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SBJ/20100222/This Week's News
Books tell different story to NBA, union
Published February 22, 2010
The NBA All-Star Game had a bit of everything last week — a rare Dallas snowstorm, Texas-sized glitz and a record-breaking attendance of 108,713 at Cowboys Stadium. But don’t be fooled. The league’s labor dispute dominated the discussion among team, league, and media executives throughout the weekend.
While both the league and the National Basketball Players Association fired their opening salvos over collective-bargaining talks, there is one thing that both sides surprisingly agree on.
“There is not a lack of financial transparency,” said NBPA Executive Director Billy Hunter. “They have given us more information than they ever have.”
But full financial disclosure is about the only issue that NBA Commissioner David Stern and Hunter agree on these days as both sides try to negotiate a new collective-bargaining agreement to replace the existing deal that ends in the summer of 2011.
While Hunter agrees that the NBA has provided detailed financial information, the union has a different view of the books than Stern, who said the information shows that the league is on track to lose $400 million this year.
“We don’t agree with the interpretation of the financial records the same way they do,” Hunter said.
If Hunter doesn’t see eye-to-eye with the numbers presented by the NBA, he hasn’t yet told league negotiators.
“He hasn’t shared that with us yet,” said NBA Deputy Commissioner Adam Silver, who is the lead negotiator for the NBA. “But we expect that as we get engaged in the process, we will have further discussions about our financials.”
While Stern & Co. are using the projected $400 million loss this year, as well as $200 million in losses in each of the past few years, as the basis for making significant changes to the CBA, union officials argue that the rise in franchise values proves that the current CBA has worked.
“The NBA may have given us more financial details, but there is still a long way to go to disentangle what they are saying,” said Kevin Murphy, the behind-the-scenes financial expert retained by the players associa-tion to evaluate the league’s books. “You just can’t rely on how much you get in cash flow. It is about franchise values and if you take that into account, the current system has served them well.”
Murphy is not your average accountant who moonlights at the local H&R Block. He’s a MacArthur Foundation “genius grant” winner and a faculty member at the prestigious University of Chicago Booth School of Business. He has been advising the players association since 2004.
“He’s the baddest economist in the world and when it comes to financials, I defer to him,” Hunter said.
The league’s initial offer, according to the union, included the elimination of fully guaranteed contracts and a cut of the players’ current 57 percent of basketball-related income to 50 percent. The offer was scrapped by the players, who now must counter with an offer of their own to the NBA’s labor committee, headed by San Antonio Spurs owner Peter Holt.
“Under the current system, for every dollar of lost revenue for the NBA, 57 cents came out of our pocket,” Murphy said.
No new bargaining sessions have been scheduled.
Price Points: NBA teams are just beginning to roll out season-ticket pricing for next year and while it is not known exactly how many teams will raise prices, early indicators show an increase in renewal rates will bring an expected hike in gate revenue, according to Chris Granger, senior vice president of team marketing and business operations for the NBA.
That’s good news for a league that expects to see a single-digit drop in gate revenue this season.
Last year, most teams held or reduced season-ticket prices to preserve their season-ticket-holder base during the recession. The strategy, along with a nearly 2 percent drop in average attendance, is bringing the decline in gate revenue.
“It’s early, but we are optimistic that we will be up next year,” Granger said. “Early indications are so much better than last year. The economy is clearly starting to perk up and that is making things easier. But teams are more sophisticated with their pricing.”
The Phoenix Suns announced that they will reduce prices in 25 percent of the seats in US Airways Center while holding prices on the rest of the seats.
The New York Knicks likely will hold prices at Madison Square Garden given that the team in the past has had a policy of freezing ticket prices if the team does not make the playoffs. At the break, the Knicks had the 12th-best record in the 15-team Eastern Conference, putting a playoff appearance in doubt.
But Granger said the days of teams issuing a blanket season-ticket pricing announcement are numbered.
“There is so much more of a blend in pricing,” he said. “Teams are more focused on analytics. They are looking at pricing section-by-section and looking at the utilization of seats.”
Leaguewide team sponsorship revenue is also down slightly this season, but the number of new team deals is up 4 percent, Granger said.
“We are up in new business this year versus last year,” he said. “We will be a hair lower in team sponsorship revenue than last year, but we will still be the third highest of all time in terms of sponsorship revenue.”
New inventory next year will be focused on sponsorship opportunities on team Web sites.
“Digital sponsorship revenue is up 20 percent this year and teams are increasingly concentrating on it,” Granger said.
Merch Madness: The NBA set an attendance record with more than 108,000 fans attending the All-Star Game in Cowboys Stadium, and that propelled overall merchandise sales to levels not seen since the 2004 All-Star Week in Los Angeles, where the league set a record for merchandise sales.
“We are still counting, but we are close to L.A.,” said NBA licensing chief Sal LaRocca. “On Sunday at Cowboys Stadium, we had the highest one-day sales in NBA history. At all venues, sales were up 49 percent from last year.”
“It was a feeding frenzy when they opened the doors to the stadium and the Cowboys store was packed the entire night,” said Alan Fey, president of Gameday Merchandising, the NBA’s retail partner.
The league had 14 points of sale inside Cowboys Stadium, including the 15,000-square-foot Cowboys store, as well as multiple points of sale inside American Airlines Center, where the league hosted its Friday and Saturday night events.
The strong sales come even after the NBA cut the schedule of its Jam Session held at the Dallas Convention Center after All-Star Saturday to put the focus on the game at Cowboys Stadium on Sunday. The league also opted not to open Jam Session on the Monday after All-Star because local schools were open, despite the Presidents Day holiday.
The rare and frenzied snowstorm in Dallas on All-Star Thursday also affected attendance at Jam Session — total attendance was 93,611, compared with 124,379 last year in Phoenix.
Year-to-date, global NBA merchandise sales are up 12 percent, but in the U.S., merchandise sales are flat.
Stream On: The NBA season is more than halfway done, but expect more teams to roll out live streaming of games on the Web in the second half, according to Bill Koenig, NBA executive vice president of business affairs and general counsel.
Teams were given the green light to pursue live game streaming deals last season. To date, just two teams, the Portland Trail Blazers and Philadelphia 76ers, have deals in place, as franchises and their regional sports networks struggle to develop a business model to stream only to RSN subscribers.
“There have been a couple of bumps along the way from a technical standpoint, but we are talking with all the regional sports networks about adding some teams this year,” Koenig said. “The hardest thing on their end is working out the authentication process because the networks don’t want to stream to people who are not subscribers to their television network. To do that across cable systems and satellite distributors in a consistent way is very difficult.”
The Blazers stream their over-the-air broadcasts and the Comcast-owned 76ers stream a select number of games aired on their Comcast RSN.
Koenig would not say which teams are next to join the two in live Web streaming, but hinted that teams with Fox RSN deals are close.
“Once Fox figures it out, it will go quickly and we will add several teams,” Koenig said. “In Philadelphia, it was easier for Comcast to do because [mutual ownership] of the team, and the RSN. We are trying to help other teams move it along.”
International Growth: The NBA continues to expand its global footprint with the announcement that the league will open an office in Johannesburg, South Africa, this spring. Former Dallas Mavericks executive Amadou Gallo Fall has been named vice president of development for the NBA’s Africa operations.
In opening the NBA’s first office in Africa, Fall will be responsible for developing grassroots events while expanding league marketing and media partnerships.
The NBA has been working in Africa for nearly two decades. NBA games have been televised on ESPN in Africa since the 1994-95 season and the league has marketing partnerships on the continent with Adidas, Coca-Cola, EA Sports, Nike and Spalding.
NBA officials said they expect merchandise revenue in Africa to more than triple this year with 12 merchandise partners in place.
Digital Developments: NBA Digital appears ready to finally roll out it mobile version of League Pass for use on BlackBerry devices, which owns roughly 42 percent of the U.S. smartphone market.
“It will be out in a couple of weeks,” said Bryan Perez, NBA Digital senior vice president and general manager. He declined to provide a specific launch date because the deal is in the BlackBerry review process.
The league launched its mobile League Pass across iPhone and Android platforms at the start of the season for $39.99. It now costs $19.99. The price of mobile League Pass on BlackBerry’s Curve 2 device will also be $19.99.
Perez said the league in one year has 1 million downloaded NBA-related applications. Most are free, though the league also offers applications from $3.99 to $39.99.