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These certainly are trying economic times. It isn’t easy watching interest rates fall on savings accounts and the bottom drop out of the real estate market.
However, in the sports financing world, this credit crunch could be a blessing in disguise. It may lead to a level of sanity across sports deal-making not seen in some time.
Sports deals are always risky, and the prevailing thinking is that the economic downturn will chill sports deals across the board. My theory is that perhaps this atmosphere is good for bidding for franchises on the open market, and might be positive for the sports industry as a whole. Why? Because it will tend to keep out ownership groups that have not vetted fully their investment and lending institutions that fail to provide full safeguards against inexperienced management.
Over the past five years, if you wanted to enter the sports fray, money was easy to come by. Investor equity was plentiful and debt money easy to find. In fact, lenders were so eager to put money to work that they were requiring less from buyers in the way of covenants. These investors and lenders failed to require management groups to adhere to fundamental financial principles.
The three critical elements of any sports deal are:
1. Good operators who have the ability to create and execute on a solid business plan;
2. Sufficient (and sufficiently patient) equity investment that can withstand some losses;
3. Debt from a knowledgeable lending source that covers approximately 50 to 60 percent of the total investment.
For the past five years, operators obtained equity investors that were not so smart or diligent in understanding the pitfalls of sports team ownership. In their rush to put money to work, some investors failed to appreciate the need for long-term commitment and the need for a combination of quality managers with a quality business plan.
Those operators also found lenders competing for opportunities resulting in liberal loan covenants that were easy to achieve or avoid.
With the credit crunch, operators now have to meet far more rigorous reviews of their business plans. They have to demonstrate to both investors and lenders that they have the track record and sports business savvy to make the investment work. And they have to agree to tight covenants from lenders that demand meeting very specific revenue and cash-flow targets.
Investment in pro hockey teams is an example of what has worked in recent years. Whether it was our acquisition of the St. Louis Blues two seasons ago, or recent NHL club deals in Minnesota and Tampa Bay, the current state of the hockey business is lending itself to smart deals. Contrast these deals with the recent revelations surrounding the Nashville Predators, where overborrowing with “dumb debt” by one investor has resulted in some significant problems.
There is a cost-certainty system in place since the 2004-05 lockout. There is a rising tide of ticket and arena-related dollars that demonstrates revenue growth. And with TV ratings on the upswing, there is cause for optimism over future revenue growth. NHL teams can be run like a business, and that’s what investors and banks want to see. They care about winning because it adds to the bottom line in addition to the trophy case.
Sports are big business. Fans make it clear that they are willing to pay for quality performance. Smart operators, investors and lenders view fans’ and sponsors’ demands for better in-arena entertainment and high-quality food and beverage options as a business opportunity to seize. As a result of this strong consumer demand, the underlying business of sports should remain intact in times of recession.
During the credit crisis, the sports industry will experience a decline in the number of deals done. But what it won’t see are transactions where buyers are borrowing almost every dollar; where investors don’t understand the business; or where operators are not held to appropriate performance levels. And that’s good from any pro sports league’s business perspective.
Ken Munoz is a partner in SCP Worldwide, a sports, entertainment and media company with properties including the NHL’s St. Louis Blues and Real Salt Lake of the MLS.
As the 2008 Olympic Games in China have been projected across the globe to one of the largest TV audiences ever, we saw Chinese athletes doing great things in gymnastics, swimming and diving. The enormous popularity of Yao Ming was seen in the opening ceremony and through the basketball tournament. Through last Tuesday’s events, Asian nations had won 32 percent of the gold medals, and China itself had won 21 percent.
All along, I wondered what the impact would be on Asian-Americans and people of Asian descent in America when the Olympics ended. The sports industry should be interested because Asian-Americans make up one of the nation’s fastest-growing ethnic groups. The aftermath of the Olympics might be an additional catalyst for corporations to create marketing campaigns aimed at Asian-American communities and break the stereotypes underscored by some national teams from Spain.
Until recently, athletes of Asian descent have hardly been heard from in sport in the United States. There are stereotypes that Asians are not interested in or encouraging their children to play sports, that they were not athletic enough but instead were viewed as being super-intelligent.
But the stereotypes have been cracking. In professional golf, Vijay Singh from Fiji and Tiger Woods, whose mother is Thai, are two of the top men, while Asian women are dominating the LPGA. Michelle Kwan and Kristi Yamaguchi created great interest in ice skating, just as Michael Chang did in tennis. We have had Olympic medalists in gymnastics with Amy Chow and in volleyball with Liane Sato. With these successes, there is also a small but growing number of athletes of Asian descent in professional leagues, college, high school and youth sport programs across America.
The current numbers of Asian athletes at the elite levels seem to affirm the stereotype. Major League Soccer has the highest percentage at 3 percent, followed by Major League Baseball at 2.8 percent, the NFL at 2 percent, WNBA at 1 percent and the NBA with less than 1 percent. Male and female college student athletes of Asian descent were 1.7 percent and 2.2 percent, respectively. In each area, there has been only minor, incremental increases in the last five years.
There have been similar, small increases in the percentages of Asians running our professional sports. In the league office, the WNBA is tops with 12 percent of the professional posts being held by Asians followed by 7 percent in the NBA, 4 percent in MLS and 3 percent in MLB. There are no Asian team presidents, general managers or head coaches in all U.S. professional sport. In senior positions on teams, the NBA and WNBA have 2 percent each while the rest have 1 percent being held by Asians. In team professional positions, 4 percent of the posts in the NBA are held by Asians while the other leagues have 1 percent each. There is hardly any Asian presence at the top levels of college athletics departments, and there are no Division I conference commissioners who are Asian. At the NCAA headquarters, 4.8 percent of the chief aides and directors are Asian, while 1 percent of all professional staff there are of Asian descent.
That is a lot of numbers and not many people. What does the future hold?
Major League Baseball has had great stars from Asia. Currently, there are about 20 players from Japan, Taiwan and South Korea, with Japan leading the way with 16. Japan won the inaugural World Baseball Classic in 2006. Yun-Oh Whang, a professor of sports marketing at Kansas State, said he believed “it brought the baseball fans of the world a lot closer because they all learned to respect the other leagues.”
But when it comes to the future, Whang looks even more positively at these Olympics: “The U.S. gymnastics team competing in the Olympics right now has two Asian-Americans (Kevin Tan, men’s team captain, and Raj Bhavsar). Having those Asian faces and names competing under the stars and stripes is a great education to the American public that Asian-Americans are also Americans.”
Another major development from the games is the broadcasting on the nbc-olympics.com Web site, which Whang said is where many Asian-Americans are viewing the games. The site has video feeds from almost all Olympics events, so the viewer does not have to rely on the selection made by NBC. This is the first Olympics where this online video technology is being used so widely.
Whang said this “is great news for many Asian-Americans who can watch their favorite sports either live or recorded any time. … It is a great tool for many Asian-Americans who inherited a culture of enjoying different sports.”
“It means that more Asian-Americans can enjoy the Olympics the way they want to, and it brings them closer to their roots,” Whang said. “By watching the Korean women’s archery team wining its sixth consecutive gold medal at the Olympics, Korean-Americans get a huge boost for their self-recognition and identity. Thai-Americans would cheer Thai’s first weightlifting gold medal in history, and Japanese-Americans would feel proud of Japan’s continued dominance in judo. It is all possible because of the extensive coverage on the Internet.”
I believe all of this will help Asian-American parents and their children to think more often about a sports career and not only a career in medicine, law or other lucrative professions. Asian-Americans now witness the success, fame and financial rewards of star players, like Yao, who look like them, and that has changed their perception of a talented athlete.
I also think that there will be a significant social impact of Asian-Americans being more involved in sports, which will result in a broader general sense of involvement in the whole society. As more Asian-Americans become fans of hometown teams with Asian stars, they will join fans of various racial and ethnic backgrounds at the ballpark in ways that have not been possible in too many other aspects of their lives in America.
When our sports expand their participants and their audiences, America will be the biggest winner.
Richard E. Lapchick is the chairman of the DeVos Sport Business Management Graduate Program and director of the Institute for Diversity and Ethics in Sport at the University of Central Florida.
Two weeks ago, it was hard to find many people outside of the U.S. Olympic Committee, International Olympic Committee and NBC who thought the Beijing Games would be truly successful. To some, it sounded like bluster when USOC Chairman Peter Ueberroth called the Games “the most important international event of any type that’s ever taken place on the planet.”
Well, there is little doubt that at the time of this writing, the Games were an organizational, athletic and production success, and for us what stood out was how the Games were consumed on television and through new media.
If you asked most in sports media before the Games what NBC would average for its prime-time coverage over the two weeks, the predictions would have fallen into the 13.0 to 15.0 range. Trust us, we asked. People cited various reasons to back their predictions: audience fragmentation, Olympic fatigue even before the Games, interest levels in the Olympic sports and coverage that fell in the middle of August, notoriously a low mark for viewership. Even NBC only guaranteed a 14.5 rating, strong in today’s market but below its 15.0 for Athens.
So, what happened? The numbers beat everyone’s expectations. At press time, NBC had averaged a 17.2 rating over 11 nights, spectacular no matter how you spin it or slice it. This was complemented by the strong numbers of online and video viewers, which never cannibalized the network audience — old media’s greatest fear. The sustainability of NBC’s ratings was a shocker, as the network burst out with a record opening ceremony rating on a Friday and then rode the broad shoulders of Michael Phelps through week one. As viewers got engaged, they became hooked.
The business implications of these ratings can’t be ignored. We’ve argued, like many, that people shouldn’t expect to see the ratings and interest levels of yesteryear because of the new world we live in. But maybe the new world isn’t all that different. These last two weeks prove that sports, and the Olympic Games, can still draw amazingly large audiences — and, in this case, do so over extended periods of time — and it builds on some of the previous strong ratings we’ve seen this year, like Super Bowl XLII. Now that flies in the face of conventional wisdom, and broadcasters, operators and programmers should all feel buoyed by these results.
For the IOC and USOC? They are feeling confident, maybe even cocky, leading IOC marketing commission director Gerhard Heiberg to say of NBC’s numbers, “We can capitalize on that in the next negotiations with NBC for the new rights. This is good for us.” Maybe not so fast, Gerhard. Will these Olympics mark a long-term sustainable surge of interest or are they a one-off, where the stars aligned and the world watched? No one knows the answer to that. We do know that these Games came at a time the IOC and USOC needed them the most, with its relevance and its sponsorship/media viability in question. Beijing has proved to be one of the most significant sports business stories of the last few years and put a brisk wind in the sails of the Olympic movement.