SBJ/20101115/This Week's Issue

MLB's Split Squad

When State Farm went shopping for an MLB league sponsorship in 2007, it performed all the due diligence expected when a Fortune 50 brand studies a multimillion-dollar investment in sponsorship rights.

Media/sponsorship agency OMD performed a methodical evaluation of MLB game broadcasts, and the focus soon turned to the annual Home Run Derby, which State Farm agreed to title-sponsor as the cornerstone of its MLB deal.

But before signing off on the sponsorship, State Farm bought some insurance of its own in the form of digital rights from MLB Advanced Media. The thinking behind the move? If they already had the rights to use MLB marks online, it would drive down the price of the more traditional sponsorship rights package sold separately by MLB.

Welcome to MLB math: Subtraction by division. As the only major sports property that sells digital and marketing and media rights separately, baseball’s two fiefdoms have left the rest of the industry shaking its heads for years. It’s the opposite of the NFL and NHL, which package their rights, and it’s a different structure than the NBA and NASCAR, which hired Turner to manage their digital operations while selling digital rights to their other network partners.


Former Gatorade sports marketing executive Jeff
Urban said the Pepsi brand passed on doing a
separate deal with BAM for digital rights to
complement its league rights.

Instead, MLB sponsors (or would-be sponsors) and media companies must buy their league rights in two different places. For sponsors, the rights to use MLB marks online or for mobile, along with any ad inventory on an MLB league or team site, are sold by MLB Advanced Media. The rights to associate marks in offline advertising media, and to associate with jewel events like the All-Star Game and World Series, are packaged and sold from MLB’s Park Avenue headquarters.

It’s an arrangement that’s unique across sports, and one that has bewildered brands and agencies for years.

“Digital rights are such a mainstream portion of any sponsorship package, not bundling them is like saying, ‘Here are your rights, you just can’t use them on Thursdays,’” said David Grant, principal at Team Epic, whose Velocity Sports & Entertainment handles MLB activation for InterContinental Hotels’ Holiday Inn brand. “In this day and age, and in this economy, it behooves a property to be sponsor friendly, and this structure is anything but that.”

There is some recent hope among sponsors and TV executives that MLB’s confusing structure may be changing. The resignation of MLB President and COO Bob DuPuy in September after more than eight years, along with the departure of MLB sponsorship chief John Brody, who left in August to join Wasserman Media Group, leaves open the possibility of conciliation, if not unification, of BAM and MLB.

Formerly, both Tim Brosnan, MLB executive vice president of business, and Bob Bowman, MLBAM president and CEO, reported to DuPuy. Now, they both report to the commissioner.

“Commissioner [Bud] Selig has demanded direct, open and honest communication, and that’s what’s happening,” said Brosnan, who has heard the complaints about baseball’s structure but points to the league’s bottom line as evidence that it’s working.

Bowman says the streamlined reporting structure — straight up to Selig — already has begun to yield dividends.

“Already we’ve seen terrific advantages with a flattened reporting structure,” he said. “Commissioner Selig has been and remains a fantastically successful businessman. He gets business, and he gets what we do.”

Still, any change or consolidation would be celebrated by sponsors, media partners and agencies, many of whom are exasperated at having to buy rights separately.

“We have good relationships with both sides, but I don’t like it. They should control all their marks under one roof, like any other property,” said Greg Via, global director of sports marketing at Gillette, MLB’s oldest corporate sponsor. “Our brand managers change every six to 18 months, and it’s very difficult for me to explain to them why you have to do another deal for digital MLB rights and why a competitor can ambush you with [MLB] digital rights. That’s difficult when every brand is being asked to do more with less dollars.”

Chelsea vs. Midtown

The differences between the league office and MLBAM are only partially explained by the 40 or so blocks that separate the corporate offices on Park Avenue from BAM’s Chelsea headquarters. The digital side of MLB, easily the largest in sports, was established in 2000 as a separate entity, with its own P&L and all the trappings of that early dot-com era, including exposed brick walls and the promise of an IPO that never materialized.

The separate-but-equal structure of MLB and BAM, in which each organization sells baseball content rights and sponsorship assets, surprised outsiders from the beginning. Not surprisingly, it fostered a natural rivalry between Brosnan and Bowman, who bring different backgrounds to the game.

Brosnan has been at or near the top levels of management within MLB’s headquarters for nearly 20 years. Bowman is BAM’s original top executive and, as the former president and COO of manufacturing and engineering company ITT Corp., comes from far outside of the clubby world of professional sports. Each executive is well-connected, influential and hard charging, and both are solid contenders in MLB’s “next commissioner” horse race. They operate as equals in MLB’s reporting structure. Many of the deals they make are competing, and talk of a tense relationship has floated throughout baseball for years. They make the most natural of rivals.

“It’s as much about them wanting to poke each other in the eye as anything else and the [Brosnan-Bowman] relationship is no better than it ever has been,” said a longtime MLB insider.

A longtime BAM employee, however, said the notion of a Brosnan-Bowman feud is overblown. “We hear all the same things,” the source said, dismissing talk of a contentious relationship.

Regardless of the personalities, there’s clearly a clash of cultures between MLB and BAM. Oftentimes, the two organizations can have divergent agendas.

The recent battle between Fox and Cablevision over retransmission consent fees shows just how different those agendas can be.

After Fox went dark on the MSO’s New York-area systems, Cablevision told subscribers that it would reimburse them if they bought a subscription to MLB.TV, which would allow its customers access to MLB’s postseason.

For Fox, which pays MLB $257 million in annual rights fees, it was a move that damaged its leverage during the messy carriage dispute.

Angry Fox executives complained to MLB brass over e-mail and at AT&T Park, during the first two games of the World Series, according to sources with knowledge of the talks. Little could be done. Brosnan, Fox’s main MLB contact, had no direct power to address the concerns of one of his biggest rights holders, since he does not control MLB’s digital programming. Bowman told Fox that he couldn’t control Cablevison’s marketing but promised not to market the service directly to affected communities.



Bowman (top) was named to run baseball’s
digital division in 2000 and came from ITT
Corp. The well-connected Brosnan has been
a top executive at the league office for
nearly 20 years.

At Fox, hard feelings remain. “This is the only league — the only media company — that still separates digital from the rest of media,” said an exasperated Fox executive.

Accordingly, there’s little détente between MLB’s TV rights holders and BAM, further widening the MLB/BAM gap. Apart from ESPN, which has a deal netting it online highlights for, none of MLB’s TV rights holders — including the country’s regional sports networks — has a significant BAM deal for online or streaming rights. Fox and Turner cut small streaming deals for the postseason — the deal Cablevision tried to exploit during its Fox fight — and Turner cut a deal with BAM to pick up highlight rights for These were made separate from the TV rights deals.

According to every TV executive interviewed for this story, MLB’s structure makes media negotiations much more difficult. Just as with sponsors seeking a united MLB platform, there’s one set of meetings with MLB to work out a TV deal and then a completely separate set with BAM for digital rights: broadband, wireless and online.

ESPN executives referenced their most recent negotiation as an example. In 2005, ESPN and MLB signed a deal that kept baseball on ESPN through 2013. The original deal included some highlight rights for ESPN executives arrived at MLB’s offices on a weekday in early September 2005 to sign the deal. However, they were told at the eleventh hour that BAM executives were upset and didn’t want online highlight rights included in the deal. The result was intense negotiations between MLB and BAM, and ESPN waited another day to sign a deal it had negotiated for three years.

The deal eventually included online highlight rights.

Turner and Fox signed TV deals with MLB the following year, also running through 2013. Digital rights were not part of either package. BAM, however, in 2009 crafted separate deals with Turner and Fox for Postseason.TV, an online companion to televised playoff games. The package was revived this year and generated a strong double-digit percentage increase in sales.

With programming moving across all platforms — television, broadband and mobile — having combined rights is more important than ever, and TV executives interested in bidding on MLB rights in 2013 have told MLB they will never again cut separate deals for television and digital.

But that will take a structural change many don’t think will happen.

“There is an opportunity to reassess, but do I think that will happen?” said a source with knowledge of the inner workings at MLB. “Someone has to want that to happen. DuPuy never wanted anything to change.’’

Praise and blame

MLB officials point to record revenue from both MLB’s league offices and from BAM as evidence that the current structure works, even if it frustrates partners.

Tony Petitti, president and CEO of MLB Network, cited cooperation from both MLB corporate and BAM as the main reason why the network’s January 2009 launch was successful.

“I was blown away by how everyone got behind it,” Petitti said. “We interact with all parts of baseball.”

Bowman, similarly, points to a long string of successes within both his shop and baseball at large, including record sponsorship and overall revenue.

“The empirical evidence shows overwhelmingly that the current structure is working,” he said. “We believe we are optimized perfectly, and the real results are there to back that up.”

Additionally, there is increasing acclaim for BAM’s operational and programming successes, even from those puzzled by its structure.

“BAM’s easily the best property website among major sports,” said Tony Schiller, who heads corporate consulting at Paragon Marketing Group, which handles Bayer’s MLB sponsorship for its One A Day vitamins, along with BAM and MLB team deals for clients including Continental Airlines, Reliant Energy and Giant Eagle. “But because the digital side is where you create and maintain a lot of your consumer engagement, not having that [bundled] is a disconnect.”

MLB team marketers have learned to work within the Byzantine structure.

“When you have these organizations going down similar, yet different, paths, whether it is Park Avenue, any of the teams, or BAM, there’s going to be some significant head-butting,” said Chicago White Sox CMO Brooks Boyer. “When you get down to it, we still have the best league site.”

Said another big-market MLB team executive: “We’ve learned to live with it. It’s just a legacy thing. No one was sure 10 years ago how powerful it could be. BAM has built an incredible business, so we work with both of them to drive revenue at our level.”

But as multiple people interviewed for this story said about the BAM/MLB architecture, many of whom would not speak for attribution because they have to deal with both divisions and didn’t want to appear to take sides, “It’s an odd duck.”

At the league level, the current system leads to instances when State Farm and other sponsors play both ends of MLB off each other, and some clients are taking note.

“We’re shifting a lot of weight to digital media, because that’s where our consumers are going,” Via said. “So what’s going to stop me or any sponsor from doing a big digital deal [with BAM] that’s 100 percent working dollars? … In my mind we’re paying twice for the same rights.”

That “divide and conquer” approach wouldn’t be possible if the rights were bundled.

Former Gatorade sports marketing executive Jeff Urban said the Pepsi brand chose not to buy BAM rights to complement its longtime MLB sponsorship. “We needed a BAM deal to use MLB marks on our website, but we felt like that would be paying twice for the same rights,” Urban said.

The market has found its own ways to make the best deals with both sides.

“We’ve recommended to clients and even existing [MLB] sponsors that they can build a strong baseball platform by just working with teams in key markets and adding BAM rights,” said the consulting chief of an agency with clients buying MLB, BAM and MLB team sponsorship assets.

Tom McGovern, managing director for Optimum Sports, whose MLB clients include Pepsi, said he was of two minds about the MLB/BAM arrangement. “If I’m looking for a league partnership, MLB is not as well set up as its competitors to protect sponsors,” he said. “But if I have a client that’s not a league partner, I’m looking for as many entry points as possible for them.”

Add to that unusual MLB/BAM arrangement the fact that Fenway Sports Group sells BAM advertising inventory, and you have another peculiar arrangement: a club-owned entity selling digital league inventory.

Some official MLB sponsors have bought
separate BAM deals for online activation.

“You wouldn’t design it that way, and it has always amused me that Fenway could sell a presenting sponsorship for BAM to and the Red Sox would benefit,” Boyer said. “But if I look inside our [White Sox-owned] Silver Chalice group, it sells Pro Football Weekly and digital content across 24 NBA teams, so maybe a non-traditional design is just the nature of things now.”

When it comes to sponsorship, the two entities take different approaches. Like most leagues, MLB’s less-is-more imperative promotes deals that include category exclusivity. BAM’s approach is more along the lines of a media buy, where competitors often overlap. Accordingly, the rivalry festers and possibly prevents some lucrative sponsorship paydays.

MLB is without a wireless sponsor, a category held by every other large sports property. BAM has a large Sprint deal and a handful of other telecommunications business partners.

In computers/technology, Oracle/Sun is a large enough BAM client that its logo is at the top of every MLB team site. MLB corporate hasn’t had a computer or wireless sponsor in more than a decade.

“The size of the Verizon NFL deal [a reported four-year, $720 million agreement] makes you wonder if there isn’t a joint rights deal they could be cashing in on,” said Kern Egan, principal at Richards Sports & Entertainment, which has cut BAM deals for Fruit of the Loom and MLB deals for Firestone.

At the club level, BAM’s rights also make wireless activation a challenge. Wireless is one of sports’ richest sponsorship categories, and a team’s wireless partner is severely restricted without signing an additional deal with BAM.

“If we want to do anything wireless in my ballpark, BAM’s got to be involved,” sighed a big-city MLB team marketer.

Other concerns expressed by club marketers about BAM deal with control over website look and feel, editorial, and ticketing, the latter being the primary revenue concern at any team. “I look at our own or any [MLB] team site, and I see how prominently [BAM’s] multimedia products are featured and what kind of display ticketing gets,” the team marketer said. “You wonder if the template that all the [MLB] sites have wouldn’t be improved if each had a more unique and local look. However, we all know BAM has built a great business that’s more than returning the original money ownership invested.”

Will they unite?

So the leading questions become ones of maximizing revenue and property management. Can a league divided attract as much income as one that sells a unified platform? Without absolute knowledge of the revenue of each, that’s difficult to determine.

“Our sponsorship business has been at record levels for the last several years and we anticipate that continuing,” Brosnan said.

The recent departures of DuPuy and Brody have led to increased speculation that the two businesses could unite. As the head of sponsorship sales, Brody was one of the top marketers at league headquarters, and his departure means one less high-level executive supporting MLB’s “traditional” sponsorship side. DuPuy’s departure results in a new chain of command for both Brosnan and Bowman.

There’s also some suggestion from inside MLB that the strategy from on high will be to leave the COO position vacant, so as not alienate Bowman or Brosnan, and allow continued direct supervision by the commissioner.

Last week, MLB tightened up the supervisory structure further, naming Kansas City Royals owner David Glass, an original BAM board member, to the position of BAM chairman, a title previously held by DuPuy.

Does that arrangement mean the 40 or so city blocks between the New York offices of MLB and BAM will be bridged any time soon? While many still describe the ongoing BAM/MLB relationship as a feud within a dysfunctional family, some are beginning to sense change.

“For the first time, I am starting to hear ‘Let’s sit down together’ to clients who are talking about a renewal,” said Woody Thompson, executive vice president at Octagon, whose clients with BAM and MLB rights include Bank of America and MasterCard. “Today, nobody’s going to sponsor a team or league without digital rights. BAM is doing it better than any league site, as far as building marketing programs that show value. That’s not what I’m getting from most of the offline [sponsorship] properties we’re talking to.”

Said one team marketer in one of the largest MLB locales: “If they were incented to do so, perhaps. Right now, that doesn’t seem to be the case.”

Others said that a directive for structural change would have to come from the top, where there appears to be little motivation for change.

“Somebody high up inside MLB or an influential owner has to want things to change,” said the MLB insider. “Up to now, that’s not been the case. They think the competition has kept both sides on their toes.”

Staff writer Eric Fisher contributed to this report.

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