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Volume 21 No. 1

Opinion

Iappreciate Chicago White Sox Chair Jerry Reinsdorf’s frank and blunt style. There’s very little wasted air in a conversation with the longtime Chicago sports leader. During a candid interview with him before a game at Guaranteed Rate Field as part of our Intersport Brand Engagement Summit, Reinsdorf spoke about loyalty, culture and leadership, and there were a number of points that stood out to me.

First, Reinsdorf articulates clarity on his role as CEO. “If a CEO is doing his job properly, he really doesn’t have a lot of things to do,” he said. “A CEO is responsible for long-range planning, public relations and the most important thing is he’s responsible for identifying the jobs that have to be performed and putting the people in those jobs that can do those jobs better than he can, and making sure that they talk to each other.”

When I brought up his trait of loyalty to his staff — which has been both praised and criticized over the years — he didn’t blink and said it was central to the organization’s culture. “I try to be loyal only to people who deserve the loyalty,” he said. “I hope I’m not loyal to people who don’t deserve it. We try to run this place like a family business. In our employee manual, people are directed to call everybody by their first names, no Mr. or Mrs. We want everybody to feel free to talk to everybody and go into any office to talk, any time they want. When you do that, you get good people, you get people who like their jobs. So the fact that somebody might be here 25 years is not because I’m loyal, it’s because that person is doing a good job and enjoys the work environment.”

Remarkable recognition

of Rooney

ROONEY
     There were a number of memorable moments for me at the Sports Business Awards last month, which was particularly nostalgic as we held the 10th annual event. But one part of the night stood out. We had discussed prior to the event whether we should pay special tribute to the late Dan Rooney, who was the recipient of our Lifetime Achievement Award in 2014. After talking to people inside and outside our organization, we decided not to do something specifically, but instead feature the longtime NFL leader in our historical vignette that evening.
     Standing on the ballroom floor as we introduced the Lifetime Achievement Award category, it was so heartwarming to hear the room break into spontaneous, organic and prolonged applause of appreciation when we showed footage of Mr. Rooney accepting his award. It was wonderful to know that people, without any prompt or ask, showed their appreciation and gratification for the man. It wasn’t pushed on them, it just happened and the loud, sustained applause reflected the respect the industry has for everything Dan Rooney stood for and did. It made my night.
Reinsdorf has a penchant for not mincing words, and he admitted to saying “things about some people that I probably shouldn’t say.” But he believes honesty is rooted in keeping one’s word. “When you give your word, you have to keep it,” he said. “If you have a handshake on a deal, that’s the deal. … Your word has got to be your bond.”

He also implored the audience to not rush decision making. “If you have a really difficult decision to make, and you’re really having a hard time doing it, but you don’t have to make it right now — If you wait, very often more facts become available to you, and facts are what you need in order to make a decision. You can’t procrastinate to the point where it’s too late to make a decision, but too soon means you may not have enough facts.” Interestingly, a longtime team executive approached me after the interview and said Reinsdorf’s remark caused him to immediately pause on a major personnel decision.

But Reinsdorf was in prime-time form when I asked about the historical debate over Michael Jordan versus LeBron James, and he came fully loaded. “It’s a fair discussion about LeBron,” he said, pausing for effect as the audience wondered if he’d truly put James above his longtime player, before coyly adding, “Is he the second-best player in basketball history or was Oscar Robertson? There’s absolutely no question who the best player was. … There has never been another Michael.” It was Reinsdorf’s mic-drop moment.

CHASE CAREY’S CHALLENGE: I don’t envy new Formula One CEO Chase Carey, because he has a massive reorganizational overhaul on his plate. Carey was in good spirits as he made a rare speaking appearance at the conference, as he and Intersport chair Charlie Besser go back more than 20 years. As I listened to the amiable Carey, I jotted note after note of one incredible fact after another — things I couldn’t believe were lacking in such a global entertainment enterprise as F1. Someone asked me later about what stood out, and I kept going back to Carey’s line. “In some ways, it’s an organizational startup,” he said. I was shocked to hear how Carey’s dining room table was his office and “I would walk the streets of London for meetings.”

F1 is just now moving into offices in London, but it reflects just how sparse the organization’s infrastructure was, and still is. There’s very little staff. It’s not just human capital that is lacking, there is also very little research or data or analytics or information on the sport’s reach, engagement, sponsorship impact or fan base. Observers keep fast-forwarding to Carey’s plans regarding adding races and coming to the United States. But there are far more fundamentally basic issues he and his team must tackle to get this organization into current times.

WHAT STOOD OUT: One of the most impressive brand presentations that I’ve seen — from taking an idea, executing and building it and seeing it result in business growth — was Dr Pepper Snapple Group vice president of media Blaise D’Sylva detailing Dr Pepper’s efforts with the fictional and fun Larry Culpepper around college football. D’Sylva methodically mapped out the brand’s College Football Playoff sponsorship over the last three years, and how the popularity of Culpepper continues to grow. “All the metrics are still very positive on Larry,” D’Sylva said, while showing data indicating that in the ever-softening carbonated soft drink category, Dr Pepper grew sales and largely attributed it to the success of the Culpepper/CFP tie. Few can so directly tie back a program to increased sales … Look for the Atlanta Braves to soon roll out an augmented reality experience at SunTrust Park, as Braves vice president of marketing Adam Zimmerman said, “You’re going to be able to ultimately point your phone at a player’s back and trigger an augmented reality experience, a deeper engagement that we may co-curate with that player.”… The Miami Dolphins are an organization I continue to watch closely for their progressive business ideas, so I listened closely as Kevin Cote, Facebook’s head of sports partnerships, teams and athletes, outlined how the Dolphins are one of the best examples of an organization using the social platform to drive their business. The team has shifted some of their traditional marketing budget to develop social media content. “They are taking people who consume that content and re-targeting them directly with ticket sales, messaging, lead ads and merchandise. So it’s a way to use the content to directly drive business results that are measurable,” he said. He cited them as a good example of where an organization’s digital and marketing department can be revenue-generating departments, where in the past they were largely cost centers. … Still a lot of talk about the value and necessity of the printed ticket. Teams, of course, would love everything to be digital, while some fans insist on hard tickets. AT&T’s Ryan Luckey wondered about having fans attend games using mobile tickets, but giving them the option to later print the tickets if they desired for a keepsake. Umbel’s David Cedrone looked beyond the printed ticket to the day when organizations can sell more than just admission to an event as part of the ticket. “It could be possible after a ticket purchase to get in touch with the buyer on email and give them bundled offers of merch and food, or maybe a photo op or things like that,” he said. “As a father, I would imagine it would be pretty great to be able to go to the experience and know that I had pre-bought some stuff and didn’t have to go fight a line.”

Abraham D. Madkour can be reached at amadkour@sportsbusinessjournal.com

“No longer will the networks keep paying ever-increasing fees for sporting events.”
— President, CBS Sports

When would you guess this was said?

Would you believe in the Feb. 11, 1985, Sports Illustrated? The NBA was generating just $22 million a year from CBS. Then, after NBC paid $601 million for four years, the same executive said, “I definitely see network rights fees plateauing.” Doesn’t sound out of place in 2017, does it? Deja vu all over again?

Sports networks have been perpetuating this narrative, hoping to lower rights-seller expectations, alleging that rights fees can go no higher, while they continue to do just that. Seizing upon perceived weakness, like the May 3 news that first-quarter cord-cutting led to 762,000 fewer subscribers, or recent ESPN layoffs, it might seem from this “alternative fact” rhetoric that the generational run-up of sports media values has peaked.

Let’s take a careful look. Over my 40 years in the business, prices for major sports media properties have actually grown at double-digit annual rates, fueled by the importance of the sports-content product to media providers driving demand and ample cable-subscriber revenue igniting competition. Can this phenomena be perpetuated or will cord-cutting stall it?

While the sports media marketplace is undergoing significant change, it remains robust. Here’s why explosive value growth should not abate:

Cord-cutting/shaving is relatively minor. It’s a glacially slow process. So far, subscriber counts have only fallen about 1-2 percent each year. There are 2 million more MVPD subs today than in 2007. Despite “skinny bundles,” most network subscriber levels are similar versus a decade ago. Higher per-subscriber increases for must-have sports networks outstrip declines in number of those subscribers, and household formation continues. This means the current $108 billion MVPD revenue is still growing — but just less than previously anticipated. Kagan projects $116 billion in 2026, and expect a larger sports share.

Sports is essential to MVPDs. Sports networks continue to be “must-haves.” Competition among 3-4 cable/satellite/telco providers in most markets provide insulation from network drops, with sports enabling them to hold on against the rising tide of SVOD services. Plus, the growth of TV Everywhere is increasing the relevance of MVPDs to mobile-first consumers.

Virtual MVPDs picking up the slack. The launch of new “cable-like” packages by Hulu, YouTube, Sony, Amazon, DirecTV Now and Sling that include linear sports networks — most paying higher wholesale prices — are offsetting some of the declines from traditional MVPDs.

Over-the-top players adding demand. Sports has long been a new media technologies battlefield. New entrants join the ecosystem to distinguish themselves. Amazon (with a larger market cap than major sports players Disney, Fox and Comcast combined) just paid $50 million to stream the NFL’s Thursday night games (up from Twitter’s $10 million) for games already widely distributed via broadcast and cable. It can benefit from Prime subscription service lift, and the NFL can benefit from Prime. Google, Facebook and Hulu having hired sports programming experts. How long before leaders like Apple or Netflix come to play?

Finite supply. Unlike general entertainment, which only requires a decent script and production financing, more marquee sports content simply can’t be created. The human body and the calendar impose physical limits. With growing demand chasing the essentially fixed supply, rights prices can only go up.

Social media makes it easier for fans to gather in front of screens, on virtual or real bar stools.
Photo by: GETTY IMAGES

New priorities change status quo. New team owners that come from hedge funds and private equity eschew tradition. They’re more interested in revenue growth justifying the high prices they paid for entry into the most exclusive of clubs. Leagues looking to fund compensation for concussion liability or new collective-bargaining obligations are more open to new opportunities like jersey advertising, sports betting and esports. Colleges needing to cover new student athlete-related costs are also adapting. Schools are changing conferences or playing new Thursday and Friday night football games to generate more TV revenue from the same inventory.

New technology. Virtual and augmented reality and 4K are recent examples of ways that sports rights use expands. Next generation custom curation engines will make it easier for fans to consume events of interest. This will grow audiences, further propelling media asset values.

Social. Social media has made it easier and more efficient than ever for fans to join together and enjoy sports on a “virtual” bar stool. According to Nielsen, sports drives more than 50 percent of social TV conversations on Twitter. This stokes and catalyzes demand, and ultimately increases viewership, just as second screen experiences have energized participation (lean forward) in what was previously a (lean back) passive viewing experience.

Media/distribution consolidation. Media and distribution companies are combining. AT&T+DirecTV+Time Warner; Verizon+AOL+Yahoo; Comcast+NBC. Each is an example of content ownership with distribution platforms, which provide more ways for large content investments, like sports rights, to pay off, justifying higher rights fees.

Eliminating the middleman. New opportunities for sports entities to “self-publish” via streaming provides a safety valve should traditional networks look to trim rights fee payments. WWE, UFC and the NHRA have already launched. While there is added risk, going direct and owning the customer relationship is king in digital.

Traditional sports media rights relationships are still successful, provide broad exposure and are financially rewarding. Every network executive I know covets at least one major property they don’t have, which will keep the pressure on. During the past two years, the NBA and Big Ten have again nearly tripled their annual rights revenue. That same former CBS Sports president said recently, “Sports properties are like beachfront properties.”

The sky is not falling, but the revenue landscape is more challenging. Maximizing media revenue now requires both maximal leverage placed on traditional sources and an open assessment of new ideas. Sports is no less popular, so sports networks with a cache of high-profile rights will have to raise prices to offset penetration declines from lost non-sports subscribers. Don’t succumb to the convenient notion that sports rights values have somehow reached a crescendo. History, and many positive developments, strongly suggest to the contrary.

Bill Gates said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10.”

Ed Desser is founder and president of Desser Sports Media Inc. (www.desser.tv). He served 23 years as the senior media executive in the NBA’s office of the commissioner.