincinnati, DePaul, Louisville, Marquette and South Florida collectively earned 22 units from 1997 to 2002, which are the years included in 2003 distribution. Each unit for this year's distribution was worth $130,000 for a total of $2.8 million.

    The units earned by a school for its participation in the NCAA tourney stay with the conference in which those units were earned. They do not move with the school.

    "The point here, I guess, is that the idea of deter and punish, in the context of conference realignment, is probably not as effective as the idea of support and mitigate harm," Banowsky said. "My experience is we're all better off trying to listen, communicate and understand each other's interests and develop strategies to accommodate those interests, as opposed to forcing outcomes."

    Meanwhile, with five of its schools leaving for the Big East, Conference USA announced that Marshall, Rice, SMU, Tulsa and Central Florida had accepted its invitation to join.

    The five new Conference USA schools will each pay an entrance fee of $1 million. The entrance fee for the new Big East schools was not revealed, though Big East Commissioner Mike Tranghese said the fee would not come from the schools, but would instead be deducted from each school's portion of conference revenue.

    Print | Tags: Colleges, This Week's Issue
  • Tennis’ other Mac: Can he sell the sport?

    Jim McIngvale remembers running into his friend former President George Bush at a charity benefit in Houston in May 2002. Recalls McIngvale, "I told him that we were thinking about trying to bring the Tennis Masters Cup to Houston, and he said, 'What's that?' He's a huge tennis fan, and he didn't know what the Tennis Masters Cup was. I knew then that we would have a branding problem. But I'm kind of a damn-the-torpedoes, full-speed-ahead guy."

    So McIngvale pressed forward, striking a deal a couple of months later for the rights to host the 2003 and 2004 editions of the Tennis Masters Cup, the season-ending event featuring the top eight players in men's tennis. This year's edition is going on this week at McIngvale's Westside Tennis Club.

    Houston’s Jim McIngvale shows off his Gallery Furniture Stadium Court, built with $10M of his own "sofa money."

    McIngvale, well-known to anyone who has ever watched TV in Houston as "Mattress Mac" from ads for his Gallery Furniture store, says he agreed to pay $7 million a year to secure the tournament, co-owned by the ATP, the ITF and the Grand Slams. As the tournament's promoter, he spent a whopping $10 million to market it.

    "When you jump in the water, you got to get to the other side," he said.

    He already has reached the other shore, at least in ticket sales. By early last week, the tournament was sold out.

    The event, comprising 13 sessions, is taking place in a brand-new 7,500-seat stadium at Westside, the Gallery Furniture Stadium Court, that was built for another $10 million out of McIngvale's pocket — "sofa money," he said.

    McIngvale's promotional push featured a barrage of advertising: three national spots on the 2003 Super Bowl broadcast, national ads on the telecasts of this year's Wimbledon and U.S. Open tennis championships, national ads on ESPN's "SportsCenter," plenty of local radio and TV spots in Houston, more than 20 outdoor billboards in the Houston market and local direct-mail initiatives.

    McIngvale, 52, also promoted the Tennis Masters Cup during the 50 or so motivational speeches that he's given to local schools and to Houston-area business and civic organizations in the past six to eight months.

    "It's been a constant branding exercise for the last year," he said.

    'Untold is unsold'

    McIngvale is a nonstop selling machine whose Houston furniture store, which he owns with wife Linda, will total about $170 million in sales this year. He's built his business through thousands of hours of TV ads and active sponsorship of local sports franchises and events. His approach to tennis promotion differs little from his other campaigns.

    Speaking to a reporter via cell phone one day last week, he talked fervently about his marketing philosophy, the words firing faster than an Andy Roddick serve: "My deal is to stand on the top of the roof and shout about it. And tell the story. I think untold is unsold.

    "We've been telling the Tennis Masters Cup story every single day. This is the world championship, this is the Super Bowl, the NBA Finals, the World Series of tennis. This is the season-ending championship. These are the eight best tennis players in the world. ... You've got to tell the story over and over and over again."

    McIngvale's introduction to the tennis world came in the spring of 1995, when he agreed to sponsor a WTA tournament in Houston. IMG was selling the sponsorship. "I gave them [an offer], and they took it. So whoops, I was in the tennis business," he recalls.

    A few months later, he and his wife bought the Westside Tennis Club. They've poured $50 million into it since then, he said.

    For tennis, the McIngvales' arrival was an energy boost, a Texas cyclone of motion and promotion in a professional sport that has struggled to find the unity required to push itself forward in recent years.

    "Linda and Mac bring a fresh, new perspective to tennis," said Chris Clouser, president of the ATP and CEO of ATP Properties. "Hopefully, they can be two of the people who can bring many of the diverse and, at times, feuding groups within tennis together."

    For the Westside Tennis Club, the 2003 Tennis Masters Cup will be a money-losing proposition. According to McIngvale, the club will generate about $12 million to $13 million in revenue on this week's tournament.

    But he looks at the event as a longer-term investment. "We're building a brand," he said. "We've got it for two years, and if we do a good job, hopefully we'll have it for future years."

    Reaching out to sponsors

    The area in which McIngvale will look for improvement next year is sponsorship sales. "We haven't done a good enough job on that," he said. The club generated about $1.5 million in sponsorship sales for the 2003 edition, he said.

    Former President Bush, a tennis fan, is a friend of McIngvale and wife Linda.

    That total does not include Tennis Masters Cup sponsorship revenue that the ATP brought to the event through deals with Mercedes-Benz, Head/Penn, Lacoste and Waterford Crystal. Among the companies that Westside cut deals with are AeroMexico, Starbucks, FedEx, Pepsi and AIG (including its Houston-based subsidiary, American General Life).

    "If we do a good job of branding this event, then I think sponsors will be more interested next year," McIngvale said. "Obviously, the economy ain't what everybody wants it to be. But we just have to do a better job of letting people know what a tremendous worldwide event this is." The tournament is being broadcast in more than 135 countries; in the United States, it's airing on ESPN and ESPN2.

    "Mac is very focused on his customers," said Robert Marling, CEO of Houston's Woodforest National Bank, a major sponsor of the U.S. Men's Clay Court Championships, which moved to Westside starting in 2001. For the Tennis Masters Cup, those customers include the ticket buyers, the sponsors and the players.

    Several key sponsors have been invited to attend a gathering at former President Bush's home in Houston on Thursday.

    Charlie Eitel, chairman and CEO of the Simmons Co., another major sponsor of the U.S. Men's Clay Court Championships, says he got a chance to meet the former president two years ago at the tournament because of McIngvale. Mac called the one-time leader of the free world and asked him whether he would mind coming to the club to meet a key sponsor. Said Eitel, "That's just typical of how Jim is. He's not afraid to try anything within reason."

    For the Tennis Masters Cup, McIngvale and his wife sent mailers to all ticket buyers, listing cell phone numbers for him and for Linda, who runs the tennis club. He invited patrons to call if they had any problems at the event.

    Meanwhile, McIngvale remains what he calls a "willing worker." He says, "Believe me, when these tennis matches are over, I'll be under the stands with my [employees] cleaning the trash."

    Print | Tags: ATP, ESPN, FedEx Corp., Head USA, IMG, Mercedes Benz, PepsiCo, Starbucks, Tennis, This Week's Issue, WTA
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