SBJ/Aug. 18-24, 2014/Franchises

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  • No ‘gaping holes’ as Ballmer leads Clippers

    Despite a summer of litigation and unprecedented off-the-court headlines, the Los Angeles Clippers have emerged relatively unscathed financially as new owner Steve Ballmer now officially takes charge of the franchise.

    “There are not any gaping holes,” said Dick Parsons, the former Time Warner chief executive officer who was hired by the NBA to restore order to the Clippers after former owner Donald Sterling was banned from the league for life in late April following disclosure of his racist comments. “Sales are pretty good, and we are almost up on a revenue basis.”

    Dick Parsons was hired by the NBA to restore order to the Clippers.
    Photo by: Enter Name Here

    The NBA officially approved Ballmer’s purchase of the Clippers last week. That finalized a deal originally announced in late May.

    Parsons did not provide specifics, but based on financial data from the sales book for the franchise issued earlier this year by Bank of America, the Clippers had a projected $112 million in total team revenue in fiscal 2014, a period that ended in June. Total operating revenue, which includes the team’s share of leaguewide television revenue, was projected at $164 million.

    Bank of America was hired by Sterling’s estranged wife, Shelly, to help sell the team.

    The Clippers, Parsons said, have a front-office head count of 110 employees, about the same as before the Sterling controversy. Of course, that staff count is minus former

    longtime team President Andy Roeser, who left the team on May 6, when the NBA announced he was taking an indefinite leave of absence. But the 110 head count is on the low end of NBA front-office staffing.

    “Typically, teams have between 120 and 140, but the Clippers don’t own their own arena,” said Bill Sutton, president of industry consultancy Bill Sutton & Associates, which counts NBA teams as clients.

    Looking at the Clippers’ business areas, the team’s season-ticket renewal rate is at about 85 percent.“Everyone has hung on, and season-ticket holders don’t want to give up their seats,” Parsons said.

    Similarly, most of the team sponsors have remained with the franchise, though Parsons said there are one or two that are undecided on returning.

    Those points both speak to the fact that the outrage this summer in Los Angeles (and nationally) was directed at the now-former owner more than the team itself. This is, after all, a team that’s made the playoffs the past three seasons and boasts two of the league’s stars: Chris Paul and Blake Griffin. Add in popular coach Doc Rivers, and fans and sponsors weren’t looking to distance themselves from the franchise as much as they were to get away from a Sterling-run team.

    Parsons said he tried to be in the team’s offices at least once a week over these past several months. His chief of staff, Payne Brown, was in the team’s offices five days a week.

    Parsons will remain as interim chief executive for up to a month to help the franchise’s transition to new ownership, but he said Ballmer will waste little time putting his own stamp on the team. That includes the likely hiring of a new president and making moves in other areas — particularly focusing on the team’s digital marketing area.

    “That’s something Donald never invested in,” Parsons said.

    Ballmer was not available for comment late last week.

    “[Ballmer’s] initial moves will be to figure out the operating dynamics of the business so he can figure out what he wants in terms of permanent management,” Parsons added. “My advice is to figure out where major drivers of the business are and get closer to Doc Rivers and the players so there is affinity. This is not a gigantic business. Obviously, this is a talent-sensitive business. It is not an overly complicated business. He will very quickly get his arms around it.”

    One major issue that will be critical in helping Ballmer justify his record $2 billion purchase of the franchise is pursuit of a new local cable television deal. The team’s current deal with Prime Ticket ends after the 2015-16 season. According to Bank of America’s sales prospectus, the value of a deal is estimated to jump from the current $25 million annually to $125 million.

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  • Why the RTA? ‘It’s best to have healthy race teams’

    Richard Childress started his NASCAR team in 1969, and he has had a front seat for the sport’s meteoric rise over the last four decades. But as the sport’s longest-standing team owner, with more than 200 victories and 12 championships among NASCAR’s top three divisions, he has grown concerned in recent years about the sport’s future. NASCAR teams face rising costs at a time when revenue has flattened. That combination led him to join other team owners to create the Race Team Alliance, a business association formed this summer to address challenges they face.

    Childress spoke about the alliance earlier this month with staff writer Tripp Mickle, explaining why it was created and what he hopes it will accomplish.

    When did the Race Team Alliance come together and how?

    Richard Childress envisions savings for race teams on fuel, insurance and more, if they speak with one voice to suppliers.
    Photo by: GETTY IMAGES

    CHILDRESS: The chief financial officers started working together to understand [team] financials. We were careful to make sure there’s no antitrust there. We’ve been trying to understand, “If we spent X on aviation and they spent Y, what could we do to save money?” With all we were spending, four of us got together — Jack [Roush], Rick [Hendrick], Roger [Penske] and me. We looked at tire costs, part costs, engine costs — everything we could combine to work as one. We wanted to see what we could do to help with expenses and keep the strongest race teams together for NASCAR’s future. We hope that helps the sport from a competition side.

    What are the types of savings you envision?

    CHILDRESS: RCR spends $500,000 a year in diesel fuel alone on trucks. If we put 43 trucks together and say all our trucks will buy [fuel] together, say they sell it 20 cents cheaper [a gallon], that could save us $100,000 a team. Insurance — there’s probably 7,000 or 8,000 employees across 18 teams. We could package that up for all types of insurance. Aviation. I don’t know how many planes we have, but we could save thousands. Those are the little things we can save at.

    How can everyone agree to make cuts together?

    CHILDRESS: Everyone’s not going to be happy with everything, but if it’s good for the sport, we’ll all go along with it.

    Why are you all taking these steps now?

    CHILDRESS: Costs keep going up and the revenue is staying flat. Hotel, planes, fuel — it’s expensive. The best way we can deal with it is with one voice, going in to a fuel or airline together.

    Race Team Alliance adds 9 Cup teams, bringing number to 18 teams, 37 cars

    The Race Team Alliance has added nine new members, bringing the total number of NASCAR Sprint Cup operations participating in the new business association to 18 teams and 37 cars.

    The additions come a month after nine of the biggest teams in NASCAR banded together to create a business association designed to help teams cut costs, increase revenue and improve the health of Sprint Cup teams. At the time the group was created, it faced criticism that its only representatives were large, wealthy race teams such as Hendrick Motorsports, Penske Racing and Richard Childress Racing and didn’t include some of NASCAR’s smaller, less established teams.

    The new members are BK Racing, Circle Sport Racing, Front Row Motorsports, Germain Racing, Go Green Racing, Harry Scott Racing, JTG Daugherty Racing, Phil Parsons Racing and Tommy Baldwin Racing. The only full-time team that opted not to join the association was Furniture Row Racing, which is based in Denver and funded by the owner of the home furnishing retailer, Furniture Row.

    — Tripp Mickle

    How are you going to tackle these issues?

    CHILDRESS: We’ve created subcommittees. Each subcommittee [which is made up of business executives from the teams] is going to work on issues. [RCR President] Torrey Galida is on an aviation and fuel subcommittee. And Rob Kauffman is doing an outstanding job of working with the attorneys at Jones Day. They’re some of the best attorneys in the business when it comes to antitrust.

    NASCAR has reacted coldly to this at best, critically at worst. What do you think of their responses to date?

    CHILDRESS: I think you’ll see the attitude change as we come along. It’s best to have healthy race teams. Ten years can happen fast. If we get to the end of 10 years and the TV partnership [with NBC and Fox for $8.2 billion in rights fees] and we have 10 to 12 quality race teams, you’re not going to get a good TV contract. We have 25 or more healthy race teams now, and we need to keep that. This gives us a chance to do that.

    What makes you confident this is the right thing to do?

    CHILDRESS: Every other race series have found savings. Formula One cut costs in half. IndyCar found ways to cut costs.

    One of the things I’ve heard proposed is that NASCAR could look to cut costs by reducing engine costs. You have an engine business, so that could presumably hurt you. How do you feel about that?

    CHILDRESS: Let’s say engines cost $3.5 million and you reduce the costs to $2.5 million by cutting RPMs or something. It would hurt us at [Earnhardt Childress Racing Engines], but if the race team is healthy and the sport is healthy, that’s the most important thing. Because if the sport’s not healthy, and the team’s not healthy, then there’s no ECR.

    What would you change about the sport?

    CHILDRESS: Our goal is to improve the product of racing. I’ve got to give NASCAR a lot of credit for what they’ve done. I wouldn’t like to have Brian [France’s] job, but I would like to see a different format that energizes every fan. …

    Every major sport has change — the shot clock in basketball, replay in baseball. When NASCAR sits down with their people or the fan council, once they talk to them, I’m sure they’ll come up with something even better. I just think we need to change up some. We need something to spice it up. That’s just my opinion.

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