One afternoon late last year, Don Fehr stood high above the Air Canada Centre, inside the suite of offices that houses the NHL Players’ Association. The snowflakes of an approaching storm danced past the skyscraper window, framing downtown Toronto in a dramatic tableau. Fehr barely noticed. He was preoccupied by the feasibility of dividing a vast corner office with multiple sitting areas into two more functional spaces. “We have to find out what that would cost,” he told Jonathan Weatherdon, who runs public relations for the NHLPA. “We can get a lot more use out of this.”
“They have to be educated, and involved, and knowledgeable. That’s how you maintain your unity and cohesion.”DON FEHR
On maintaining player solidarity
Since succeeding Kenneth Moffett at the MLBPA on a temporary basis in 1983 (he was formally ratified in 1985), Fehr, 62, has been fighting for the rights of laborers — a unique brand of laborers, to be sure — against the millionaires, billionaires and corporations that own sports franchises. At least through the 2012 expiration of the current collective-bargaining agreement and perhaps beyond, he’ll do the same for the NHLPA. His new contract extends his tenure as the longest-serving labor leader in North American sports. It adds the distinction of Fehr being the only one to have served at the helm of more than one union.
Negotiations to replace or extend existing agreements in each of the major leagues are set against the backdrop of an uncertain economy, and a strong insistence by team owners and league executives that their sport can’t survive under its existing system. Yet franchise values continue to rise, setting the stage for especially contentious negotiations. For the next two years or so, news of progress or lack thereof, will be reported on day after day.
That in itself will be news. Other than sports, labor struggles rarely make the papers or the TV networks anymore. When Marvin Miller hired Fehr as the MLBPA’s general counsel in 1977, George Meany was running the AFL-CIO, Albert Shanker was the president of the United Federation of Teachers, César Chávez was still a potent organizing force with farm workers, and the hunt for the missing former Teamsters leader Jimmy Hoffa remained in the news. All were national figures and familiar names. Today, less than 10 percent of the private-sector work force belongs to a union. The average middle manager would be hard-pressed to name the head of a single one.
If he did know one, it would likely be Fehr. “There has been a dramatic decrease in strikes and work stoppages over the past 50 years,” says Robert Angelo, who teaches sports labor relations at Rutgers. “Sports unions have been responsible for more of them than any others. They’re the only unions that are ever in the news.”
Fehr, with Tampa Bay Rays owner Stuart Sternberg in 2008, didn’t make friends across the baseball bargaining table, but he didn’t make enemies, either.
But, make no mistake, Fehr was remarkably effective over the years at finding ways to get the MLBPA much of what it wanted. He didn’t make many friends across the table, but he didn’t make enemies, either. “I’d say he was a pragmatist,” says Jerry McMorris, former Colorado Rockies owner. “He’s smart, he’s capable, he’s articulate. But he was very much a hard-liner about everything. That was his way of retaining the status quo.”
He left the MLBPA job having helped to forge agreements with five extraordinarily different commissioners: Kuhn, Ueberroth, Giamatti, Vincent and Selig. “The job of a union leader is to represent his constituents, and he did that very well,” said Richard Ravitch, a former lieutenant governor of New York, who represented MLB owners during the 1994-95 collective-bargaining sessions. “As a negotiator, he was a terrific in-fighter. He was also a totally honorable person to deal with.”
And then, being a management man talking about a labor leader, Ravitch can’t resist a dig. “Humorless,” he said, “but totally honorable.”• • •
The lasting vision that many fans will have of Fehr is his testimony before a 2005 congressional panel. Part of a parade of witnesses that didn’t seem to comprehend America’s anger at the steroid-tainted spectacle baseball had become, Fehr’s appearance was perhaps the most cacophonous. To many, he seemed to be defending players’ right to use performance-enhancing drugs. “I can’t take Don’s position that using steroids — which was illegal — was in the best interests for his players, let alone the game,” McMorris said.
His actual concern, as he attempted to explain at the time, was the grander issue of his constituents being forced to waive their rights to privacy by allowing testing outside the workplace. If that could be done by baseball owners today, he argued, the precedent was set for anyone else to do it tomorrow. The position was lost on an audience that wanted its record book back, but Fehr never wavered.
It was perceived as his most shameful hour by the world at large. “You have to wonder what planet the man was living on,” wrote Christine Brennan in USA Today. Yet MLBPA members saw it as perhaps his finest. “He was willing to take any amount of criticism on behalf of the players as part of his responsibility,” said Tony Clark, the 14-year MLB veteran who now serves as the union’s director of player relations. “We appreciate Don for everything that he’s done, especially including that.”
Fehr and MLB Commissioner Bud Selig were grilled by Congress over steroids in 2005.
Fehr retired as MLBPA head in 2008. As he explains it, he’d reached a natural finishing point for the work that he’d been helping to do since the 1970s, but the ongoing negative publicity after the 2005 congressional panel couldn’t have helped. “Michael [Weiner] was the right age,” he says now. “He knew the players. They wanted him. There was a perfectly seamless transition.”
He’d enjoyed working with ballplayers, though not because he liked rubbing shoulders. Missouri-raised, with a Midwestern directness that can seem dismissive, he’d made no effort to modify his personality to curry favor with his members. Many of them weren’t sure what to make of him, beyond the knowledge that he’d defend their interests to the end. “I literally had to keep a running vocabulary list of words he would use that were far over my head,” says Clark, who spent nearly a decade working alongside Fehr as a player representative and considers him one of the two or three smartest men he’s ever met. “You’d tilt your head sideways because you didn’t know how a given word came into play.”
Rather, what Fehr liked was being part of a team working toward a common goal. “You are a representative of a specified and finite group of individuals,” he explained. “It’s not like being their lawyer, and it’s not like being their agent, and it’s not like being their representative. It’s a peculiar kind of thing that, as far as I know, exists only in the world of labor relations.”
That these happened to be major leaguers put unusual constraints on the bargaining, for the number of positions available in the industry is artificially limited. New entrepreneurs can come in tomorrow and open a charter school, but they can’t create an MLB franchise without the consent of the existing ownership. That made the dynamic different than in most labor negotiations. It helped keep him interested.
He also liked moving the bar. “If you believe that labor unions and employee organizations have a meaningful role to play and that they can be affirmatively beneficial to the members, then helping to make that happen is going to be satisfying to you,” he said. “If someone was in business, he might equate it with meeting sales goals. Or getting tenure at a university. Or winning a Pulitzer. It’s that kind of thing to me.”
The problem with such a job is that there are exactly four of them, at least on the major stage. So when Fehr left the MLBPA, the last thing he thought he’d do was run another sports union. He wasn’t sure what he would do instead — the areas of opportunity for ex-labor leaders aren’t quite at the level as those for ex-CEOs — but he figured something would come up. As it happened, those opportunities turned out to be limited. You didn’t miss the announcement that he’d signed a lucrative consulting deal with a prominent company, or joined a major corporate board, or launched a speaking tour. Those things never happened. Perhaps because of that, when former defenseman Chris Chelios came asking for temporary help on behalf of the NHLPA in late August 2009, Fehr found himself inclined to listen.
The NHLPA had been in tumult for years. One longtime executive director, Alan Eagleson, had been convicted of fraud and embezzlement. His successor, Bob Goodenow, resigned when it became clear that the players were determined to accept a settlement to the 2004-05 labor dispute that he decidedly opposed. Ted Saskin followed for two years and was dismissed after allegations that he’d conspired to read e-mails sent on players’ NHLPA accounts. Paul Kelly, a lawyer and former prosecutor who had little experience in hockey and none in organized labor, lasted another two years.
Chelios, who served on the NHLPA’s executive board, knew Fehr because his agent, Tom Reich, had represented several prominent baseball players. Fehr was aware of the situation because the two unions have had frequent contact through the years. (Fehr and Goodenow also served together on the board of the Sports Lawyers Association.) “We’ve got these issues,” Chelios told him. “Can you come and talk to the guys?”
The initial discussions led to Fehr sitting in on NHLPA conference calls, then helping to write the organization’s constitution and find a new executive director. Along the way, Fehr came to see the NHLPA as less dysfunctional than it appeared. “This is an organization which, if properly administered by people paying attention and with the right kind of staff additions, can be put back together in reasonably short order,” he said. If he hadn’t believed that, he wouldn’t have bothered.
Richard Ravitch and Fehr were adversaries in 1994-95, when the players voted to strike.
And perhaps more than he’ll even admit to himself, Fehr had missed how it felt to lead his troops into battle. “Working with the hockey players … the experience was pretty satisfying,” he said. “The conclusion I came to was that I thought I could make a difference here.”
“I couldn’t believe how lucky the NHLPA was to get Fehr,” said Rutgers’ Angelo. “He’s got a tremendous track record at the bargaining table, he understands the internal operations of a sports union, and he can help the association build a leadership structure for the future, which has clearly been a weak area. ... It’s a home run.”• • •
Fehr comes to this job as the most experienced labor negotiator in the history of American sports. “You develop a feel for it, an understanding of it,” he said. “You’ve got a better sense of how things are going to proceed.” But each cycle in each sport also brings a different set of circumstances. “It’s a very fluid process,” he said. “Sooner or later, you get down to an end point, and then you have to make judgments. And you go to the guys and you say, ‘What do you want to do here?’”
The same would be true in any labor union. Yet in tangible ways, players associations are fundamentally different. “In sports, unions aren’t coming in and negotiating the same salary for everyone,” said John Budd, a professor of labor relations at the University of Minnesota’s Carlson School of Management. “They’re setting protections, like a salary floor, but mostly trying to create a system of individual, performance-driven negotiations.”
The wide difference in skills among players is far more relevant in sports than in most industries. If you have an assembly line with a piece of equipment running past every minute, it doesn’t matter if a worker can fit together, say, four of them a minute because there aren’t four to be done. But it matters very much if he can’t fulfill the minimum demand of the job by doing at least one. “In baseball, if you hit .330, you’re doing really well — until they find someone who can hit .340,” Fehr said. “It’s a different standard. So you don’t have the promotion and layoff rules based on seniority.”
That’s one difference between the players associations of America’s four major sports and other unions. Here’s another: Even as the labor/management pendulum started to swing back toward management after decades of advances by workers, sports unions have remained remarkably successful. “We know exactly when the curve turned in the United States, with PATCO in the summer of 1981,” said Fehr, referring to President Reagan’s dismissal of striking air traffic controllers. Yet sports unions have managed to avoid the concessions that have characterized negotiations in many industries.
And all sports unions aren’t the same. “I keep reading that Don did this in baseball so he’s going to do it in hockey,” Kasten said. “That’s a mistake. Everything depends on conditions and circumstances.” In baseball, Kasten notes, the union tends to be extremely unified and the owners often not very unified at all. In hockey, “it’s almost the exact opposite situation. The union historically isn’t unified. And you can’t grow that overnight. Sometimes it takes generations.”
When Fehr took over the MLBPA, the owners and players had conducted CBA negotiations in 1968, 1970, 1972, 1973, 1976, 1980 and 1981. Fifteen years is a long career in baseball but not an unreasonably long one, so a significant number of players had been on rosters for all of them. That’s a formidable institutional memory that he doesn’t have with hockey. “Any time you have people who can explain to guys what their prior experiences have been and why those may be relevant in the current set of circumstances, you’re better off,” Fehr said. “Their opinions are going to be seasoned by what they’ve been through.”
When times got tough, Fehr could bring in labor pioneers such as Miller and Curt Flood to address the players, showing them the through line from the past to the present and the future. There’s no equivalent in hockey because the history isn’t there. “Baseball players came in and said, ‘Look, we want a minimum salary that’s appropriate,’” Fehr said. “We want very good pension and health care benefits, but we know that has an effect on salaries because you can’t spend the same dollar twice. And we want a market system to sort out the rest.’” And since market economics is tied to revenue, salaries have gone up in baseball because revenues have, too.
Since the 1994-95 work stoppage, at least, it has been a functional dynamic. “There hasn’t been a single day missed since then,” McMorris said. “If I had told you that would happen, I think you would have looked at me like something was wrong with me, but that’s how things have gone. And that has to be good for the sport.”
Hockey’s labor history has been more troubled. The institutional memory of the 2004-05 negotiations are of a process that “didn’t work very well,” in Fehr’s words. His initial mission will be to convince players that it is now an organization that they can expect will work diligently on their behalf. That sounds simple, but it’s crucially important. “If the players hold that attitude,” he said, “it’s a big plus in negotiations. If they don’t, it’s a big negative.” Throughout Fehr’s tenure, he managed to keep a vast majority of players on the same page and speaking with the same voice — his. “They have to be educated, and involved, and knowledgeable,” he said. “That’s how you maintain your unity and cohesion. So you spend a lot of time with the players in team meetings and group meetings and individual discussion. And time with their agents.”
But to believe in the union, the players first must believe in Fehr. For NHL players, that means his long, successful career needs to outweigh his lack of a prior connection to hockey, beyond having attended the occasional game. “We know that when he expresses an opinion, it carries weight because he’s been through these kinds of things,” Rafalski said. “He’s been involved in these issues, though he hasn’t been part of it from the hockey perspective.”
But other players knew little about Fehr. Paul Kelly had been an outsider beyond the tight-knit hockey community. That hire didn’t pan out, and now here was another outsider, from an entirely different sport.
To allay those concerns, Fehr embarked on a hopscotch of NHL training camps and arenas from California to Eastern Europe. Traveling with a cadre of NHLPA support staff, he wore jeans or khakis and sport jackets, not suits, setting the tone that he was more like them than like a corporate executive. He visited with each team and mostly listened, soaking up players’ concerns and aspirations. He didn’t pretend to know what issues were important, let alone how the union might construct a strategy to defend them.
Rafalski acknowledges that the average NHL player, who’d all but tuned out the union or has joined the league since 2005, still may not understand the importance of the process. “Players need to make the connection that this next CBA basically sets up for players what atmosphere they’re going to be playing in over the years to come,” Rafalski said. That’s why incremental gains are not often a goal for sports unions. “In most industries,” Fehr said, “if you don’t get something done now, maybe you can do it in the next three or five or seven years and the members can get the benefit of it then. That’s very unlikely to happen in sports. You want each agreement to be the best it possibly can because you have so much turnover between agreements.”
Most owners will still have their teams when the CBAs that are now being negotiated expire six or seven or eight years down the road. But today’s hockey players? Many, perhaps even most, will be long gone.• • •
Fehr likes to say that negotiating a CBA is partially like chess and partially like poker. What he means is that it starts with all the pieces visible on the board, like chess. “You don’t know what the pieces will do,” he said, “but you have a pretty good idea of what they can do, and what the response might be to various moves on either side.” If an agreement hasn’t been reached as a deadline nears, negotiations morph into a different kind of game. “At that point, you’re into ‘What can we do here, and if we do, what will the response be?’ It becomes much less predictable.”
The poker part is, by its nature, imprecise. Information is sketchy. Attempting to read into the actions of the other side is perilous. Fehr believes the 50-day 1981 baseball strike lasted far longer than necessary because owners interpreted news accounts of players eager to return to action as meaning that the union’s membership was fractured.
After baseball’s high-profile strikes, Fehr is perhaps the most recognizable U.S. union chief.
Much has been made of Fehr’s relationship, good or bad, with the negotiators across the table. And as these latest rounds of talks begin with NBA and NFL proposals, personal motives are assigned to the various participants. But Fehr believes that personalities play a much smaller role in the process than most people think. “If Bud Selig and Michael Weiner swapped jobs entering the coming collective-bargaining negotiations, Selig representing the players and Weiner the owners, the basic position of the two sides wouldn’t change much, if at all,” he said. “The relative interests of the constituent groups are vastly more stable and significant than the personalities who are the spokesmen.”
Sometimes, those interests are simply at loggerheads, and one side — or both — is firmly entrenched. When that happens, some sort of work stoppage is almost inevitable. Does that mean that the negotiating process has failed? Many observers believe that it does. “From a third party’s viewpoint,” Fehr acknowledged, “an interruption of the business can be considered a failure because it can have adverse consequences for the people that you sell things to.” Fans hate canceled games. So do advertisers, marketers, the networks that own the broadcast rights, the owners of sports bars and of parking lots near arenas and stadiums … the ripple extends on and on.
Yet occasionally a stoppage is needed to restore sanity to the economics of the sport (owners’ perspective) or prove that the players would rather withhold their services than continue under what they perceive to be an unfair system (union perspective.) “There can be times in which you say that the alternative of accepting what’s on the table is not as attractive as the alternative of a stoppage,” Fehr said. “On both sides. So you talk to your membership, you describe what you think the result of doing whatever’s on the table will be and why you think other alternatives may be better, and then your constituents in the end make the judgment.” Not surprisingly, not everyone agrees with that approach. “I think,” McMorris said, “that he would rather litigate than negotiate.”
In 1981, with Miller as executive director and Fehr as general counsel, the MLBPA and the owners reached an impasse. The resulting strike lasted much of the summer and caused the cancellation of more than a third of the season. It happened again in 1994, under Fehr. That stoppage resulted in the loss of the 1994 postseason and lasted into the spring of 1995. In both cases, many sports executives may be surprised to learn, Fehr characterizes the process as successful. “I think the agreements that we reached were better than the agreements that could have been reached without the stoppage,” he said. “I wish we could have found some way to reach agreements that were acceptable and not have a stoppage. We couldn’t.”
Fehr won’t offer predictions on what will happen this time. He’s still in the fact-finding stage with hockey, and hasn’t begun to formulate a point of view on the relevant issues, let alone started to communicate that to players. He’s uncomfortable commenting on baseball, and he pleads ignorance with the NBA and NFL. But he’s certain about one thing. The simplistic version of each negotiations that we’ll hear and read will be only a partial view of reality. “The notion that you can reduce this very much of the time to a single variable is probably wrong,” Fehr said. “It isn’t just all about, ‘Will there be a salary cap? Luxury tax? Revenue sharing?’ A lot of different things can serve to bring the sides together. These are the tools from which an agreement is forged.”
Back in Toronto, the snow was falling harder by late afternoon. Fehr had an evening flight back to New York, where he still lives. He could talk about these issues all night and into the next day, but even in Toronto, snow snarls traffic, and he isn’t in the habit of missing planes. He took a phone call, then returned for a coda. “Marvin Miller used to define success to me this way,” he said. “‘You want to have an opportunity to negotiate the best agreement for your members, consistent with their wishes, that you think the economic circumstances will permit.’ There’s a healthy dose of pragmatism to that. … And I still don’t know how to define success any better.”
Bruce Schoenfeld is a writer in Colorado. He can be reached at email@example.com.
The NFL has restructured its lucrative licensing and sponsorship contract with Electronic Arts to account for the sport’s uncertain future, significantly reducing the video game maker’s contractual obligations next season but adding a year to the deal, according to several well-placed sources. The contract now runs through 2013.
The league is believed to have so far rebuffed pleas for fee reductions from other licensees and sponsors, many of which, like EA, find it difficult planning for the next season under the threat of a work stoppage. The league’s collective-bargaining agreement with the players expires March 4, and the two sides are far apart on reaching a deal.
EA, however, is a special case, with its iconic “Madden” video game title. The licensing deal it agreed to with the league in early 2008 is believed to be worth well into nine figures in guarantees and royalties over its original five-year term. That stands as one of the most, if not the most lucrative non-TV contract the NFL enjoys.
The NFL Players Association, which signed a companion EA deal for rights to the players, reaps regularly between $30 million and $40 million annually, according to the union’s annual filings with the Labor Department.
The league deal allows EA to use team colors, names and logos.
“For one of our core partners in a difficult environment, we say let’s look at this, and maybe it makes some sense to extend something out longer and give our partner some relief in the short term but gain something on the back end,” said Jacksonville Jaguars owner Wayne Weaver, chairman of the NFL’s business ventures committee.
EA’s games allow for continuous updating during a season to account for weekly player performance, so lost games in an NFL season could impair the video game’s attraction.
Weaver, like the sources, declined to say how much relief EA is gaining. The Wall Street Journal in October reported that the game maker requested a $30 million reduction in its scheduled payments because of the labor uncertainty. Weaver also declined to detail the contract restructuring.
The league and EA, which declined to comment, reached their accord recently, several months after the California-based company sought the financial relief. But on a conference call with analysts earlier this month, EA’s chief financial officer, Eric Brown, said, “In terms of the NFL, I can tell you that our base assumption going into the plan is a very conservative one ... we’ve baked in, at least in our thinking, the most conservative assumption, meaning no season. We’re optimistic it can be better than that and generate further upside.”
The union did not respond for comment on the status of its own EA contract. The NFLPA since last summer has been notifying league sponsors that beginning March 4, absent a CBA deal, the rights to players through NFL deals will no longer exist (SportsBusiness Journal, Aug. 16-22, 2010).
EA is not in that boat because it already has the separate NFLPA deal for players’ rights though 2012. But the same problem would exist for EA with the players that it has with the league: If there are lost NFL games in 2011, the market could shrink substantially and devalue the licensing contracts.
If the season is uncertain, asked Wedbush Securities analyst Michael Pachter, “Why would EA do TV pre-buys [and] advertise the hell out of the ‘Madden’ game, which presumably they have to commit to before the launch of the game, which is around Aug. 10? They have to put the game out in the market, and that is why they are getting relief.”
EA programmers are actively preparing for the August release of “Madden NFL 12.” “Madden NFL 11” last year was EA Sports’ second-biggest selling title on a global basis, with more than 5 million units shipped, trailing only its soccer title, “FIFA 11.”
Another year of an exclusive NFL license is significant for EA. The company’s first deal in 2005 gave the publisher sole rights to league and player marks and intellectual property, eliminating vibrant competition from 2K Sports’ “NFL 2K” series. That ushered in a wave of full- and semi-exclusive deals in sports video game licensing.
Staff writer Eric Fisher contributed to this report.
Unilever is in and State Farm is out of the NCAA’s corporate partner program in a flurry of activity a month before the start of its basketball tournament.
While Unilever provides the NCAA another giant consumer packaged goods company capable of giving the Final Four a strong promotional push, the loss of State Farm comes as a shock, given the company’s deep investment in college sports.
The NCAA also is on the verge of bringing back General Motors, this time as a corporate partner. GM previously had been a corporate champion, the NCAA’s highest level of sponsorship, before breaking off the deal in 2009.
GM killed the Pontiac brand that year and later entered bankruptcy protection, but has re-emerged as a significant sports spender with a big Super Bowl buy for Chevrolet, title sponsorship of the World Golf Championship event at Doral for Cadillac, and soon an NCAA deal. GM is expected to feature the Buick brand in its NCAA marketing.
As part of their new 14-year, $11 billion broadcast agreement with the NCAA, Turner Sports and CBS Sports are running the corporate partner program, with IMG aiding on the sales side. They had no comment on the movement among the partners.
State Farm had been an NCAA partner since 2005, giving it a national platform around the Final Four to go with its 90 individual school deals and title sponsorship of ESPN’s college basketball “GameDay” show on Saturdays throughout the season. Todd Fischer, State Farm’s manager of national sponsorships, didn’t go into details of the decision to part with the NCAA.
“We made a strategic business decision not to renew,” Fischer said. “It was nothing specific. You’re constantly trying to put together the best mix to go to market with and we’re very proud of our programs and partnerships over the years. We certainly have no regrets.”
State Farm is the first partner to exit the NCAA’s program since the governing body struck its new deal with Turner and CBS, but the company, which also left its NFL deal two seasons ago, is expected to continue advertising around the tournament and college sports in general, Fischer said. In fact, one industry source familiar with State Farm’s plans said, “You won’t notice any difference, except you won’t see the blue disk,” a reference to the NCAA’s blue logo.
Sources added that State Farm walked away because of rate increases by Turner and CBS. Those increases were tied to the expanded coverage of the NCAA’s basketball tournament.
Whereas CBS televised early-round tournament games regionally in the past, each tournament game will now be televised nationally on CBS or one of Turner’s three networks: TBS, TNT and truTV. Ultimately, sources said, State Farm didn’t find the activation opportunities commensurate with what it was being asked to pay.
Specific financial figures of the corporate partner deal were not available, but they typically range from the mid-to-high seven figures. Those deals are rich in TV media around the tournament and digitally on March Madness on Demand.
The NCAA has been working in recent years to increase the activation opportunities around the tournament. IMG was brought on board two years ago to run the ancillary events at the Final Four and has rebranded Bracket Town as the primary fan destination during the event.
Bracket Town, typically located in a downtown convention center, is the primary activation site for corporate champions and partners during the Final Four. Last year, it added the Thursday night slam dunk and 3-point contests run by Chicago agency Intersport.
Corporate champions AT&T, Coca-Cola and Capital One also have sponsored outdoor concerts during Final Four weekend. Those champion deals typically range into the eight figures annually.
“The activation opportunities have expanded year over year and sponsors’ activation has become a more important element to the NCAA,” said Matt Pensinger, managing director of the Chicago office for marketing agency Jack Morton Worldwide. Pensinger worked with the NCAA on improving activation opportunities when he was an executive at Relay Worldwide.
“The challenge for the companies remains finding activation outside of that window of the Final Four,” he said. “As the dollars continue to go up, there becomes a more dynamic tension in that relationship.”
The NCAA’s corporate partners include Enterprise Rent-A-Car, The Hartford, Infiniti, LG, Lowe’s, Kraft, Hershey, Unilever and UPS. Kraft markets the Planters brand, while Hershey puts Reese’s Peanut Butter Cups out front.
Unilever’s agreement is expected to stretch across its men’s and women’s personal care brands, sources say, including Dove For Men+Care products. The Mindshare ESP division of GroupM negotiated the Unilever deal but had no comment.
As NBA owners figure out how much revenue they are willing to split with today’s players, a difficult and sometimes fractious set of internal negotiations must be completed as ownership tackles a major new business strategy: how to split more revenue among themselves.
For months, the NBA’s 10-member planning committee, led by Boston Celtics owner Wyc Grousbeck, has been addressing ways to align a new revenue-sharing system with a new collective-bargaining agreement.
Yet, as the clock ticks toward the June 30 conclusion of the current CBA, owners continue to wrestle over a new revenue-sharing structure that NBA Commissioner David Stern has said is on a dual — but separate — track with a labor deal. Stern believes that the league must have a more equally distributed business model aligned with how funds are shared with players. The goal is to move more money through revenue sharing to help make all teams profitable. It’s a seismic shift given the NBA’s current revenue-sharing system, which unlike other leagues, doesn’t share a dime of local revenue among the 30 owners.
Further challenging the league is that at least half of its teams lose money, while there is a widening revenue gulf between large- and small-market teams. Consider the disparity in team revenue, where large-market teams like the New York Knicks and Los Angeles Lakers generate annual revenue of around $250 million compared with small-market franchises like the Memphis Grizzlies and New Orleans Hornets that generate around $100 million.
Combine that revenue disparity with individual owners unaccustomed to sharing earned dollars, and it makes for a complicated, protracted set of negotiations.
No formal plan on changes to the current model have been presented to the league’s board of governors and there likely won’t be any specific plan presented to the league or union during this week’s All-Star break in Los Angeles. The hope is that owners will settle on a revenue-sharing model this spring.
Until then, Grousbeck, who declined to comment, and the planning committee are running model after model with permutation on top of permutation, trying to create a system that will win support of all the owners.
NBAE / GETTY IMAGES
“Because of the wide revenue disparity among teams, which is mainly a function of market size, you will always have some teams that will struggle to make a profit if they want to be competitive.”Joel Litvin
NBA President of League Operations
But the mechanics of change present huge obstacles to ownership, as teams confront an age-old question: how to redistribute wealth among those who aren’t predisposed to increased sharing.
While it helps to have big-market teams like the Lakers and Knicks endorse the effort, the reinvention of how owners do business is contentious.
“The large markets have bought in, but this is a league run by a bunch of entrepreneurs who have never shared with their competitors,” said one source familiar with league finances. “There has been zero revenue sharing on tickets and none on the local media level, so this represents a sea change in how the league is run.”
Part of the NBA’s current revenue-sharing structure mirrors other leagues in that it calls for its 30 teams to equally share national television revenue. Estimates this year have that total at $900 million, which this season will bring each franchise around $30 million. But unlike other leagues, the NBA has a local performance metric tied to another smaller component of revenue sharing. The amount of revenue to be shared from that pool is calculated by the amount of luxury tax assessed to teams that spent over the salary cap. But the pool from those sources became underfunded as fewer teams exceeded the salary cap, which this year stands at $58 million per team.
For the 2008-09 season, the league recognized the dwindling revenue-sharing pool and boosted the pool to $49 million up from $30 million. Seventeen of the NBA’s 30 teams received a portion of that revenue-sharing pool, with some franchises receiving a very small amount, and just five receiving a maximum payout of $6 million.
While the league is still computing payouts for the 2009-10 season, the pool is expected to be around $60 million, with 10-15 teams receiving the shared revenue.
The amount of the payouts to teams from this fund are determined by a formula created by business consultants at McKinsey & Co. It calls for teams to meet certain business performance benchmarks, including specific amounts of local advertising and sponsorship revenue based on market size. This was set up to safeguard teams from not fully maximizing local revenue opportunities while still receiving revenue.
So in the current system, teams receive a base of $30 million in national television revenue along with potentially another $6 million or so from the McKinsey formula.
But many teams, particularly small-market franchises, feel that’s not enough and oppose the structure because its limited payout doesn’t close the gap between higher-revenue teams. Their belief is there is not enough revenue distributed no matter how efficient they operate in their respective markets and they want a greater upside provided for smaller-market teams.
“It is extremely complicated and most of the owners are looking to change,” Litvin said.
“Because of the wide revenue disparity among teams, which is mainly a function of market size, you will always have some teams that will struggle to make a profit if they want to be competitive,” Litvin said.
Now, the league is studying new revenue-sharing systems, particularly the pooling of local revenue that assists low-revenue teams and creating a more financially competitive approach in how its teams do business. Possibilities include taking a portion of each team’s gate and local broadcasting revenue and redistributing it to the neediest teams.
“The universal challenge is how do you fill the growing gap between the very top and the very bottom,” said Andy Dolich, former president of business operations for the Memphis Grizzlies. “In markets where there is a lack of eyeballs and available wallets, the question is how to equalize it. It has to be in an increased revenue share.”
The union has not been involved in the league’s work to restructure revenue sharing and does not know of the owners’ plan, said Jeffrey Kessler, outside labor counsel for the union. “They just told us they are studying it and they are working on it, and that is all we know,” Kessler said.
The NBPA has proposed that more local revenue, specifically, be shared among teams, as opposed to national revenue, Kessler said, because “in the NBA, unlike the NFL, the profitability is driven by the individual local revenues.”
Kessler added that the players have asked that in any revenue-sharing plan the NBA adopts “that there be clear rules” that the teams that receive the revenue either spend it on player compensation or on ventures that actually increase revenue.
“The players would be willing to sit down and negotiate the exact parameters” of revenue sharing with the owners, Kessler added.
While Stern and the NBA’s labor committee, chaired by San Antonio Spurs owner Peter Holt, will increase the frequency of talks with the union for a new CBA, the league isn’t yet sharing specific details of its revenue-sharing approach as it considers a new structure.
“There are so many ways to go at it,” said a source. “The [planning committee] is as down in the weeds as it can be.”
Staff writer Liz Mullen contributed to this report.
Ad sales for the NCAA men’s basketball tournament are virtually sold out across the CBS and Turner Sports networks more than a month before the event is set to start.
In addition, ads for the popular online service March Madness on Demand are virtually sold out, CBS and Turner executives said, adding that most of the advertisers who bought TV spots also bought time on MMOD.
For the past two years, by comparison, CBS went into March with the tournament 90 percent sold. This year’s near-sell-out levels offer further proof of the strong overall ad marketplace for sports, where even the scatter market continues to be robust (see related story on Daytona 500 sales).
“Business has been really good,” said John Bogusz, executive vice president of sales and marketing for CBS Sports. “We exceeded all of our original goals.”
Rates are up in the high-single-digit percentages, CBS and Turner executives said. They would not disclose the actual cost of 30-second spots during the tournament. Last year, reports had 30-second spots in the Final Four approaching $1.5 million.
As with TV ad sales for other sports, the resurgent automotive category is driving sales for the tournament. Insurance and telecom categories also have been strong, network executives said.
The early sell-out levels should come as a welcome relief to CBS and Turner Sports, which combined sales forces to sell the tournament across four networks — CBS, TNT, TBS and truTV — resulting in greater inventory.
Turner and CBS teamed up last year to pick up NCAA tournament rights for the next 14 years. CBS Sports Chairman Sean McManus called the partnership “the most complex and many-sided project that we’ve had at CBS Sports, certainly since I’ve been here.”
By all accounts, the ad sales performance has been an unexpected boom, and executives insist that the integration of the two sales forces has been seamless.
“The marketplace has accepted our combined sales efforts,” said Jon Diament, executive vice president of Turner Sports Ad Sales and Marketing. “I can’t think of one incident where we had a lack of communication with CBS during this process.”
This will be the first time all the tournament games will be telecast in their entirety. Start times will be staggered throughout the tournament. Advertisers generally did not buy the same ad position across all of the networks, but an ad purchase in a specific time period, such as the early games, for example, will run across all networks.
Network executives do not have clearance yet to announce specific advertisers other than three NCAA corporate champions and nine corporate partners, but they did announce that Infiniti will be presenting sponsor of the “NCAA Tip Off” studio show, with AT&T picking up sponsorship of “At the Half” and Buick purchasing presenting sponsorship of the postgame show “Inside March Madness.”