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Volume 21 No. 6

Leagues and Governing Bodies

Major League Baseball club owners are looking at a giant payday of about $50 million each thanks to the latest Disney deal to acquire a controlling stake in BAMTech.

Multiple baseball sources said the vast majority of the funds from last week’s $1.58 billion deal, in which Disney upped its equity stake in BAMTech from 33 percent to 75 percent, will be returned to team owners. The exact amount is yet to be determined, and it might be early next year when the money is actually distributed. But the share for each club could surpass $50 million.

“There will be a distribution of the funds to the owners,” said an industry source speaking on the condition of anonymity as the plans for the money are not yet finalized.

That $50 million amount is similar to a central fund payment clubs receive from the league each year representing a share of national revenue such as broadcast rights, licensing and sponsorship. The forthcoming BAMTech payout was described by ownership sources as “very impactful.” The $1.58 billion sum Disney paid for the additional BAMTech equity, representing one part of a spinoff of the league’s digital operations, is equal to about 15 percent of MLB’s $10 billion of total industry revenue last year, an indication of just how large the deal is. The deal values BAMTech at $3.76 billion.

First Look podcast with discussion of the BAMTech/Disney story:

MLB’s Bob Bowman led four weeks of negotiations.
Disney’s Bob Iger made his intentions known to MLB.
The planned distribution of the BAMTech funds differs from last year’s initial $1 billion deal in which Disney acquired a third of BAMTech, created by MLB Advanced Media to support third-party streaming operations and established as a stand-alone entity in 2015. That first deal involved an undisclosed split of funds — there was a payout to team owners but also an investment back into BAMTech to grow the business. This time, more money goes back to the owners and no money goes back to BAMTech.

Assuming the latest disbursement of the BAMTech money goes forward as expected, “this will be one of the largest one-time special payouts to teams in any sports league ever. I don’t believe there has ever been a distribution quite like this,” said Marc Ganis, a Chicago-based consultant who works with MLB teams.

NFL owners are sharing more than $1.5 billion in relocation fees from the Los Angeles Rams and Chargers and Oakland Raiders, with each of the non-relocating teams getting about $55 million. But unlike the BAMTech proceeds, those NFL fees will be paid out in installments over multiple years, and didn’t involve the creation of an entirely new business.

The BAMTech funds are not expected to have an immediate impact on player salaries. The new labor deal contains luxury tax thresholds for each year between now and 2021, with penalties for exceeding those thresholds that include heightened surcharges and reduced draft positions.

Unlike that first Disney-BAMTech deal that involved nearly a year of often-arduous negotiations, the most recent agreement went much quicker and involved about a month of active talks. Disney Chairman and CEO Bob Iger reached out to MLB Commissioner Rob Manfred in late June, indicating his desire to exercise that option. That set off four weeks of negotiations between MLB’s president of business and media, Bob Bowman, and Kevin Mayer, Disney’s senior executive vice president and chief strategy officer. Manfred then presented the deal to team owners early last week prior to the formal announcement on Aug. 8. The transaction is slated to close in the fall.

Disney’s move paves the way for the debut of a long-discussed ESPN streaming-only offering early next year, followed by a Disney-branded over-the-top network in 2019, with both supported by BAMTech technology. The ESPN network is slated to include more than 10,000 live events per year, including MLB, NHL and MLS games, though specifics such as pricing have yet to be determined.

Disney’s acquisition of majority control of BAMTech does not have any direct bearing on MLB’s $5.6 billion rights deal with ESPN that runs through 2021 and covers the “Sunday Night Baseball” franchise among other inventory. There will be a daily out-of-market MLB game on the ESPN streaming network that involves a supplemental rights fee to the league. But even without a formal covenant on a future TV rights deal, the bond between MLB and ESPN is unquestionably tightened.

“We have a great partner in ESPN, and it obviously doesn’t hurt to make moves like this that only serve to help solidify that partnership,” said Larry Baer, San Francisco Giants president and chief executive officer, and a member of MLB’s business board of directors that oversees MLBAM.

Baer, among others around the game, marveled at the growth of BAMTech and the economic value and industry impact it has created so soon after its creation. Beyond Disney’s own plans, other BAMTech clients include HBO, WWE and the PGA Tour, among many others.

“This is a really impressive story, that we have had technologists working for baseball out of Chelsea Market [in New York] creating proprietary technology that has created this kind of demand,” he said.

With Disney now set to take majority control of BAMTech and that operation under the day-to-day management of chief executive Michael Paull, Bowman and other key lieutenants such as MLBAM executive vice president of business Kenny Gersh will refocus on baseball after being involved in both MLBAM and BAMTech, and MLBAM itself remains fully owned by the 30 MLB club owners. Until MLB’s planned move to a new midtown Manhattan headquarters in 2019, MLBAM and BAMTech will remain physically housed together, but the operations will be largely separate going forward.

“This continues that path of focusing exclusively on baseball and its fans and its products, and we anticipate better, deeper and more products for the 2018 season,” Bowman said.

The transaction leaves MLB with slightly more than a 15 percent equity stake in BAMTech. The NHL’s share, included as part of a larger digital rights deal with BAMTech struck two years ago, was unchanged at slightly less than 10 percent. NHL games will be on the planned ESPN streaming network, by virtue of the league’s digital rights held by BAMTech that were part of the Disney transaction. That means the NHL is slated to be back on an ESPN-branded network for the first time since 2004. NHL Deputy Commissioner Bill Daly said it was too soon to assess the impact of that. But he said the increased valuation of BAMTech was certainly beneficial to the league, with that stake now worth about $370 million.

“From an operational perspective and the day-to-day workings of the entity that we have a contractual relationship with, we don’t think that will change a whole lot,” Daly said.

Staff writer Ian Thomas contributed to this report.

The Pittsburgh Pirates and St. Louis Cardinals will play this Sunday to about 3,000 people, representing one of the smallest crowds in years to see a Major League Baseball game. But the event still represents one of the league’s largest and potentially most impactful marketing efforts of the season.

The Pirates-Cardinals game is the centerpiece of the newly created MLB Little League Classic in Williamsport, Pa. Seeking to advance youth participation efforts, MLB will stage the regular-season game in concert with the Little League World Series going on in Williamsport at the same time. The two teams will play at BB&T Ballpark at Historic Bowman Field, home of the Class A minor league Williamsport Crosscutters, to a crowd largely made up of participants from the Little League World Series and their families, with the game broadcast on ESPN’s “Sunday Night Baseball.”

First Look podcast with discussion of this story beginning at the 12:55 mark:

More than $4M in renovations make BB&T Ballpark ready to host the Pirates-Cardinals game.
Courtesy of: MLB
The effort is an extension of last year’s Fort Bragg game in which MLB continues to seek out nontraditional domestic venues to stage games. After playing last year for the first time on an active military base using a newly constructed facility, the league played a key role in renovating BB&T Ballpark to major league standards, in turn allowing it to bring big leaguers to the town of about 29,000 people.

“We are committed to bringing our game to unique places, and this is certainly part of that,” said Tony Petitti, MLB chief operating officer. “This was something of a perfect storm in which every stakeholder bought in right away. We needed to get coordination from the players union, the two teams, Little League, the minor league team, the town, our owners, and so on, and there was great participation immediately and across the board. And we think this makes a big statement behind what we’re doing to get more kids playing baseball.”

There will be two primary components to the day. In the afternoon, Pirates and Cardinals players will attend the Little League World Series and interact with the participating youth teams. The event will then shift about 5 miles to BB&T Ballpark, where the major league game will start at 7 p.m., an hour earlier than the normal start time for “Sunday Night Baseball.”

Bringing the 91-year-old BB&T Ballpark up to major league specifications required more than six months of planning and work, and more than $4 million in renovations. MLB funded a complete resodding of the field with a new drainage system, upgraded wall and fence padding, new foul poles, backstop netting, and the buildout of temporary clubhouses. Local governments and the Crosscutters, meanwhile, collaborated on upgrades in the seating bowl and the development of a new premium deck.

“This is a really unique setting,” said Murray Cook, a longtime field consultant who aided the league on the preparations. “We’re talking about a really small footprint overall. In some ways, it was more challenging than even some of the international things we’ve done. But it’s come together wonderfully.”

Tickets are free and largely confined to Little League World Series participants and their families, but a lottery was held for local Lycoming County residents involving a small amount of ticket inventory.

The game will be the initial activation of the much-discussed Players Weekend later this month, a joint youth-focused effort by MLB and the MLB Players Association in which players will wear alternate uniforms featuring player nicknames, brighter colors and more customization in accessories.

Editor’s note: This story is revised from the print edition.

The first season of the NBA 2K esports league will be played entirely at one or two central studios, not the teams’ local venues, a top league official said.

The 17 participating teams will still have ways of generating local revenue and building a fan base, said Brendan Donohue, managing director of the league, a joint venture of the NBA and 2K publisher Take-Two Interactive. But a neutral-site studio is the simplest way to ensure high-quality gameplay in the startup years, he said.

“We plan on having the local teams being able to create their own grassroots audience, and they’ll be streaming their practices and things of that nature from their houses,” Donohue said. “We’ll have local opportunities. And then, we want the league matches to be held at a central studio.”

A source familiar with the league’s planning believes Atlanta, home of Turner Studios’ ELeague set, is a probable site, but Donohue said the search for studio space is still in the beginning phases.

The long-term vision still calls for teams traveling to compete in each others’ markets a la the NBA, Donohue said. Donohue disclosed the venue plans as part of a wide-ranging update on progress toward the league, scheduled to begin play in May 2018.

The NBA 2K league has settled on the following league-level protected sponsorship categories: athletic apparel, basketball manufacturer, insurance, salty snacks and confections, and carbonated/energy drinks. Local teams will only be able to sell to league-selected partners in those categories.

Notably, sponsorship assets will span the virtual and real worlds. By customizing the game itself, teams will be able to sell naming rights to a virtual court, “courtside” signage within the game, and jersey sponsor patches that would appear on both the virtual player avatars and in real-life replicas. Team training facilities also could be branded.

Media rights are a major factor yet to be settled, Donohue said. The startup is not bound by existing NBA media contracts. He thinks a basketball simulation may do better on linear television than many esports, which usually have far larger audiences online.

“We have a unique advantage that we may be able to attract casual audiences,” Donohue said. “That’s where linear is interesting. Having said that, I would expect us to have potentially a linear and a streaming option.”

Under current plans, league play would start in May, extend into the summer months and culminate with the finals in August. That schedule could maximize crossover marketing at the beginning of the season and have a relatively non-competitive sports landscape by the end.

“We have a couple key days on the calendar for both 2K and us,” Donohue said. “Christmas Day is a huge day for both of us, and in addition to that, you have the launch of the game in September. The way the league is likely to sit now, it’s nicely nestled between those two dates.”

In February, the game will launch its online qualification ranking system and the league will conduct a player combine. Then, teams will draft players in March. The drafted players will relocate to their team markets in April before league play begins the next month. “We have a 12-month engagement calendar, even outside of the season we’re talking about,” Donohue said. “Even from the release of the game in September all the way through February, we’re hosting grassroots engagement activities.”

None of the 17 teams have launched a name or brand, but team names will include the core NBA team brand, such as possible “Knicks Esports” or “Bucks Gaming.”

The San Diego Padres added $50 million in borrowing capacity as part of a new $140 million financing package with U.S. Bank. The team has no specific plans for the new borrowing muscle but wants it in reserve for future renovations to its stadium and other venues.

“Petco can be a 100-year-old park,” said Erik Greupner, the team’s chief operating officer, of the club’s 13-year-old home, Petco Park. “We take seriously our obligation to maintain it.”

He pointed to poorly maintained Qualcomm Stadium as an example that the team hoped to avoid. The San Diego Chargers played there but moved to Los Angeles this year after not being able to reach an agreement on building a new venue. Since the current Padres ownership bought the team in 2012, it has invested $50 million in Petco renovation and upkeep, Greupner said.

The Padres could use the loan to improve Petco Park and other venues they control.
The Padres also have an academy in the Dominican Republic that may need some upkeep, he added.

The core of the financing is replacing a high-interest-rate, $90 million loan from a group of insurers with one from U.S. Bank. The insurers had charged 8 percent, while the U.S. Bank loan is in the 2 percent range currently (it is a floating rate so it would rise if overall rates do).

Despite the Padres’ onfield travails and mediocre attendance (the team ranked 19th out of MLB’s 30 teams as of last week), the bank is sold on the Padres’ turnaround plans and what it described as the club’s solid financials. “This really tells you [about] the strength of baseball and the Padres specifically,” said Bill Mulvihill, U.S. Bank’s senior vice president, sports and entertainment. MLB’s recent sale of interests in its streaming business also played a role.

“MLB’s success in developing digital platforms is an important reason U.S. Bank is bullish on the league and its clubs,” Mulvihill said.

The PGA of America has marked the calendar for when it will move its premier PGA Championship from August to May, a strategy it hopes will deliver a richer television contract and additional sponsors.

The long-anticipated scheduling change was the talk of last week’s PGA Championship at the Quail Hollow Club in Charlotte. It will begin in 2019, the final year of the organization’s 10-year media deals with CBS and Turner.

The PGA of America hired Evolution Media Capital to help assess the decision to move to May as it heads toward a new round of media deals.

Golf insiders surveyed in Charlotte largely praised the move as good for the PGA of America, for business and for golf.

Moving the event to a “more powerful date,” according to PGA of America CEO Pete Bevacqua, will be a major factor when negotiating the next media deal. Insiders agree.

Moving to May may mean more sponsors and a bigger TV deal.
“[The PGA Championship] has always been slightly compromised,” said Steve Loy, president of golf for Lagardère Sports, of the traditional August date. He predicted that ratings will rise when the event moves to May.

While many believe being the second major behind the Masters instead of the fourth and final major of the golf season is an advantage, the new date also means more television competition in a crowded May sports calendar.

“The viewership levels are higher in May than in August, but particularly on Sunday there will also be a full lineup of NBA playoffs and NHL playoffs that currently does not exist for the PGA Championship,” said Kevin O’Malley, a former senior programming executive for CBS and for Turner.

But O’Malley also sees the benefit of the May date allowing the PGA Championship to be played in Southern markets where the weather is far more tolerable in the spring than in August.

“Overall, it will help because the PGA of America wants to go to more venues and to more parts of the country,” he said.

PGA of America executives believe the date change can lead to additional sponsors.

Currently, Mercedes and Omega are its two “patron partners,” paying at least seven figures annually to activate around the PGA Championship and other PGA of America events. The organization has about 20 other lower-level deals. Samsung did not renew its patron level deal after last year.

Last week at Quail Hollow, PGA of America executives hosted a number of prospective clients, and the particular categories that it is looking to fill are consumer electronics and insurance.

The organization’s expectation is that the move to May, when fan interest in golf is high, will drive more sponsorship interest. Kevin Ring, chief revenue officer for the PGA of America, said the event could support about five top-level partners, leaving plenty of room to add more patron-level deals.

“We think there is big upside in May where we fall in the golf calendar and where we fall in the buying cycle for our partners,” he said. “From a consumer standpoint, a big part of the country is starting to think about golf again and they are brushing off their clubs.”

Other golf insiders see the benefit of the PGA Championship’s new May date, along with the PGA Tour’s decision to move The Players Championship from May to March, as a way to create a more defined calendar, making it more attractive to fans and sponsors. Beginning in 2019, The Players will be played in March followed by a major each month beginning with the Masters in April, the PGA Championship in May, the U.S. Open in June, and ending with the British Open in July.

“If you have big events and have them spaced out one a month over a five-month period of time and you have compelling storylines, the new schedule will be even better,” said Steve Mona, CEO of the World Golf Foundation, which oversees the World Golf Hall of Fame, The First Tee and other golf growth initiatives.

The benefit has heightened interest in each of the five events.

“Golf wanes a bit in August,” said Dave Grant, president of MKTG Sports and Entertainment, which represents FedEx in the company’s sponsorship of the FedEx Cup. The FedEx Cup is expected to be completed by Labor Day in the new schedule to avoid competition with the NFL and college football. “The decision was made with the future in mind.”

The long-anticipated agreement also speaks to the strong relationship between Bevacqua and new PGA Tour Commissioner Jay Monahan. Many insiders noted their positive working relationship was a key reason this deal, in the works for about four years, was finally concluded.

“It is a strong positive for golf just based on their actions,” Loy said. “There was great cooperation behind closed doors.”

In our First Look podcast, SBJ’s Abe Madkour, Bill King and Eric Fisher discuss some of the issues in sports business this week, including:

Potentially huge paydays for teams: The latest deal by Disney to acquire a controlling stake in BAMTech.

State of play in youth sports: Soccer, volleyball see participation numbers rising among high school girls.

Special Setting in Williamsport: Little League crowd to take in big league game.