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Volume 20 No. 42

Leagues and Governing Bodies

The NFL plans to have its teams instead of the league make the recently agreed to payments to retired players over concussion-related injuries so that the clubs can account for the payments as tax-deductible business expenses, sources said.

Because the NFL league office is structured as a not-for-profit operation, it would not be able to take a tax deduction.

The league also remains in litigation with its insurers over how much they will cover of the settlement that was announced late last month. Taken together, each of the 32 NFL teams likely will pay out much less than the $25 million to $30 million estimates that have been suggested could be each club’s exposure based on the expected $1 billion total price tag of the settlement.

In fact, according to tax accountants, some teams could even come out ahead financially.

“Out-of-pocket costs could be substantially less for certain teams because you have teams that are very profitable and pay the highest tax rates,” said John Lieberman, a member of New York State Society of Certified Public Accountants and past chairman of its entertainment and sports committee.

Lieberman said that if a team were to take its entire share of the settlement as a write-off right away, it would book a big tax savings that could then be reinvested. The return on that investment, Lieberman said, could end up being greater than what it would owe in payouts over the 20-year payment schedule of the settlement.

The NFL has 20 years to pay the full amount of the settlement, but half of the total must be paid within the first three years and the rest over the next 17 years.

NFL spokesman Greg Aiello declined to comment.

A source close to the league said of the fact that the league’s financial exposure may be far less than it appears: “What difference does it make? It doesn’t impact how much a qualifying former player will receive.”

In the settlement, the league agreed to collectively pay all retired players who qualify for payments based on injuries $675 million, with another $90 million for medical monitoring and a fund to raise awareness about concussions. Additional payments for legal fees could reach or even exceed $200 million.

The settlement aims to bring to an end litigation of more than 4,500 former players who had sued the league.

Typically, class-action settlement payouts are tax deductible, experts said.

“[It is] certainly not uncommon for [a] settlement payor to try to structure so that payments are deductible for tax purposes,” said John Goldman, a sports attorney with Herrick Feinstein, via email.

Beyond the tax benefits, the NFL could receive payments from insurers to cover the retiree payouts. The NFL is suing its insurers in New York state court seeking payment. A key hearing in this lawsuit comes Thursday, when the judge may set the parameters of how the case proceeds (see related story).

A source close to the insurers said the litigation should continue with the settlement in mind, but that will not slow the case down because approving the final settlement could take many months, if not longer. Between a comment period and an opt-out period, each of which could take 30 to 90 days, final briefs, a final hearing, and waiting for the judge’s approval, the court’s decision on whether to approve the settlement could come in the middle of next year, this source said. And then if some players object and appeal the judge’s approval, that could delay payouts even more.

The NFL has the option of walking away from the settlement over players that opt out, though that seems unlikely unless there are enough of them that the NFL decides they pose enough of a financial risk to scuttle the proposed settlement. Players who opt out can sue the NFL again over concussions.

One criticism by observers of the concussion-litigation settlement is that it staved off discovery on the NFL, saving the league from having to open its document vault to reveal what it knew about the dangers of concussions and when.

Discovery might, however, still occur in a different case. The NFL and the league’s insurers are in another action, suing one another over whether the companies have to cover the NFL’s liability from the concussion lawsuit.

“I do not see the judge cutting off the insurers’ inquiries into knowledge of what and when the NFL knew,” said Lynda Bennett, chairwoman of the insurance coverage practice at Lowenstein Sandler, via email. “Those facts will be used by the insurers to develop an ‘expected and intended’ defense. Notwithstanding that the underlying dispute has resolved, the insurers will engage in extensive discovery to try to obtain factual support for that defense.”

An “expected and intended” defense is when the underlying policyholder, in this case the NFL, knew of the problem that sparked the lawsuit. If the policyholder knew, then the insurers will maintain they should not have to cover the settlement payments.

“If the insurers can establish knowledge [by the NFL] that injuries would occur unless precautions were taken (i.e., stiffer penalties, better helmets), they may have success in proving that the injuries were expected, intended, not an accident, and therefore not insured,” Bennett wrote.

At a hearing scheduled for this week, New York state Judge Jeffrey Oing could rule on whether discovery can commence. To date, he has not allowed such discovery in the matter, which began 12 months ago, under the legal theory that the insurers should not dig up information that could damage the policyholder’s case against the retirees.

With the NFL/retirees case now preliminarily settled, it could take away that basis for precluding discovery.

Discovery is typically confidential, but findings and excerpts frequently are used in legal briefs as well as in rulings from the bench.

The insurers’ case could hinge on how Oing interprets the “intended and expected” defense. Some courts have a high standard, Bennett said, ruling that a policyholder like the NFL would have had to expect and intend to cause the injury. That would be difficult for the insurers to prove, she said. Other courts have used something that’s referred to as the “reasonable man” standard: Would a reasonable person have looked at the same information the NFL had and expected the injuries, she said. That is a lower standard and can be easier to prove.

— Daniel Kaplan

One billion dollars in additional national revenue. A sharper international focus with more events. A major broadcast rights deal. Another “24/7”-style show.

All within three seasons.

These are the goals of a comprehensive NHL staff reorganization announced by the league internally late last week.

In a memo dated Sept. 5 and obtained by SportsBusiness Journal, NHL Chief Operating Officer John Collins notified all league employees of the goals, initiatives and staff changes that start with the 2013-14 season. Collins also writes in the memo, “By the end of this three-year period, we expect annual gross national revenue will approach [an increase of] $1 billion, accounting for nearly 20 percent of league-wide hockey-related revenue (HRR).”

The statement serves to confirm what team and league sources were saying during the Stanley Cup Final in June, regarding the NHL’s projected revenue growth (SportsBusiness Journal, June 24-30 issue). It also is a reflection of how the league, buoyed by the 10-year collective-bargaining agreement it executed with the NHL Players’ Association in January, sees the next decade as an opportunity for unprecedented financial growth. It previously has taken the league six seasons (from 2005-06 to 2011-12) to add $1 billion in national revenue; the NHL now is declaring it will match that total in the next three seasons.

The NHL posted $3.2 billion in total revenue for the 2011-12 season, the last full season before the lockout-shortened 2012-13 campaign. In 2012-13, when each team played 48 regular-season games instead of the usual 82, the league has projected $2.4 billion in total revenue.

Having gross national revenue — derived from national deals including sponsorship, media and licensing — at 20 percent of HRR, which includes all revenue, is notable growth, as well. In 2005-06, Collins’ first with the NHL and a year after the lockout that canceled the entire 2004-05 season, the league’s gross national revenue accounted for 7 percent of HRR.

Such gains would be welcomed by individual club owners. Many teams — including the Chicago Blackhawks, Pittsburgh Penguins, Boston Bruins and New York Rangers — are close to being maxed out on key revenue streams. In what is still regarded as a gate-driven league, these clubs are sold out of season tickets and have long waiting lists. Sponsorship sales are also strong, so revenue driven by the league office is essential for the clubs.

And because the NHLPA negotiated a 50 percent share of HRR in each year of the new CBA, the players would benefit from the national revenue increase as well.

The memo cites four touchstones as key to developing increased revenue for the NHL:
Expansion of the league’s core businesses: media, licensing and sponsorship.
The NHL’s big-event strategy, which in 2014 includes the Winter Classic and Heritage Classic and four additional outdoor games in major markets branded as the Coors Light Stadium Series: two games at Yankee Stadium and one each at Dodger Stadium and Soldier Field.
An increased presence in Europe, with more regular-season NHL games overseas, the return of the World Cup of Hockey — which, in 1996 and 2004, featured eight top national teams in a tournament in August — and plans for a Champions Cup competition between top European and NHL clubs.
Securing new Canadian media rights deals, which would begin in 2014-15.

Those Canadian rights deals are expected to be a financial boon to the NHL. The exclusive negotiating window for public broadcaster CBC, which has had the iconic “Hockey Night in Canada” franchise for more than 60 years, closed at the end of August. According to a league source, negotiations will continue with CBC but also will start later this month with competitors Bell Media, which owns TSN and CTV, and Rogers Sportsnet.

Currently, the NHL is bringing in close to $200 million a year in rights fees from its Canadian partners. It expects a healthy increase considering the marketplace for live sports rights.

The league is determined to enhance its storytelling and programming, as well. While HBO will produce and broadcast another “24/7” series this year — built around the Winter Classic between the Red Wings and Maple Leafs at Michigan Stadium — the NHL has its own plans for a documentary centered on the Heritage Classic, the stadium series and next year’s Winter Olympics in Sochi, Russia. The league will produce an eight-part, all-access documentary that will take viewers behind the scenes with the teams and players from before those five outdoor games to the aftermath of the Olympics. The series will be shown on CBC and Sportsnet in Canada and on NBC Sports Network in the United States.

As for the staffing changes designed to spur these gains, among the moves implemented and announced internally late last week were the promotion of six executives:
Brian Jennings, executive vice president of marketing, who started at the NHL in 1990, has been given the added title of chief marketing officer. That title had been open at the league, with the president of NHL Enterprises in recent years acting as the de facto CMO.
David Proper, executive vice president of media strategies and distribution, has been elevated to the newly created position of executive vice president, business affairs.
Gary Meagher, executive vice president, is adding responsibilities in communications and editorial areas.
Additionally, three staffers have been promoted from senior vice president to executive vice president positions:
Keith Wachtel (global partnerships);
Don Renzulli (events);
Stephen McArdle (digital media and strategic planning).

Longtime NFL executive Jim Steeg has been added to assist Renzulli’s events staff on a project basis, focusing at the outset on games at Dodger Stadium and Soldier Field.

The reorganization in total includes the promotion or reassignment of more than two dozen executives.