SBJ/October 24 - 30, 2005/Opinion

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  • Benefiting more than bottom line

    An era of excess is feeding an erosion of character in our country unequaled in recent history. The financial industry has been roiled by it, much like the sports industry. Insider trading, price manipulation and market timing abuses have sidelined some in the financial industry, and many in the business world are waiting to see excessive executive pay and stock options put in the penalty box.

    Some companies are using the word “character” like an advertising campaign. They think “enlightened self-interest” is good enough, proclaiming transparency and irreproachable ethics as if they were revolutionary business concepts.

    It’s going to take more than that. We must exhibit character and a strong sense of values in everything we do, right down to the organizations and causes we sponsor. That means sponsorships must yield something greater than visibility and brand awareness. And the return on investment has to be about more than dollars.

    As president and portfolio manager of a $5 billion mutual fund company, I know a thing or two about return on investment. And, as a 35-year industry veteran, I also know the critical role image plays. Investor confidence hinges on reputation. Anything my company sponsored had to have a deeper impact.

    While Technicolor NASCAR sponsorships and multimillion-dollar endorsements most certainly would have created awareness, we were after more than brand recognition. We wanted a sponsorship that would align with our company’s culture and underscore our values, but more than that, we felt an inherent commitment to contribute to the greater good.

    That’s why we chose to be the national sponsor of the NAIA’s Champions of Character program. Champions of Character is designed to help student-athletes, coaches and parents “know the right thing, do the right thing and value the right thing” — inside and outside the sports setting. Participants pledge to not only play by, but live by, five core values: Respect, responsibility, integrity, servant leadership and sportsmanship.

    The program reaches thousands of students, coaches, parents and athletic directors at about 300 colleges and universities in the United States and Canada. In addition, the NAIA provides training and motivational presentations to youth, community and corporate organizations and certifies academic and community participants to develop outreach program centers.

    The Champions of Character program reaches out to numerous audiences about making great choices on character based on a sports model. There are 30 instructors in 20 program centers at NAIA schools that conduct community outreach initiatives, such as character workshops or summits, and provide character development resources specific to college students, youth, coaches, parents and fans. The NAIA has special presenters that bring principled messages to corporate, athletic and community teams across the country.

    My company believes so strongly in Champions of Character that we don’t just sponsor it, we live it.

    Every one of our employees has gone through the program. As one of my portfolio managers said: “Now when I go to my son’s soccer game I give him a hug and tell him I really enjoyed watching him. I used to compliment him only on scoring goals. You should see the difference in his face.”

    They get it: Just as the NAIA holds its Champions of Character to standards higher than victory, we, as businesspeople, must hold our companies to standards higher than profit. For that reason, we have become even better stewards of our investors’ money.

    I believe that in the same way that one athlete of character improves a team, one employee of character will improve a department, and one department of character will improve a company. One company of character can affect a whole industry, community, and even the nation.

    Yes, a sponsorship — the right sponsorship — can do all that, if, as I tell my investors, you stay in for the long term.

    John Kornitzer is president and portfolio manager for Buffalo Funds.

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  • Its owners divided, the NFL reaches a revenue-sharing crossroads

    When it comes to collective bargaining and revenue sharing, the standard mantra in the NBA, NHL and MLB is that they should take a page from the “socialism” and labor-management cooperation of the NFL.

    Now, it seems, for the first time since 1993, the NFL is taking a page from the other team sports. NFL owners can’t agree with one another about extending their revenue-sharing system, and they can’t agree with Gene Upshaw and the players association over the terms for a new labor deal.

    NFL socialism goes back to the league’s inception in 1920, when sharing of gate revenue was introduced. Forty years later, Pete Rozelle persuaded the owners to extend this to include national television money and then persuaded Congress to allow this “collusion” in the Sports Broadcasting Act of 1961.

    As a result, the NFL has largely avoided the paralyzing wars among groups of owners that have plagued baseball and other sports.

    The NFL’s labor-management peace dates to the 1993 collective-bargaining agreement, under which (with a few modifications) the league still operates. The agreement, however, expires after the 2007 season; if it is not extended before that year, there will be no salary cap in 2007. Further, Upshaw threatens that if the cap is lifted one year, it will not come back.

    It is also true that without an extension, the players having between four and six years of NFL service would lose unrestricted free agency rights. But the players association correctly believes the benefits of salary growth from lifting the cap would outweigh the diminishing effect of taking away unrestricted free agency for a group of players.

    Thus, the players are willing to let the current agreement lapse if their two basic demands are not met.

    First, they want the salary cap (now 65.5 percent of “defined gross revenues,” which itself is about 90 percent of total revenue) to be based on all NFL revenue.

    Second, they want their percentage to stay roughly the same on the larger base. Put differently, they now get about 59 percent of total NFL revenue and they want to get 64 percent.

    Their position is premised on the perception that NFL teams have become enormously profitable. National revenue, which is shared equally, is approaching $140 million a team annually, and some teams are earning more than that sum from local sources.

    Revenue-sharing and CBA challenges are the biggest the NFL has faced since the ‘87 strike.
    The Washington Redskins, for instance, in a recent public filing connected to owner Dan Snyder’s attempted purchase of Six Flags, revealed that the team’s total revenue is more than $300 million. This implies that its local revenue exceeds $160 million. Of this, the team has $48 million in sponsorship revenue, which is not subject to sharing across the teams, and only a part of it (spillover) is included in defined gross revenue.

    As team revenue rises rapidly and the players’ share remains steady, the absolute amount of revenue after player payroll grows handsomely.

    In 1996, average team revenue was about $75 million. If the players received 60 percent of this, they would have gotten $45 million a team and the $30 million balance would have gone to the owner to meet his expenses and perhaps yield a small profit.

    Today, average team revenue is about $190 million, producing an average payroll around $114 million and an average balance of $76 million to the owner to meet non-payroll expenses and yield profits.

    If, in 1996, the average team had $24 million in non-payroll expenses and $6 million in operating profits, and non-player expenses grew at triple the rate of inflation or 6.6 percent a year between 1996 and 2005, then average team expenses after payroll in 2005 would have been $42.7 million and average team operating profits would have been $33.3 million.

    Hence, under these not-unreasonable assumptions, profits have grown almost sixfold over the last nine years. Understandably, the players, who produce the product and put their bodies and health on the line, want to participate more in the bonanza. (A major focus of the union from any gains will be to bolster post-retirement health benefits.)

    If the players received the desired 64 percent of total revenue this year, the salary cap would have been $121.6 million and the average owners’ operating profits would have been $25.7 million — representing a more than fourfold growth relative to 1996.

    But the above estimates are all averages. What about the teams without new stadiums, with less advantageous leases, in smaller markets, or less effective management?

    The NFL brand of socialism has led owners to expect automatic profits. Under the existing labor agreement, this guarantee is pretty much assured for each of the 32 owners. Under the players’ proposal, the bottom lines of some owners may turn red.

    Many NFL owners are not used to the rigors of the marketplace. In the name of competitive balance, they say that they need more revenue sharing before they can discuss meeting the players’ demands.

    But competitive balance in the NFL would not suffer under the union’s proposal. Any new financial imbalances could be rectified with modest leaguewide measures and more efficient, aggressive team management.

    Whatever leaguewide initiatives are implemented, there must be care taken not to further undermine the incentives for entrepreneurial behavior. The league’s future growth depends on encouraging such instincts, not blunting them.

    Meanwhile, Paul Tagliabue now knows what Bud Selig must have felt like in the early 1990s. Running a league is never easy; it is next to impossible with a group of divided and acrimonious owners.

    The owners need to find common ground, first among themselves and then with Upshaw and the union. It is the biggest challenge the NFL has faced since the 1987 strike and the ensuing antitrust suit.

    There are more than sufficient resources to construct a fair and rational system. The only question is whether there is sufficient good will, intelligence and common sense.

    Andrew Zimbalist is the Robert Woods Professor of Economics at Smith College.

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  • NBA’s new outreach isn’t business as usual

    “This is not about virtue. This is not about public relations. This is not about business.”

    Those are the words of NBA Commissioner David Stern at the inaugural Sports & Social Responsibility Executive Forum presented by Street & Smith’s Sports Group last week in New York. They came at the end of a passionate call from Stern for the “private sector” of the sports industry to play a larger role in improving the world — through the power of competition.

    Stern said that history has shown that government cannot do it alone, and that private sports organizations have the resources to make a difference. The NBA’s new outreach program, NBA Cares, which we detailed in our last issue, deserves mention, respect and appreciation. We don’t know whether it will affect the state of sports, or whether the average fan will recognize the effort being put into this ambitious program. We’re not even sure whether the latter is important. What we respect is that the NBA, and so many other leagues, teams and governing bodies, have responded to a call for action, doing so much more than just providing free tickets and player appearances.

    Stern was refreshingly honest in his approach in outlining the league’s thinking on community outreach, saying that the league “used to think it was about us. What’s good for business?”

    He expressed a change in approach that makes charitable outreach more a part of the fabric of the league’s culture. Yes, some will think that it’s just more astute business from David Stern, that NBA Cares is nothing but a dressed-up marketing program. We will, for now, put our skepticism aside and hope that this is the start of a long-term program aimed at improving our society through the power of sports. The NBA’s commitment to this program will be the key to its success.

    Stern’s comments were at the heart of a fascinating two days during which leaders of the industry came with their guard down and minds open to the state of sports and to new approaches to dealing with difficult issues: violence in sports, diversity hiring, alcohol in sports, sustainable business partnerships and the role of the media. The theme that sports is a microcosm of society was prevalent: that our celebrity culture is focused on the off-the-field exploits of athletes, that sex sells, that the media focus on the exploits of a select few rather than the “feel-good” issues of sports.

    The Sports & Social Responsibility forum opened the window to this discussion, and we hope it is the start of a sustainable discourse on the pressing issues facing sports and society and the power of sports to improve the day-to-day lives of so many people.

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