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Volume 21 No. 1

Leagues and Governing Bodies

Team profitability is on the rise in the NBA, fueled by a projected $200 million in revenue sharing among the clubs this year.

Total league revenue for 2012-13 is expected to reach $5 billion, according to league estimates, up from about $4.2 billion for the lockout-shortened 2011-12 campaign. It is expected that 22 of the league’s 30 teams will make money this year, up from 18 clubs last season, which was the first year operating under the NBA’s new 10-year collective-bargaining agreement and with the installation of its new revenue-sharing system.

For the 2010-11 season, prior to the new CBA and revenue-sharing plan, eight teams were profitable.

The revamped revenue-sharing system complements the larger, long-standing process in the NBA of teams sharing league-level revenue, including money from national television contracts, leaguewide sponsorships and international deals. The intent of the new system is to better aid the league’s smaller-market clubs financially relative to its large-market teams, which can generate higher revenue from local TV and sponsorship deals.

Typically, the NBA completes its team financial audits in September and distributes the reallocated revenue to clubs by early February of the following year, though for accounting purposes any revenue sharing is counted on the books for that past season, according to one team source. That means the league and clubs are in the process of finalizing the money that will be redistributed from the 2011-12 season.

According to projections, 15 clubs (half of the league’s teams) will be “recipients” of $104 million in additional revenue sharing from the 2011-12 season, with up to another $15 million from what’s called a “discretionary fund” also being shared — for a total of up to $119 million being shared. The discretionary fund is the result of money generated mainly from postseason dollars.

That amount compares to $54.5 million, shared among 12 teams, following the 2010-11 season — or, the amount that resulted from the league’s prior revenue-sharing system, before the system that’s in place now was initiated.

According to the new revenue-sharing formula, 10 of the league’s teams for the 2011-12 season are expected to be “contributors” to the system, while five clubs will be neither recipients nor contributors. The league has not shared specific team projections for this new, 2012-13 season with owners, but the team splits are expected to be roughly the same as for the 2011-12 season: 15 recipients, 10 contributors, and five clubs in between. The amount shared, however, is expected to increase to a projected $200 million compared with the lower amount for the lockout-shortened 2011-12 season.

Owners last year received a snapshot of a projected fully funded revenue-sharing system being in place for the 2013-14 season and what that system could mean for individual clubs (see box). Those numbers, considered rough estimates, ultimately could vary based on each team’s subsequent business performance.

When the formula was unveiled last year, $200 million was noted as the projected maximum amount to be shared among the clubs according to the new system.

“Ultimately, it is about competitive balance,” said Fred Whitfield, president of the Charlotte Bobcats. “Revenue sharing helps address the natural disparities between large- and small-market teams. [This] is a step in the right direction as every team strives to field a competitive team year in, year out.”

According to the new, widely expanded revenue-sharing plan, each team puts into a pool roughly 50 percent of its total annual revenue, minus certain expenses such as arena operating costs. Teams then receive an allocation from the pool that is equal to the average team payroll for the season.

So, if a team’s contribution to the pool is less than the league’s average team payroll, that team is considered a revenue recipient. If a team’s contribution to the pool is more than the average team payroll amount, the team is deemed a contributor to the system.

Teams are assumed to have achieved certain revenue thresholds based on market size when calculating the full revenue results. Teams that are payers into the revenue-sharing system also are protected to where their contributions to the plan will be no more than 30 percent of their total operating profits.

Under the old system, the maximum payout for any one club was about $5.4 million.

The National Lacrosse League has typically streamed its games live on its official website, but in its coming season, the NLL is taking its online broadcasts to YouTube.

The NLL will continue to have an eight- to 10-game package of TV games on CBS’s cable sports channel, but the YouTube channel will provide a home for the live broadcast of every game in the nine-team league, which runs from January to May.

CBS Sports Network carries a package of games, in addition to the online presence.
“We love the access this provides the NLL to fans all over the world,” said George Daniel, the NLL’s commissioner. “This will be a distribution channel that anyone can access and it enables us to reach new fans and grow our fan base. It’s a powerful thing.”

“The NLL is putting its sport in front of millions, connecting and building deep relationships with its fans,” said Frank Golding, YouTube director of sport for North America.

The league will handle the production of the games, as it has in the past when the games were streamed at The NLL has a revenue-share agreement with YouTube for advertising sold.

The NLL games will be broadcast as part of The Lacrosse Network, a branded home for a variety of lacrosse content on You Tube. The Lacrosse Network carries everything from indoor and outdoor professional lacrosse to college games, features, highlights and instruction.

The network will handle ad sales for the NLL games, as it does with its other lacrosse content.

“We’ve had online streaming for six years with a partner [Livestream] on our site, but having our games on YouTube puts us in front of one of the largest online audiences in the world,” Daniel said. “It’s great for our existing fan base and it’s an opportunity to grow the league virally as well. Obviously, we’re not as big as a lot of other pro sports leagues, but that also means that we don’t have any kind of restrictions to doing something like this.”

The NLL is in the second year of a two-year deal with CBS Sports Network that includes a handful of regular-season games, plus the playoffs. NLL games also appear on regional sports networks in Canada.

“But the online presence is absolutely critical for us,” Daniel said. “It’s not something we do on the side like a lot of other leagues. We’ve got to have it.”

The NLL has enjoyed a stable offseason and all nine teams and owners are expected to return for the 2013 season.

Global RallyCross, which just finished its inaugural season, has landed an investment group led by Colin Dyne, CEO of the Justin Timberlake-founded apparel company William Rast.

Financial terms of the deal, which closed last week, weren’t available, but the investment will see Global RallyCross restructure its business operations. The sanctioning body plans to create a board of directors with six people that will oversee the sport. The members of that board will be chosen at a later date, said Global RallyCross President Brian Gale.

RallyCross was part of the X Games this year in Los Angeles, and four of its races will be part of Global X in 2013.
Dyne has other ties to motorsports. His 20-year-old son Austin drives in NASCAR’s developmental K&N Series, and William Rast was the primary sponsor on the car the late Dan Wheldon drove when he won the 2011 Indianapolis 500.

“When I saw this business, I said, ‘Wow, this is such an incredible model because of the demographic,’” Dyne said. “Every retailer is trying to get the 18- to 35-year-old and no one has it. This series attracts that demographic. In motorsports, there’s nothing out there that’s exciting and new, and this is something new and exciting.”

The investment comes less than two weeks after Global RallyCross ended its inaugural season. The series, which featured action sports stars Travis Pastrana, Brian Deegan and Ken Block, held six races this year. Four of the races (Charlotte, Texas, New Hampshire and Las Vegas) were at tracks owned by Speedway Motorsports Inc., one was held at the X Games in Los Angeles and one was held during the Specialty Equipment Market Association convention in Las Vegas.

The sport averaged 36,000 spectators per race and 270,000 viewers over four broadcasts on ESPN.

“Our primary goal for this season was to get exposure — expose as many Americans in and out of our demographic to this exciting sport,” Gale said. “We wanted people to know what this was and we found that the NASCAR fans, a lot of them, seemed to respond positively. In social media, they really liked it.”

The sport will hold nine races in 2013, Gale said. Five of the races will be independent events, and he hasn’t determined where they will be held. Four of the races will be part of the new Global X Games and will take place in Los Angeles; Munich; Barcelona, Spain; and Foz do Iguaçu, Brazil.

Gale said that the sport won’t host its five independent events exclusively at SMI tracks because the series ran into difficulties in hosting races at NASCAR facilities. It wasn’t able to move dirt, a fundamental feature in rally cross racing, into certain places at the tracks and that affected the quality of competition.

Instead, Gale said he expects the series to have a mix of small events, like the one it hosted for 5,000 spectators at SEMA, and large events, like the one it hosted for 45,000 at New Hampshire Motor Speedway.

“Our objectives for next year are more product focused,” Gale said. “We want to balance the attendance versus TV. There will be a little more focus on making sure we get those prime TV windows, which ESPN is willing to do for us as long as we figure those out ahead of time.”