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Volume 20 No. 42

Leagues and Governing Bodies

Negotiations for the next big sports media deal will begin in earnest this week as Major League Baseball officially takes its national TV rights to the open market.

League executives have been negotiating with network partners ESPN, Fox Sports and Turner for the past several months. But those exclusive negotiating windows have ended without deals. The final window, with ESPN, ends in the middle of this week, sources said, allowing MLB to start negotiations with other networks, like NBC Universal, which has made no secret of its desire to pick up a package of rights for its NBC Sports Network cable channel. NBC has not held MLB rights since 2000 and is eager to bid on them this summer, sources said.

“We think it’s a great property, and given the opportunity, we’d welcome the discussion,” said Greg Hughes, NBC Sports Group senior vice president of communications.

MLB’s current set of national media deals, signed in July 2006, end after next season. But several sources expect new deals to be finalized as soon as this summer. Currently, ESPN pays an average of $306 million per year for its package that includes “Sunday Night Baseball;” Fox pays an average of $257.1 million per year for its package led by the All-Star Game and World Series; and Turner pays an average of $148.6 million per year, with its rights fronted by the Division Series, half of the League Championship Series, and most recently the two new single-game elimination Wild Card playoff games.

Company lines

What networks are saying about the upcoming MLB TV negotiations

“We are having discussions with MLB and hope to build upon our long-standing relationship.”
Fox Sports:
“We absolutely love being a part of the MLB family and the tremendous product that the commissioner, owners and players put on the field every season. We value our long-term relationship, and continue to talk with them about building that relationship well into the future. Fox Sports has presented some of baseball’s greatest moments over the last 17 years, and we hope to take the field with them for many years to come. We couldn’t imagine life at Fox without baseball.”
“We have been partners with Major League Baseball for more than 35 years and look forward to continuing a long, and healthy, business partnership with the league. Our recent deal to add the two wild-card games to our exclusive postseason coverage is the latest chapter in our long-standing relationship with MLB and a testament to the strong collaboration that exists between our two organizations.”
“We already have an excellent relationship with Major League Baseball through six teams whose games are televised by our regional sports networks. We think it’s a great property, and given the opportunity, we’d welcome the discussion.”

The fact that the exclusive negotiating windows are ending without deals does not offer any specific clues about which network will ultimately cut deals with MLB. It simply allows new networks, such as NBC Universal, to enter into the bidding process, potentially driving up the price.

Sources said MLB has told its network partners that it wants to take its rights to an auction as a way to make more money from its rights. With labor peace guaranteed through at least 2016, on-field competitive balance historically strong, and a surging market for sports media rights at large, MLB stands in a particularly advantageous position to re-enter the market.

In their initial discussions with the league, Fox and ESPN have expressed interest in expanding their deals. Currently, Fox owns MLB’s broadcast package. But sources say Fox is interested in picking up cable packages. Fox executives have looked into turning its motor racing channel Speed into an all-sports network that could house those games. It also could decide to place a package on FX, which is scheduling more sports.

Also at issue for Fox is harmonizing baseball’s October playoffs, with its heavy slate of weeknight games, with the network’s successful prime-time entertainment programming. The network this past TV season finished first overall among the four major U.S. broadcast networks in viewers age 18-34 and 18-49, with Fox winning the latter, key demo for an industry record eighth consecutive season.

ESPN’s current deal gives it access to an extensive regular-season schedule, but no playoffs. Sources say the network is interested in adding some playoff games to the schedule. It also is interested in extensive highlight rights. Turner, meanwhile, is interested in maintaining, if not expanding, its current set of rights, sources said.

MLB Network holds non-exclusive regular-season rights and rights to two Division Series games. It’s not known if the league wants to increase that game package, but MLB Network remains an option for the league.

The wild card is NBC, which has been looking at sports properties to help bolster its NBC Sports Network. Some sources have pointed to potential conflicts over any NBC bid that includes World Series rights, given the network’s “Sunday Night Football” contract extends through 2022. Sunday night is a particularly big night for prime-time television, and MLB is unlikely to cede the time slot to a rival league.

Over the past 18 months, NBC has been at the table for almost every sports rights auction. It spent $4.3 billion for rights to the 2014 through 2020 Olympic Games and $187 million for rights to the NHL for 10 years. It lost Wimbledon rights to ESPN and wasn’t able to wrest Pac-12 rights away from Fox and ESPN.

Also at issue is what, if any, digital rights will ultimately be included in the package. MLB traditionally has negotiated digital rights separately from its TV rights, and since its current national TV deals were struck in 2006, MLB Advanced Media has grown into an industry juggernaut. But all of the TV networks have stated their desire to have every new deal with a major sports property include a passel of digital rights.

CBS declined comment and is not expected to be a serious bidder for the rights. MLB executives also declined to comment.

The NBA is adding some marketing muscle by hiring advertising industry veteran Jamie Gallo as the league’s executive vice president of marketing.

Gallo, 45, will join the NBA on June 18 and comes from TBWA/Chiat/Day where he has worked as president of the firm’s New York office since 2009. His role at the NBA will be to manage the digital and traditional global marketing efforts for all league assets, including the NBA, WNBA and NBA Development League.

“Most important is the whole coordination of a global marketing campaign as our footprint grows, along with the integration of digital marketing and social media,” said NBA Commissioner David Stern. “We need to make sure that everything we do on a global marketing basis has a consistent branding philosophy and a consistent digital and social media strategy. We thought we needed someone who has run something big to lead the effort.”

Gallo will report to NBA Deputy Commissioner Adam Silver.

From 2009 up to Gallo’s hire, Danny Meiseles, NBA executive vice president and executive producer, production, programming and broadcasting, has coordinated the league’s marketing efforts. Meiseles now will continue to head up the league’s programming, production and broadcasting groups, along with the NBA’s interactive services department.

Gallo’s hire comes as the league in the past few years has cycled through several senior-level marketing executives.

Carol Albert was NBA senior vice president of marketing from 2008 to 2009 before joining Madison Square Garden, while Gary Zarr worked as executive vice president of marketing and communications for the NBA from 2007 to 2008. Current Madison Square Garden Sports executive Greg Economou worked as senior vice president of marketing for the NBA in 2006.

Gallo will have no league communications management responsibilities in his new job. He takes over with Goodby, Silverstein & Partners as the NBA’s agency of record.

“The marketing function is a huge infrastructure issue for us and we wanted someone who had agency experience and who could deal with a large client roster,” Stern said.

The NBA did not use a search firm to fill the job.

Gallo joined TBWA/Brand Architecture International in 2001 and has worked as global brand leader, managing director, and executive group director prior to becoming president of TBWA/Chiat/Day’s New York office.

“My job is to focus on building the league’s relationship with the fans and expanding the business in that way,” Gallo said. “As a brand marketer, I can add value, but I have to get the lay of the land. This is not a fixer-upper. This is about how to accelerate and expand the brand.”

MLB teams are generally not expected to surpass the new signing bonus pools for the first-year player draft, set to begin today, because of harsh new penalties in place for excess spending.

The new rules, among the foremost changes in the five-year collective-bargaining agreement signed last November with the MLB Players Association, strip an overspending team of a future draft pick for exceeding its assigned bonus pool by as little as 5 percent. A 15 percent spending overage creates a $1 fine for every dollar over the limit and the loss of two future first-round draft picks. In addition, if a team fails to sign a pick, the slot value of that selection still counts against that club’s bonus pool.

Since November, teams have been formally briefed on the new structure, and have studied how best to manage draft pick negotiations within the new confines.

“We’re going to be as aggressive as we can, and we want to take full advantage of the system as it exists,” said George Postolos, Houston Astros chief executive. The Astros have the first overall pick in the draft, and the second-largest signing bonus pool at $11.18 million for its set of picks in the draft’s first 10 rounds. Minnesota has the largest overall bonus pool at $12.4 million, with each team’s respective pool number calculated by the number and specific position of its selections.

“I would expect teams to stay within the limit, because forfeiting a draft pick is a very severe penalty. Our goal in Houston, like many clubs, is to have the best collection of young talent in the game, and forfeiting a pick is directly contradictory to that,” Postolos said.

As veteran free-agent signings have become more risky and teams have aggressively sought to sign long-term contracts with their own young stars, baseball’s first-year player draft has assumed a heightened importance. The bonus pool structure represents a compromise between MLB’s original push for a hard slotting system requiring pre-set compensation based on specific draft order, and the union’s aim to preserve individual bargaining rights for draftees.

The still-open question this year is how contract negotiations will manifest themselves between this week’s draft and the July 13 signing deadline. In particular, clubs have been advised that if they want to sign a draft pick above the league’s slot recommendation, they should first sign some other selections below slot so as to not hamstring themselves. Individual player signability is also likely to be a heightened factor on many team draft boards, a marked change after many years in which the league’s slot recommendations were widely ignored.

“There is a strategy to the new system, just like there was a strategy to the old system,” said Rob Manfred, MLB executive vice president for labor relations and human resources.

But as MLB Commissioner Bud Selig in prior years has chastised teams for overspending on draft pick bonuses and ignoring the slot recommendation, Manfred said the new structure was not aimed at sharply reducing aggregate spending. The combined bonus pools for the 30 clubs is $189.9 million, 1 percent less than the $191.9 million spent on bonuses for picks in the first 10 rounds last year.

“We made it clear to the union right away that we weren’t looking to take money away from the system. Rather, we were after creating increased predictability and certainty with regard to the clubs, and we think that’s been achieved,” Manfred said.

The Los Angeles Kings have reaped the immediate benefits of the team’s run to the Stanley Cup Final. The most recent indication is the Kings’ signing of Travel Alberta last week as their official travel destination.

Kings owner AEG would not give a value or range for the sponsorship, but the contract is “multiyear, at a significant level, one of the biggest the Kings have ever had,” according to an industry source.

The agreement gives Travel Alberta in-arena signs, online exposure, in-market activation and sponsorship of the Kings’ holiday ice rink at L.A. Live. There are also plans to offer a road trip to fans to attend Kings games in Edmonton and Calgary.

The Kings’ dominance in the first three rounds of the Stanley Cup playoffs coincides with a renaissance in the team’s business. These days, it’s good to be the Kings.

“It helps to close a deal when you’re in the Stanley Cup Final,” said Luc Robitaille, a Hall of Fame left wing for the Kings and now the team’s president of business operations. “A lot of businesses want to activate with us. It’s a good feeling because we’ve been working to this point, rebuilding on and off the ice, for a few years.”

Through Game 2 of the Final, the Devils had played 10 playoff games at Prudential Center, which a source said grossed $22 million in ticket sales.
The Travel Alberta deal was completed after a few months of discussion, just before the start of the Stanley Cup Final between the Kings and New Jersey Devils, which began last Wednesday.

“Hockey and Alberta are a natural fit,” said Travel Alberta CEO Bruce Okabe. “The fan base, properties and venues involved in this partnership put us right in the target sweet spot of where our customers in California live, work and play.”

MORE KINGS COMMERCE: The Kings are also thriving beyond sponsorships. The team has sold more than 2,000 new season tickets since the start of the playoffs. Subscriber renewals for next season are at 95 percent. The team has closed out partial plans. By the time the Kings’ season is completed this month, the team expects season tickets to be sold out, leaving only select tickets available for individual purchase.

“As sports marketers, we dream of runs like this by our teams,” said Chris McGowan, COO of the Kings and team ownership group AEG Sports. “We’re really proud of the fact that we’ve worked hard all year, into the spring, and have been able to capitalize. We could very well be looking at all of our games being sold out next season.”

The Kings have sold more than 2,000 new season tickets since the start of the playoffs.
While the bandwagon has become packed to capacity during the playoffs, the Kings insist they will not forget the people with them at the beginning of the rebuild. The Kings’ corporate staff hosted corporate partners at road games in each round of the playoffs.

“I think of someone like Sal Ferrara, from Ferrara Pan Candy,” Robitaille said of the company that produces Lemonheads, among other treats. “My old teammate, Bernie Nicholls, introduced me to Sal years ago. I asked Sal to take this ride with us at the beginning, when we started to build a roster of talented players. You cannot thank sponsors like him and the longtime season-ticket holders enough. We are working with all of our long-term partners to make sure they are back … and happy.”

DEVILS MAY CARE: A lucrative run to the Final by the New Jersey Devils could not possibly have come at a better time for the franchise.

Through Game 2 of the Final against the Kings on Saturday, the Devils had played 10 playoff games at the Prudential Center in Newark and sold out all of them. According to an industry source, the 10 playoff games grossed more than $22 million in ticket sales.

Faced with mounting debt, owner Jeff Vanderbeek has been seeking to line up investors to raise new capital. While there has been no announcement of a new partner for Vanderbeek, his team’s winning ways have resulted in big business.

Playoff-specific sponsorships created more than $1 million in revenue for the Devils.
Preferring to keep the focus on the positives of the franchise, Rich Krezwick, the president of Devils Arena Entertainment, declined to discuss Vanderbeek’s plight. However, Krezwick was ebullient over what the team’s magical run has meant to the bottom line.

“This has been special,” Krezwick said. “You see all the hard work that the hockey team management, coaches and players put in, and you see the efforts of the business staff. It’s so rewarding to see it all come together.”

According to Krezwick, the Devils have sold more than 1,500 new full-season-ticket accounts in the last month. Season-ticket renewals have already surpassed last year’s rate of 84 percent, and the team expects to be over 90 percent by the end of the Cup Final.

By offering their ticket holders, sponsors and suite holders, Facebook fans and Twitter followers the opportunity to buy playoff tickets first, using a protected password, the Devils have managed to fill The Rock primarily with their fans. Supporters of their close rivals, the Flyers and Rangers, found tickets in New Jersey to be scarce. That was not the case in previous years.

In addition, the Devils sold playoff-specific sponsorships that grew in value for both sides as the team advanced through each round of the playoffs. Companies including Ford and Atlantic Business Systems signed on, creating more than $1 million in revenue for the Devils.

“There’s no better time to be doing business than the playoffs,” Krezwick said. “For our fans and our organization, it’s the best time of the year.”

: Mission Control, the Devils’ fan-driven social media initiative, was firing on all cylinders when the team hosted the first two games of the Stanley Cup Final.

Located in converted storage space in the Prudential Center, Mission Control was created a year and a half ago by the franchise with 25 volunteer fans to obsessively update the team’s blog, Twitter feed and Facebook page, and monitor all talk about the Devils in social media.

In the buildup to Games 1 and 2, Mission Control promoted fan events outside and inside arena, along with general Devils Fever, and used Instagram to send out photos of the fan pandemonium.

Led by Mission Control, the team has seen strong growth in its Twitter following during the playoff run. When it launched in January 2011, the Devils had just over 5,000 Twitter followers. A year later, the number grew to 40,000. When the puck dropped on Wednesday for Game 1, the total was at 83,172.

The corporate sales staff has also monetized the social media center and believes it can create $2 million in revenue by the end of next season.

INTERESTED OBSERVERS: The NHL’s executive vice president of marketing, Brian Jennings, took in Game 1 with Chief Marketing Officer Matt O’Toole of Reebok, the league’s official outfitter. The two discussed how their brands can take their partnership to the next level and connect with more fans.

“Innovation, consumer-centric product and servicing the retailer with enhanced brand value will continue to remain a focus,” Jennings said.