August 1 - 7, 2011 Vol. 14 — No. 15

Top Stories

  • Done deal: What's next for NFL

    Before NFL owners reached a new labor agreement with the players last week, they made a key change in their system to aid teams in need that will result in wealthier clubs paying less to low-revenue ones, an important element of the new collective-bargaining agreement that is expected to be ratified this week.

    The significant shift underscores how the deal that brought an end to the league’s first work stoppage in more than two decades fixes some of the core concerns the NFL had with the old labor pact, although not as quickly as the owners might have liked.

    The league expects subsidies to lower-revenue clubs to nearly disappear by the end of the 10-year contract, but not right away, as the new deal is structured so that teams enjoy the main benefits toward the back end of the agreement. This is the primary reason why the NFL successfully fought a last-minute effort by the players to insert an opt-out at seven years into the deal.

    Over the course of the new deal, the owners could draw around $3.6 billion to $4.8 billion more in revenue. That is based on the extra three to four percentage points of revenue that will swing their way, spread over the roughly $120 billion the league is expected to generate over the next decade. The league further expects a majority of that intake to flow from national revenue streams, like media, which gets divided evenly among the 32 teams, as opposed to the growth coming from locally derived club revenue, which is what has fueled revenue disparity between the franchises.

    For the start of the new deal, however, the 3 percent to 4 percent gain by owners is spread over slightly more than $9.5 billion in league revenue, which results in an extra $285 million to $380 million. That is not enough to fully fix the league’s main issue that too much had been paid to the players, resulting in slowing investment in the future of the game and financial disparity among the clubs.

    “You are talking about low single-digit percentage gains. I would say that was a little bit more marginal that I would have expected,” said Neil Begley, an analyst with Moody’s Investor Service who tracks debt tied to the NFL.

    What the league is banking on is an explosion in revenue to at least $120 billion, and as much as $140 billion, to come in over the contract’s 10 years. By the last years of the deal, annual revenue could more than double the current amount.

    “Three to 4 percent of $9 billion is a lot less than 3 to 4 percent of $20 billion,” said Marc Ganis, a sports consultant with close ties to the NFL.

    A league source said the deal motivates the NFL even more to generate national revenue, which should help ease the strains between low-revenue and high-revenue clubs.

    The league is moving right away to ease tensions over the subsidy system, which is the league’s supplemental revenue sharing, that previously had transferred about $100 million annually to low-revenue teams.

    Beginning this year, the league is capping at $3.5 million the amount that any single club must pay into the system, whereas under the old formula, top teams could pay millions more than that. In addition, in that old system, the top 15 teams in revenue paid out to the lower-revenue teams. It’s unknown how many teams will give and receive because of different formulas now.

    Top teams will now be assessed not on their overall revenue, but on their amount of locally derived revenue. Teams’ eligibility also will be loosened a bit, with those clubs for whom player compensation consumes 63 percent of their revenue now being eligible. Previously, that requirement was 65 percent.

    It’s possible then the amount paid out to needy clubs could rise, but high-revenue clubs won’t have to fund it all themselves because new revenue now will come from greater access to club-seat fees. In the coming years, waivers that have allowed many teams to keep the visitors’ share of club-seat revenue will expire. That money now will be banked in a revenue-sharing pool.

    The NFL anticipates, though, that as national revenue rises, fewer clubs will need extra help.

    The fact that supplemental revenue sharing is even necessary underscores that the owners did not get everything they wanted in the new labor agreement. Players won significant victories in the negotiation, like a higher salary floor and more cash spending, as well as health and safety measures. The NFL Players Association also had been deeply concerned about capturing its share of the explosion of media dollars expected in coming years. One reason it walked away from the table on March 11 was because the league’s proposal that day could have cut off their chance to enjoy that growth.

    Now, the players will get 55 percent of media revenue, which is treated as a unique stream of revenue.

    “National revenues have the least costs associated with the them,” said Mark Murphy, Green Bay Packers president, explaining why the league would share this money more generously.

    Players will get less of high-cost revenue, such as local, club-raised revenue and NFL Ventures revenue, which comes from areas like NFL Network and licensing and merchandise. Players take 40 percent of club revenue and 45 percent of NFL Ventures revenue in the new deal, which mandates that players must average at least 47 percent of all revenue during the decade.

    In the last year of the old contract, the figure was less than 51 percent.

    The league had originally wanted a large cost credit to deflect investments, but the players rejected that approach, at least without access to the league’s financials.

    “We didn’t directly get cost recognition, but through the sharing of different percentages, we were able to take into account what we incurred,” Murphy said.

    There is one credit remaining, however, with the league able to lop off up to 1.5 percent of gross revenue for stadium investment. Private contribution to stadiums would be eligible as credits, Murphy said.

    The league got some other significant concessions, as well. The players agreed to end federal judicial oversight of the labor relationships, a key demand of the owners. That means the owners have seen the last of their nemesis U.S. District Judge David Doty, who so frequently ruled for the players. Disputes now are to be heard by arbitrators agreed to by the two sides. The players also agreed to drop the antitrust lawsuit against the league (Brady v. NFL), as well as its lawsuit seeking billions of dollars in damages from the NFL for requiring broadcasters to pay fees even in a lockout.

  • Thursday night TV package, equity in NFL Network in play

    NFL Commissioner Roger Goodell last week had informal conversations with TV network executives interested in a new eight-game Thursday night TV package.

    Negotiations will heat up over the next two weeks, and TV network executives are expecting the future of the NFL Network to play a significant part in the talks, according to several sources. The league has hinted at the possibility of giving up management responsibilities — or even an ownership stake — in the network to the winning bidder of any new package.

    League officials and network executives had early discussions about adding a new TV package earlier this year, but talks were put on hold as the labor situation heated up. The idea was to add eight early-season Thursday night games to complement NFL Network’s eight-game package in the second half of the season. The league expects to get as much as $700 million a year on that package.

    Now those talks look to be back on the league’s front burner. Talks will start to get serious in the next month, and executives close to the situation believe a new package could be awarded by the end of September. It’s not known how the new Thursday night package would affect NBC’s season-opening Thursday night game.

    But it’s the potential venture with NFL Network that’s causing the most intrigue. NFL Network’s distribution has grown to about 57 million homes at a reported cost of 81 cents a subscriber a month, according to SNL Financial. But the network still has not cut deals with three of the country’s five biggest cable operators (Time Warner Cable, Charter and Cablevision) and no breakthroughs appear to be on the horizon.

    The two front-runners for the new eight-game package, Turner and Comcast, have cut media deals with other leagues that have included league-owned media assets.

    Turner pioneered the strategy in 2007, when — as part of a broader media deal — it took over management of the NBA’s digital properties, including NBA TV. Comcast cut a similar deal in April with the NHL, agreeing to build a new studio for NHL Network and eventually taking over the league’s national sales efforts.

    This is not the first time the NFL has talked with media partners about taking equity in the channel. In 2009, the league had meetings with ESPN and Fox, offering both an ownership stake in the network as part of a larger media deal. Both sets of talks ended weeks after they started, sources said.

    In addition to Comcast and Turner, Fox and ESPN also are expected to engage the NFL on the new package.
    The league is negotiating a separate renewal with ESPN for “Monday Night Football” worth nearly $2 billion a year that also is expected to close within the next few months.

  • So now you wish you were a second-round draft pick ... ?

    Some agents and other industry insiders were considering the possibility last week that it might be better, under the new rookie pay system, for top college football players to be selected in the second round of the NFL’s annual draft instead of the first round.

    As analysts were assessing who were the winners and losers in the new 10-year labor agreement between the league and the players, there was no question where first-round draft picks fell.

    “For the first eight to 10 to 16 picks, they are taking a haircut,” said Pete Kendall, a former NFL Players Association player rep who consulted players during the negotiations.

    The mandatory contract length for drafted rookies in rounds 2 through 7 under the new deal is four years, as it is for players selected in round 1. However, while players drafted in rounds 2 through 7 of the next 10 drafts will be free agents after four years, clubs will have the option to re-sign first-round picks at a preset amount. The club option on the first 10 picks will be the average of the top 10 salaries at that player’s position. For players picked in the first round, but outside the top 10, the club option will be the average of the third through 25th-highest paid players among veterans at the player’s position.

    Because players in rounds 2 through 7 will be unrestricted free agents sooner in their careers, they could make more than first-rounders who perform and are tied to the club for an additional year.

    “They took away the big payday for the first-rounders on the front end,” said one agent. “And you are taking away the leverage for the players on the back end because the clubs can use the fourth- and fifth-year numbers as the basis for a new deal.”

    Peter Ruocco, NFL senior vice president of labor relations, disagreed with that analysis, noting that the fifth-year option would pay rookies what veterans are being paid, which is more than what rookies made under the old system. “I think it sets up for a very fair negotiation,” Ruocco said. “If you are a quarterback and successful, your number in year five could be $13 million.”

    The contract of St. Louis Rams quarterback Sam Bradford, top pick in the 2010 draft, was the subject of much public and media discussion during the labor talks. His six-year, $78 million deal provided for a reported $50 million guaranteed. By comparison, this year’s No. 1 pick, Cam Newton, would draw $22 million over four years, plus a potential option year salary of $14.3 million — though there is no limit on the amount of guaranteed money a player may seek or receive.

    The new rookie system takes a lot of the creativity out of negotiating contracts because agents are not allowed to negotiate nearly as many terms as before. Option bonuses, option exercise fees, voidable years and nonvoidable years are prohibited, according to a document the NFLPA distributed to agents last week. Additionally, agents cannot negotiate incentive clauses for things like making the Pro Bowl, being rookie of the year, leading the league in touchdown passes or posting other, individual-player achievements. “A performance incentive must be based only on a specific numerical playtime amount,” states the document the NFLPA distributed.

    “The previous system had loopholes in it that people were able to exploit, and this is a closed system,” Ruocco said.

    In commenting on the new system, agents asked for anonymity because they did not want make public statements that may be viewed as critical of the NFLPA. Most agents were not happy about the new system, but not all.

    “It’s about time,” said one NFL player agent who has not represented top players selected in the draft. “Fifty million dollars is ridiculous for a rookie contract.”

  • The Olympic trials of Larry Probst

    Nearly 400 journalists surged toward U.S. Olympic Committee Chairman Larry Probst and Chicago 2016 Chairman Pat Ryan in the lobby of the Copenhagen, Denmark, convention center. It was October 2009, and the duo were minutes removed from seeing the International Olympic Committee reject Chicago’s bid to host the 2016 Olympics.

  • Gatorade gets a dose of Hope in new deal

    Hope Solo will join Gatorade’s powerful promotional arsenal after signing a multiyear marketing deal with the beverage company.

    The Gatorade deal marks the second major endorsement for the standout goalie who helped the U.S. women’s national team finish second in the 2011 FIFA Women’s World Cup. Earlier this month, she joined teammates Abby Wambach and Alex Morgan in signing one-year deals with Bank of America.

    U.S. women’s goalkeeper Hope Solo saw her awareness number soar during the Women’s World Cup.
    A Gatorade representative would not reveal how they intend to use the 30-year-old Solo in the company’s marketing, confirming only that Solo is part of Gatorade’s push to diversify its athlete base. The company recently signed deals with U.S. men’s goalie Tim Howard, swimmer Ryan Lochte and female surfer Coco Ho.

    Industry sources peg the deal in the low six-figure range per year.

    Richard Motzkin of Wasserman Media Group, who has represented Solo for 10 years, said he and Gatorade began discussing a possible deal before the World Cup started, but he described interest in her after the World Cup as “staggering.” He hinted that more individual deals are on the horizon, but would not discuss details.

    “Being on the cover of Sports Illustrated helped her awareness with the general public,” Motzkin said. “She has an opportunity to become well-known not just in the soccer scene, but in the public mainstream as well.”

    Motzkin said that Solo’s followers on Twitter jumped from 8,000 to more than 250,000 in little over a week, and compared Solo’s surge in popularity to that of former U.S. midfielder Mia Hamm, who rose to prominence after the U.S. women won the 1999 World Cup.

    Of the national team players, Solo, Wambach and Morgan have garnered the most mainstream attention in the wake of the team’s loss to Japan in the World Cup finals. Wambach and Solo appeared on the “Late Show” with David Letterman, and Solo and Morgan attended the New York City premiere for the final season of the hit HBO show “Entourage.” The three inked one-year deals with Bank of America to serve as spokeswomen for a charity surrounding the Chicago Marathon.

    Gatorade has sponsored the U.S. women’s national team since 1999, and has had an individual deal with Wambach since 2004.

    Bill Glenn, senior vice president of marketing and strategies with The Marketing Arm, said Solo’s marketing numbers on its Davie Brown Index (DBI) put her on par with Miami Heat star Dwyane Wade. According to Glenn’s research, Solo’s overall awareness jumped from 21.4 percent to 28.0 percent in the period between the team’s quarterfinals victory over Brazil and its loss to Japan. However, her endorsement value dropped from a score of 72.3 to 66.7 during that period.

    “You could summarize that the loss did have an impact on how consumers view [Solo] in key attributes like aspiration and influence,” Glenn said. “But as they gain more exposure, I wouldn’t say [the loss] will significantly affect her marketing.”

    Doug Shabelman, president of Burns Entertainment, said Solo’s combination of leadership, success on the field, physical attractiveness and a recognizable name give her an opportunity to maintain marketability after attention in women’s soccer cools. “She’s the goalie, which is a showcase in individualism,” Shabelman said. “It sets her up nicely to be a spokesperson or follow up with a career in broadcasting.”

    Solo is continuing to play for the WPS magicJack team in South Florida.

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