SBJ/September 19-25, 2011/Franchises

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  • NBA clubs face up to $1.5M loss in gate revenue for every regular-season game canceled

    Some NBA teams could lose up to $1.5 million in gate revenue per game if the 12-week lockout stretches out into the regular season, a possibility that loomed more likely after last week’s stalled labor talks. But the league’s renewal rate is holding steady with last summer’s at 75 percent, as fans continue to spend around the game despite the labor turmoil.

    With about two weeks left before the scheduled start of training camps and six weeks before the start of the regular season, teams are bracing for what could be a box office blow should the league cancel games. On average, NBA teams generate about $1 million in gate revenue per game, with the league’s highest-revenue teams, such as the New York Knicks and Los Angeles Lakers, generating more than $1.5 million a game, according to former team executives familiar with NBA finances. Low-revenue teams such as the Sacramento Kings generate about $400,000 in gate revenue a game, creating a wide revenue spread among the league’s 30 teams.

    Last season, 10 teams boasted sales of at least 10,000 full-season tickets, and at least 75 percent of a team’s gate is derived from season-ticket sales. While teams have booked much of their season-ticket revenue, the loss of gate revenue in the NBA will be the result of teams’ offering fans full refunds plus interest to ticket holders should games be canceled.

    It’s those same offers of refunds plus interest that helped the league protect its season-ticket renewal rate, along with rolling out plans early this year as labor clouds were gathering.

    “We remain on pace with last season’s renewal numbers while new season sales and partial plan sales are solid,” said Chris Granger, executive vice president of the NBA’s team marketing and business operations division.

    The league did not disclose specific new full sales or team sponsorship sales figures posted this summer during the lockout, and attempts to get team-specific numbers were unsuccessful.

    As of late last week, talks between the NBA and union had broken off with no new negotiations set as the owners headed into their league meetings in Dallas.

    Now, without a new collective-bargaining agreement, the league soon will be forced to cancel preseason games, beginning what could be a very costly lockout for teams and players.

    During the 1998-99 lockout, which saw the NBA season shortened to 50 games, the league announced the postponement of its training camps Sept. 24. In mid-October, it began canceling regular-season games.

    Should the lockout roll into the regular season, which is scheduled to start Nov. 1, teams also will face more difficulty selling individual game-day tickets, group sales and sponsorship inventory.

    “Once you get beyond the season-ticket renewals and full-season-ticket sales, the challenge is selling the [remaining] inventory,” said one former front office executive. “And sponsors make their budget decisions in advance, so the longer the [lockout] goes, the more spot-buying there is, and that’s done on a discounted rate card.”

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  • Red Bull in talks with buyers, investors to sell team and ‘confident something will happen’

    Though only nine weeks remain in the NASCAR season, Jay Frye, vice president and general manager of Red Bull Racing, remains confident the team will find a buyer this year.

    Austria-based energy drink company Red Bull revealed in late June that it planned to discontinue support next year for the Sprint Cup team it started in 2007. Frye, who has led the search to find a buyer for the team since then, said the team and Red Bull are in active discussions with eight to 10 interested buyers and have had inquiries from more than 100 interested investors in the last two months.

    GETTY IMAGES
    The Red Bull Racing team has fielded two cars since it started in 2007.
    Frye declined to disclose what the team was seeking from a buyer, but a source familiar with Red Bull’s search said it is asking for more than $20 million.

    “A lot of times teams are in a critical financial situation where they have to get cash quickly,” Frye said. “That’s not the case here. There’s a commitment to run to the end of the season. I’m confident something will happen before then.”

    Because of the sensitivity of the conversations, Frye declined to disclose the names of potential buyers. He said that executives at the company’s headquarters in Austria are fielding calls from European parties interested in learning more about the team, while Red Bull Racing officials are fielding calls in the U.S. from buyers interested in the team. The team hasn’t hired a sports advisory firm to assist with the sale.

    Red Bull Racing is selling a limited amount of assets. The team hasn’t secured any sponsors or signed a contract with any drivers for the 2012 season. The team’s only assets are its equipment and shop.

    Red Bull Racing has improved gradually on the track since its inception. The team, which has fielded two cars since 2007, finished 43rd and 38th in the standings in its first year. Its drivers, Kasey Kahne and Brian Vickers, currently are 21st and 27th. The team has recorded one Sprint Cup victory, with Vickers in 2009, in its five seasons.

    NASCAR teams historically are tougher to sell than stick-and-ball sports teams. NASCAR teams aren’t franchised, so their value doesn’t automatically appreciate over time. They also have fewer revenue streams than NBA or NHL teams, which sell tickets, sponsorships and local TV rights. NASCAR teams’ primary revenue comes from sponsorship and purse winnings from races.

    Richard Petty Motorsports was the last team sold in NASCAR. The team was put up for sale in 2010 after its owner, George Gillett, defaulted on a bank loan. The team was purchased by Andrew Murstein’s Medallion Financial Group and Doug Bergeron’s DGB Investments in a deal reportedly worth $12 million.

    “There’s pluses and minuses to NASCAR,” Murstein said. “NASCAR is more profitable on average than any team in any sport outside the NFL. But the minus is you don’t have that built-in franchise, so you could be out of business if a sponsor pulls the plug. You don’t have a floor like you do in other sports.”

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