SBJ/March 28-April 3, 2011/Opinion

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  • As NFL lockout continues, sponsors near the death zone

    Some of you may remember a column we wrote a few months ago discussing the likely growth of sports sponsorship in North America during the next few years. That assumed, of course, that leagues like the NFL and NBA would avoid locking out players and moving their businesses from the sports pages and airwaves into the courtroom.

    But that’s the place where jurists’ decisions might soon affect whether we see NFL touchdowns this September. It’s a place of interest to anyone who studies the business of sport but not one where millions of fans want their favorite sports residing.

    Now word comes out of Canada suggesting two sponsors are threatening a league with termination of sponsorship contracts if the league doesn’t address a particular issue. That’s right, Air Canada and Via Rail both have reportedly told the NHL they will withdraw their sponsorships (of clubs; neither is a league sponsor) if the league doesn’t immediately get serious about those hits to the head that inevitably leave young men sprawled on the ice awaiting stretcher-bearers. A copy of Air Canada’s letter to the NHL became public knowledge by social media just hours after it was sent.

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    How long before NFL sponsors use their influence the way Air Canada did with the NHL?
    You can understand NHL Commissioner Gary Bettman’s dilemma. For most leagues, tradition is good, change is bad. For most sponsors, it’s the league’s traditions, entrenched images and valuable reputations that sponsors want linked to their brands. But Bettman now faces two sponsors demanding that hockey break with the most violent of its traditions, and the accompanying danger of appearing to bow to sponsor demands.

    Indeed, while fans may like hockey fights, even as they read that “enforcers” like Bob Probert might have died prematurely from taking too many fists to the face, the interest of a sponsor is quite different. Sponsors seek to sell their products and services via an association with a league/sport/team/player that provides idealized images that the sponsor’s customers and potential customers might buy into.

    For Bettman, the potential loss of one or two club sponsors can’t be taken lightly. What if that thinking spread? What if some of the big league sponsors considered using their leverage to protect their investments? Consider the recent Molson Coors sponsorship of the NHL. That’s reportedly worth $475 million to a league where every dollar counts.

    But let’s set the NHL aside for a moment and ask the NFL about that same sponsor power. This is timely because starting March 11, NFL players decertified their union, the NFL locked out its players, and star players stepped forward to place their names on a lawsuit claiming the NFL had violated federal antitrust statutes. What happens to the corporate partners who invest $1 billion in fees with the NFL to achieve their own objectives via the league and what it represents? How will they respond?

    One reality is that while fans hope the NFL won’t miss games this September, time-conscious sponsors must stop production of TV, Internet, radio and print ads plus point-of-sale displays. Even product packaging bearing the NFL logo may need revising for marketing or contractual reasons.

    Think about it. It’s almost April and the first game of the 2011 season is slated for the second week of September. That’s five months away. Today, it’s still possible to design, produce and ship those marketing materials. But fast forward to May, when the CEOs of the big NFL sponsors realize their crack marketing teams have been hoping against hope the lockout would end and were only halfheartedly working on the alternative marketing tactics for the all-important last four months of the year.

    How long before those CEOs pound their desks, call their marketing vice presidents and demand daily updates of whether the NFL has gotten its act together? Trust us, it’s already happened.

    In mountain climbing, there is always a turnaround point that you must honor. It can come from internal reasons (e.g., your health) or external forces (e.g., the weather). It requires that you stop going up and instead start getting down off the mountain immediately. This is particularly true in high-altitude situations where storms blow in unannounced and prolonged exposure in the “death zone” is what its name implies: deadly.

    That metaphor is more appropriate than you might imagine for the NFL’s partners as we head into April. Sponsor CEOs are forced to set turnaround dates for the NFL and look for alternate escape routes.

    In other words, if the NFL isn’t back to labor peace by May 1, these sponsor CEOs will force their teams to get off the mountain. They will take their hundreds of millions in spending and commit it to something else (if they can find suitable inventory). Perhaps sports but perhaps not. Arts? A cause? A festival?

    One other thing may happen in light of the Air Canada and Via Rail announcements: Some NFL sponsor CEOs will likely call NFL Commissioner Roger Goodell and let him know their company does not look kindly on Goodell’s team owners messing up the marketing plans of companies where one share point is worth billions in revenue and stock valuation. They may or may not let such communication go public.

    Why? For CEOs at the tail end of a bad economy (and who are getting drilled by nervous chairs and volatile boards of directors), the loss of NFL games might cost them their jobs. NFL sponsorships work and they differentiate key brands from their competition. Losing that edge could make some brands mortal. It could make the CEO look ordinary.
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    To that end, maybe Air Canada is on to something. Maybe it’s better to be proactive with your sponsorship dollars than passive. Maybe it’s better to know when to get off the NFL mountain than risk that storm at 25,000 feet when you are exposed and vulnerable. �8;

    Rick Burton (rhburton@syr.edu) is the David B. Falk Professor of Sport Management at Syracuse University and former commissioner of the Australian National Basketball League. Norm O’Reilly (norman.oreilly@uottawa.ca) is an associate professor of sport business at the University of Ottawa.

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  • Cartoon: Sun Belt strategy


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  • Long past time for NHL, and Glendale, to free the Coyotes

    Winston Churchill once defined success as “the ability to go from one failure to another with no loss of enthusiasm.” With those words in mind, the NHL needs to rethink its Sun Belt strategy in a few challenged Southern NHL markets, none more so than in Glendale, Ariz., a city that is not a viable NHL market for the Phoenix Coyotes at this point in time or for the foreseeable future. Time has come for the NHL to allow the Coyotes franchise to move to a market that makes sense for all stakeholders — the NHL, its owners, the players and the people of Glendale.

    For at least two years too long, the NHL has fought to keep the Coyotes in Glendale. In 2009, when then-owner Jerry Moyes filed for bankruptcy protection for the Coyotes and attempted to sell the team to Research In Motion billionaire Jim Balsillie, the Coyotes had racked up tens of millions of dollars in losses over multiple seasons. The NHL opposed Moyes in a very public and hostile confrontation, citing its long-standing policy of support for its franchises in their existing markets and loyalty to the fans of the Coyotes.

    After rejecting Balsillie, and with no other legitimate buyers, the NHL itself took ownership of the Coyotes. Since then, the NHL has failed to find a buyer that can make any economic sense out of continuing to operate the Coyotes in Glendale without significant government incentives or subsidies. That failure, in and of itself, is objective proof that the market doesn’t support an NHL team in the region at this time. And the market doesn’t lie.

    The NHL’s last great hope to keep the team in Glendale is the deal on the table with Matthew Hulsizer, a deal that is contingent on a $100 million bond offering that has been approved by the Glendale City Council. The proceeds of the bond offering are to be used entirely to subsidize Hulsizer’s purchase price of approximately $170 million for the franchise. The legality of the bond offering has been questioned by the Goldwater Institute, a conservative watchdog group, on the basis that it violates Arizona law restricting government subsidies for private businesses. The group’s threat to challenge the bond offering has chilled the market for the sale of the bonds and has put the Hulsizer deal in peril.

    Glendale and the NHL are both blaming the Goldwater Institute for holding up the deal. Hulsizer’s company, in an effort to assuage Goldwater, has recently agreed to guarantee repayment of a large portion of the principal amount of the bonds if certain team-related revenues are insufficient to do so. This hasn’t altered Goldwater’s position, and the guarantee is really beside the point.

    The Goldwater Institute is protecting the ordinary taxpayers, the vast majority of whom must not support the idea of using their own money to subsidize NHL hockey in Glendale. If they did, they would have supported the Coyotes in much larger numbers over the years, both by purchasing tickets and watching on television. During the first half of the NHL season, an average of 9,000 homes watched Coyotes games on regional sports network FS Arizona (SportsBusiness Journal, Feb. 7-13 issue). Average home attendance through three quarters of the season was 11,512, compared with a leaguewide average of 16,954. This is for a good team that made the playoffs in 2010 and currently qualifies for this year’s playoffs. The citizens of Glendale and Greater Phoenix have already voted with their wallets and their eyeballs, and apparently don’t really care about NHL hockey.

    If the market and the vast majority of the taxpayers don’t support the Coyotes, why should the city be using their money to subsidize a private individual’s purchase of a failing hockey team? The city says it already has a huge investment in the franchise through its subsidization of the building of the existing arena, and the loss of the team will be devastating to that investment. That isn’t a good enough reason to throw $100 million of good money after bad, something that seems even more obscene with the job losses and crumbling housing market in the Phoenix area since the start of the recession.

    Down the road, if the economy picks up and the desire for NHL hockey manifests itself in some measurable way in Glendale, the city can likely buy an existing NHL franchise or an expansion franchise for not much more than the same $100 million.

    NHL Commissioner Gary Bettman need only look to what his mentor David Stern has done in similar situations in the NBA for guidance on how to deal with these situations. Ten years ago, after only six seasons, the Vancouver Grizzlies were struggling financially, and Stern decisively allowed the team to move to Memphis. When the Charlotte Hornets could no longer make a go of it after more than 10 seasons, the NBA allowed the team to move to New Orleans. Thereafter, when a new and viable ownership group emerged for Charlotte, the NBA returned to the market by awarding new owners an expansion franchise at a handsome price of $300 million.

    Similarly, after much effort, it would be no shame for the NHL to accept that the Coyotes are a failure in the Glendale market at this time, and that it no longer makes sense to support the team there. If the franchise is permitted to relocate, all stakeholders will benefit: It will cost NHL owners less, players will earn more through the greater revenue that the franchise will surely generate in a better market, and the taxpayers of Glendale will be $100 million richer for it.

    With places like Quebec City and Winnipeg eagerly vying for the return of NHL hockey, the league should embrace those opportunities with enthusiasm rather than remaining defensive over the occasional failure of its Sun Belt strategy.

    Jeffrey A. Citron (jeffcit@gmail.com) is a corporate finance and sports lawyer in Toronto.

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  • WCOS at 10; SBJ wins honor

    We hope to see many of you in Miami this week for our World Congress of Sports and Forty Under 40 celebration. If you can’t make it, follow the events in SportsBusiness Daily, via exclusive video interviews posted daily and in real time on Twitter using the hashtag #sbjwcs.

    • Spend some time with this week’s In-Depth, which looks back at the 10 years of World Congress of Sports. In-Depth Editor David Bourne put together a fantastic retrospective on the personalities and issues discussed during the last decade. Let’s see, in 2004, concern over big events migrating to cable had many fearful that events and properties would struggle growing their audience.  Sound familiar? It should. The debate lives on, but the early success of CBS/Turner with the NCAA tournament may bolster cable advocates who stress that cable networks can deliver audiences around the big events just fine.

    •I am proud to recognize the editorial staff of SportsBusiness Journal, which was honored by the Society of American Business Editors and Writers with one of its top awards, General Excellence in the print weeklies/biweeklies category. This is the second year in a row that SportsBusiness Journal has won SABEW’s General Excellence award. I am lucky to work every day with these smart and talented people, and they deserve all the credit for this honor. I hope you’ll join me in congratulating them.

    Abraham D. Madkour can be reached at amadkour@sportsbusinessjournal.com.

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