May 9 - 15, 2011 Vol. 14 — No. 4

Top Stories

  • 2011 SBA Nominees

    Which people and companies will be named the best in sports business? 73 nominees in 15 categories will be honored on May 18 at the fourth annual Sports Business Awards.

  • For rivals, it was unite or lose

    Facing the prospect of Comcast/NBC establishing a foothold in college football, ESPN and Fox established one of the most unlikely unions in U.S. sports media history to win the Pac-10's media rights.

    It all started with an April 25 phone call from ESPN's John Skipper to Fox's Randy Freer.

    Prior to that call, executives from ESPN and Fox were resigned to losing the Pac-10's media rights to Comcast, which had told the conference weeks earlier that it would bid $225 million per year to pick up the rights for Versus and NBC. Neither of the current partners, ESPN nor Fox, had the shelf space to bid that much individually.

    In early April, NBC Sports executives, led by Chairman Dick Ebersol, gave a presentation in New York, according to conference sources. Pac-10 officials left the meeting believing that Comcast viewed the Pac-10 as an important piece of its plans to build NBC Sports and Versus. Steve Burke, CEO of NBC Universal, also was present to meet and greet Pac-10 executives, but he left before the meeting started.

    Despite the strong bid, the conference recognized its long relationship with the two incumbents. The Pac-10's media consultant, Evolution Media's Chris Bevilacqua, proposed an idea to Skipper: What if the two media giants joined forces and combined their bid?

    Initially, the concept seemed preposterous. ESPN and News Corp. partner internationally on ESPN Star Sports in Asia, for example. The two, however, are often bitter rivals in the U.S., especially in the college football space where they dominate the market.

    However, Skipper, ESPN's executive vice president of content, was intrigued. Not only would a joint effort increase the bid, it would keep Comcast from picking up rights to a BCS conference. It had just bid $187 million per year to win the NHL rights and wanted to add to that with a Pac-10 acquisition. ESPN and Fox wanted to stop that momentum.

    So Skipper called Freer to talk about a joint bid. Freer, Fox Sports' co-president, was interested. Other than CBS's deal with the SEC, Fox and ESPN control the football rights to every BCS conference, and a familiarity was there.

    "We have historically worked with ESPN on sublicensing games and events to them and from them," Freer said. "This was done at the conference's request to see if more value could be created for the conference."

    They agreed to meet on April 28, when Skipper and John Wildhack, ESPN executive vice president, flew across the country to meet at the Fox lot in Los Angeles. The ESPN duo met with Freer, Fox Sports COO Larry Jones and Karen Brodkin, senior vice president at Fox Cable Networks.

    "Neither side looked at this as a way to try and do a land grab," Wildhack said. "Fairly quickly, both of us found that we had a lot more in common than not."

    Over a seven-hour meeting that day, they came up with a bid that would split the rights — 22 football games each — and pay the Pac-10 a whopping $3 billion over 12 years, or $250 million a year. The deal would blow past Comcast's best effort, which eventually rose to $235 million. Last week, Comcast's Brian Roberts told CNBC that his company did not land rights to the Pac-10's TV package because it was "financially disciplined."

    After the long meeting, the executives from both networks hurried to the Los Angeles airport and grabbed a red-eye flight to New York. They knew the next day would be a long one, as they jointly engaged in negotiations with the Pac-10.

    ALEX GORT SR. / GORT PRODUCTIONS
    An 18-month plan paid off for Pac-10 Commissioner Larry Scott.

    One night earlier, on April 27, Pac-10 Commissioner Larry Scott was leaving New Orleans, where he had spent the past two days at BCS meetings. On his drive to the airport to fly home to San Francisco, Scott received a call from Bevilacqua, who briefed him on the brewing Fox-ESPN partnership.

    Until that point, Comcast had been the overwhelming leader, but the new energy around Fox and ESPN was palpable.

    "I think it became clear that they weren't going to be able to prevail separately, so they came up with the idea of going it together," Scott said. "Normally, if you're a content owner, you'd be opposed to reducing the field of competitive bidders. But knowing the strength of this opportunity, we embraced it. We thought it could be the best of all worlds."

    Once Scott arrived at the airport, he went to the counter and changed his plans. Instead of flying to San Francisco, Scott bought a ticket for the next day to New York's LaGuardia Airport.

    Scott and Deputy Commissioner Kevin Weiberg arrived in New York on April 28 and joined talks the next day with ESPN and Fox executives at the Times Square offices of Proskauer, the attorneys representing the conference.

    Scott, Weiberg and the conference's general counsel, Woody Dixon, were at the table. Proskauer's Joe Leccese, chairman of the firm and co-head of its sports law group, represented the conference as well.

    Discussions advanced quickly, but throughout the talks there were several negotiating points on which the Pac-10 would not waver.

    • The Pac-10 had to retain enough games to create its own channel, and the channel would receive the first pick of football games periodically through the season. That was a tough one for the networks because they've always had first choice in their conference deals.

    • The conference had to have its football games on national over-the-air broadcast networks and fully distributed cable channels.

    • Digital rights had to stay in the hands of the conference.

    "Money was important, without question, but there had to be a commitment to the platforms and exposure," Scott said.

    ESPN and Fox mapped out their strategy before the meeting. It was a unique situation to see executives from the rival networks negotiate as one with the Pac-10.

    By the end of a long day April 29 — five days since the union between ESPN and Fox had been initiated — Scott got exactly what he wanted, an enormous financial windfall for the conference and more national exposure than it has ever had.

    With a signed contract in his briefcase last Monday morning, Scott boarded a plane for Phoenix to attend the Pac-10's annual spring meetings. He didn't anticipate the negotiations moving so quickly and didn't dream that he'd be delivering the news of a deal at these meetings of presidents, athletic directors and coaches.

    "Originally, I thought the process would conclude sometime during the summer," Scott said. "It was a very dynamic and competitive negotiation."

    Running parallel to the talks for the Pac-10 rights were the conference's efforts to find a partner for a conference channel.

    The key for the conference was to break the two pieces apart, holding one set of negotiations for the rights and a separate set of talks for the channel.

    As soon as the conference's exclusive negotiating window with Fox ended April 2, the conference found that it had interest from ESPN, Fox, Comcast/NBC and Turner in the TV rights; interest from brand-name private equity companies in the channel; and interest from companies such as Google in digital rights.

    "Once we got to the open market, the level of interest exceeded our expectations," said Evolution Media's Bevilacqua. "Everyone is trying to figure out a business model for the digital part of this, resulting in a lot of interest in that area."

    Scott had kept the conference's presidents abreast as the talks culminated over the weekend. He planned to tell the ADs last Tuesday morning, but he was upstaged by a few hours when SportsBusiness Daily, sister publication to SportsBusiness Journal, revealed the Pac-10's partners would be two familiar names, Fox and ESPN, the same two networks with which the conference had been partners.

    Only this time, the deal was worth $250 million a year instead of the $54 million the conference had been taking in annually.

    The new contract means a windfall of new revenue and unprecedented exposure on two over-the-air networks, ABC and Fox, ESPN's multiple platforms and Fox's FX and FSN.

    Some schools project that their annual revenue from the conference's media contract will leap from $5.5 million a year to around $15 million a year, and escalate from there.

    "The exposure is the beauty of it for us," said Rob Mullens, Oregon's athletic director. "We have an innovative and creative partner in Fox, which has a long history with the conference, and ESPN, which is so critical in the football space and now delivers for us tremendous basketball exposure."

    The Pac-10's celebratory announcement last week in Phoenix culminated a nearly two-year process for the commissioner. All of the changes he has made since taking office on July 1, 2009, were intended to increase the league's media value, and they worked.

    "Before I took the job, I asked to see the existing TV contracts," said Scott, who came to the Pac-10 from his position as CEO of the Sony Ericsson WTA Tour. "I felt like I'd have the opportunity to use my background to be successful, but I didn't want to get into a situation where I couldn't be successful."

    Knowing that the next TV contracts would be pivotal to the league's future, Scott mapped out what he called an "18-month runway" to set the table for negotiations.

    During those 18 months, he repositioned the conference's brand with a new logo, a media tour to the East Coast and a grand marketing plan to enhance the league's image.

    Scott also pooled all of the school's media rights into one package, giving the conference the additional game inventory it needed to create a channel, just as the Big Ten did when it started its network. Previously, the Pac-10's schools retained their local TV rights, which gave them the ability to broadcast one or two football games a season and a handful of basketball games.

    Finally, the conference expanded by two, adding Colorado and Utah.

    Even though his grand vision to create a Pac-16 with Texas, Oklahoma and others from the Big 12 fell through, Scott says Colorado and Utah significantly enhanced the league's marketability by adding two new states and giving the conference the 12 teams necessary to play a football championship game.

    The Pac-10's timing worked out perfectly, too. TV networks are battling it out for sports rights these days. And the Pac-10 is among the last of the BCS conferences to negotiate its media rights for several years; the Big East's ESPN deal ends in 2013.

    It all came to a head with last Wednesday's 9 a.m., Pacific time, announcement of the landmark media contract, which will put the soon-to-be Pac-12 — the conference's name changes on July 1 — at the head of the class among conference TV deals.

    By 7 p.m. that night, Scott was back at the Phoenix airport preparing to fly home to San Francisco. This time, there were no last-minute changes.

    Also in this issue, why media rights fees are continuing to double and triple.

    Conference TV Deals

    Once each respective deal kicks in, these are the estimated average annual values of college sports’ most lucrative conference media rights deals:

    CONFERENCE AVG. ANNUAL VALUE CONTRACT YEARS NETWORK(S)
    ACC $155 million 2011 through 2022-23 ESPN/ABC
    Big 12 $90 million 2012 through 2024-25 Fox
      $60 million 2008 through 2015-16 ESPN/ABC
    Big East $36 million 2007 through 2013 ESPN/ABC
    Big Ten $232 million 2007 through 2031-32 The Big Ten Network*
      $20 million 2006 through 2015-16 CBS
    Conference USA $15.6-16.1 million 2011 through 2015-16 CBS College Sports
    Mountain West $11.7 million 2007 through 2013-14 CBS College Sports
    Pac-12** $250 million 2011 through 2022-23 ESPN and Fox
    SEC $150 million 2009 through 2023-24 ESPN/ABC
      $55 million 2009 through 2023-24 CBS College Sports
    * The conference owns 51 percent of the network and supplies the content. News Corp. owns 49 percent and operates the network. The two entities share expenses.
    ** The conference becomes the Pac-12 on July 1 when Colorado and Utah formally join. Source: SportsBusiness Journal research

  • NFLPA looks to widen ‘lockout insurance’ case

    As NFL players argue this week before a federal judge that the NFL should pay them up to, and possibly more than, $1 billion for inserting so-called lockout insurance into broadcast contracts, the NFLPA is now urging him to expand the scope of his ruling to include all league commercial contracts.

    That request could trigger a new, potential financial liability for the NFL and become another point of leverage in the labor battle between the two sides.

    “One can assume Defendants’ illegal scheme extended to vendor contracts beyond the broadcast contracts at issue here,” the NFLPA wrote to the court late last month. “Notwithstanding the limited scope of this proceeding, as guardian of the Class, this Court has authority to expand the inquiry beyond the broadcast contracts and redress related violations, in further proceedings.”

    Almost all NFL contracts with sponsors have clauses that guarantee payments even in the event of a lockout, sources said.

    “The commercial agreements are written favorably to the league,” a source said, adding that in many cases the sponsors are not due to get money back until after several games are lost.

    The same source, who is close to several NFL sponsors, said the league began insisting on such language after 2006. That is when the NFL renewed the collective-bargaining agreement that it soon grew disenchanted with. The league began reworking media contracts in 2009 to ensure the league would get paid in 2011 even if no games were played.

    It’s unclear if Judge David Doty will launch proceedings over non-broadcast contracts.
    It’s unclear whether Minnesota federal Judge David Doty will launch further proceedings to look into non-broadcast contracts. The current subject of dispute, the $4 billion of media contracts, started with a special master complaint from the NFLPA in June 2010. The special master ruled in early February that the NFL exercised sound business judgment in the contracts, but Doty disagreed, saying the NFL agreed to less revenue from broadcasters in order to get their commitments of payments during a work stoppage.

    That March 1 decision shifted the dynamic of the collective-bargaining negotiations between the players and league, followed by the union decertifying on March 11. The league locked the players out shortly after.

    Now Doty is hearing arguments about the damages. While the actual amount has not been released because of sensitivity about the confidentiality of the broadcast contracts, the league disclosed last month that the players were seeking hundreds of millions of dollars just in compensatory damages. The players are also seeking treble punitive damages.

    Whatever Doty rules, and sources said the league is expecting a big award to the players, the NFL will almost surely appeal to the 8th U.S. Circuit Court of Appeals. The league could also push players in settlement discussions to drop the media fees case. That, of course, depends on which side has the leverage, and that may depend on the outcome of the lockout case currently pending at the 8th Circuit.

    While mediation between the two sides is scheduled for next week in federal court in Minnesota, until the 8th Circuit rules on the lockout, neither side is likely to make a major move.

    The sides last week were waiting to hear from the 8th Circuit whether it would grant a full stay of a lower court ruling lifting the lockout. The 8th Circuit issued a temporary stay and was considering a permanent stay. The court also set June 3 for oral arguments on the NFL’s appeal of the lower court’s decision enjoining the lockout.

    The players’ principal outside counsel, Jeffrey Kessler, did not reply for comment for this story. Neither did the NFL, though one source close to the league responded to news that the players may attack lockout language in all commercial contracts with a resigned air, saying it was all about leverage in the labor battle.

    The bulk of the contested media fees have already been paid to the NFL, according to the league’s brief to Doty last month.

    “All of the broadcasters except DirectTV were obligated prior to entering into the challenged contracts, to advance rights fees to the NFL in the event of a work stoppage,” the league’s brief noted.

    The players want that money put into an escrow account.

  • NBA sets player contact rules in case of lockout

    The NBA is preparing for a potential lockout by issuing a memo to teams detailing the rules of engagement with players in the event of a work stoppage.

    The lengthy memo, sent to all 30 NBA teams the last week of April, provides a comprehensive explanation of team policies regarding player contact in case of a lockout as the league moves closer to the June 30 deadline of its collective-bargaining agreement.

    “It is making sure every team is operating under the same set of rules once we reach the end of the existing collective-bargaining agreement,” said NBA Deputy Commissioner Adam Silver. “It sets guidelines on the same things we see now in the NFL, the use of practice facilities by players, access to arenas, communications with players.”

    As in the NFL, NBA players would not have access to team facilities during a lockout, Silver said.
    Silver said that while issuing the memo is standard operating procedure for the league as it nears the end of any collective-bargaining agreement, more provisions have been added since the last time the league went through a lockout.

    “The memo has grown over the past few years because of what we have learned from past experience,” he said. “On one hand, we dusted off the old memo, but when we went through a work stoppage last time, there were a lot of questions and a lot of lessons learned. The set of rules is pretty straightforward.” Silver did not outline any detailed additions or changes to the policy.

    The NBA late last month submitted a CBA proposal to the players union, and the pace of negotiations is expected to increase as the June 30 deadline approaches. The last lockout in the NBA came during the 1998-99 season, which brought a shortened 50-game schedule.

    The memo also provides hypothetical situations facing teams having contact with players, their agents, or any other of their representatives during a lockout.

    For example, the memo outlines the policy for when a player has a sponsorship deal with a company that also has a deal with the team. The player would be able to continue that company sponsorship as long as no team marks are used in any activation. The memo also addresses policies related to using player images on team websites.

    “It goes to what rights teams have when it comes to marketing players who remain on their rosters,” Silver said, declining to be specific about the team’s marketing rights to a player during a work stoppage.

    The memo also outlines to teams a protocol to refer all public comments related to a lockout to the league. It also addresses for teams a wide range of player interaction, ranging from player benefits administration to summer camps to team partners, and outlines ways that teams are forbidden from having contact with the players during a lockout, according to a source.

    The memo, which doesn’t imply that there will or will not be a work stoppage, also stresses to teams that they should conduct business as usual in the weeks leading up to the CBA deadline.

    “Same kind of instructions,” Silver said. “We didn’t get much reaction from the teams because there are a lot of longtime employees at teams and there are no surprises.”

    During the NFL lockout, the NFL bars its teams from having any contact with players other than at charitable functions. But a big challenge for teams is if something happens to a player’s health during the lockout, with the team prevented from having any contact with the player.

  • Third U.S. lacrosse league in the works

    Despite the fact that the two biggest pro lacrosse leagues aren’t models of profitability, another pro lacrosse circuit is being formed in the U.S.

    The North American Lacrosse League hopes to begin its indoor season in January, with six to eight teams playing a 12-game schedule that would compete with the National Lacrosse League, the older and established league that traces its roots to the Eagle Pro Box Lacrosse League in 1986.

    Former NBA D-League President Phil Evans will serve as North American Lacrosse League commissioner and be based in Somerville, N.J.

    “The opportunity we see is for American players, particularly those well-established from their collegiate years,” said Evans, adding that the league’s schedule will enable players from the outdoor Major League Lacrosse to play in the North American Lacrosse League. “There’s a big enough player pool and I don’t see us competing with [the NLL] any more than we are competing with any entertainment option.”

    About 22 percent of National Lacrosse League players are American, while the vast majority of North American Lacrosse League players are projected to be American, Evans said. While many in the lacrosse community were already calling the new league a developmental league, Evans said flatly, “We’re not looking to be a developmental league for the NLL. We are looking at providing our own brand of the sport.”

    An earlier attempt at an official tie as the NLL’s developmental league had been rejected, sources said.

    North American Lacrosse League franchises will cost about $250,000 and players will earn from $200 to $1,000 a week. The Boston NLL franchise that began play in 2009 cost $3 million. NLL players average about $18,000 a season.

    North American Lacrosse League will operate with the traditional franchise structure, and officials said they have ownership groups confirmed for teams in seven markets:

    ■  A team in Charlotte will be headed by U.S. Indoor Lacrosse President Graham D’Alvia and play in Bojangles’ Coliseum.

    ■  A franchise will play in the Giant Center in Hershey, Pa., and be headed by Ted Glynn of apparel company Glynn International.

    ■  A team in Lexington, Ky., with an ownership group headed by health care executive Anthony Chase, will play at a site to be determined.

    ■  A team will play in Orlando, at the Amway Center, under an ownership group headed by Phil Rawlins, whose Orlando City Soccer Club also owns the rights to an expansion USL soccer team.

    ■  A team in Richmond, Va., will play in a facility being built by development company SportsQuest, with SportsQuest CEO Steve Burton owning that franchise.

    ■  In Wilkes-Barre, Pa., a team will play at the Mohegan Sun Arena at Casey Plaza under an ownership group headed by Jim Jennings, the NLL commissioner from 2000 to 2009.

    ■  A New York franchise group headed by Michael Xirinachs of wealth management firm Emerald Asset Advisors has yet to finalize a home, but the new arena in Brooklyn and the Prudential Center in Newark are possibilities.

    Of those confirmed, the league would play in arenas with an average capacity of more than 10,000.

    Despite its North American moniker, the league does not yet have any franchises in Canada.

    The league hopes to differentiate itself from the NLL by offering a considerably lower cost of entry, and Evans said the North American Lacrosse League will be far less tolerant of fighting than the NLL, which permits fisticuffs to the degree the NHL does. “We don’t see fighting as an element that adds anything to the game,” Evans said. “If anything, it detracts, and that will be a factor in attracting American players.”

    As for other rule changes? “It will look less like hockey and more like outdoor [lacrosse],” he added.

    Reaction from the lacrosse community was mixed. Noting the increased participation in the sport, US Lacrosse COO Bill Schoonmaker said that “assuming the right business model and market locations, another league might be successful.”

    “If it’s developmental … this could be good for the sport,” said NLL Commissioner George Daniel, whose 10-team league averaged about 9,700 fans in regular-season attendance this year, up 2 percent, “but there isn’t really room for another league at our level. Obviously we are not the same thing as [the outdoor] MLL, but we still end up chasing a lot of the same TV and sponsorship dollars.”

    Jennings’ company, Waterbucket Media, is selling TV and sponsorship rights for the North American Lacrosse League.

    Matthew Pace, an attorney with Herrick, Feinstein and the former executive director of Major League Lacrosse, said the most analogous league was AF2 and the Arena Football League. “Without a connection there, it doesn’t make sense to me,” he said. “It hasn’t generally been the case that outdoor players fare well playing [inside lacrosse], with a few exceptions. You’d also have to question whether guys coming out of college will want to play for a few hundred bucks a game after going to some of the big lacrosse schools like Cornell, Johns Hopkins or Princeton.”

    “A developmental league could work, but it’s more how much these guys will have to invest than how much room there is for more indoor lacrosse,” said NLL co-founder and Philadelphia Wings owner Russ Cline.

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