Business of Sports

March Madness' Success Is a Big Gamble


1. March Madness: A $3 Billion Gamble.

Three billion dollars.

That's not the cost of Jerry Jones' next sports real estate venture, nor is it the amount of bailout money some shady bank will receive. According to R.J. Bell of sports betting site Pregame.com, more than $3 billion will be plunked down for March Madness bracket pools in offices across the country—just a little less than the 2008 state budget of Delaware.

According to 2008 polling data, more than half of all Americans 16 and older have placed at least one legal or illegal bet on sports in the past year—including office pools. Recent estimates peg the annual amount of all sports betting in the U.S. at $300 billion—almost as much as the GDP of Switzerland. All but two states, Hawaii and Utah, allow some form of gambling, and Utah is considering Indian casinos.

A new Microsoft/MSN survey indicated that 45% of Americans plan to enter at least one college basketball pool in 2009. More women (50%) than men (42%) claim they'll participate in at least one pool. However, 15% of MSN respondents say they'll spend less money entering pools than they did last year, while 10% more are planning on sitting it out.

What does this all have to do with the business of the NCAA tournament? A lot. Not wanting to be left out of this major revenue stream, almost every major sports media entity is holding its own online bracket challenge—and if they can't get a direct piece of the action, there's advertising. Fox Sports is holding the $1 million Hooters Bracket Challenge, while ESPN has its Tournament Challenge presented by State Farm and Sprint. Yahoo! Sports counters with its $1 million Tourney Pick'em '09, presented by KFC Value Meal in a nod to the tough times.

Allowing employees to participate in pools could be good for company morale—a salve to the withering economy, employment experts say. But is that reason enough to look away when they're watching from their desks?

2. How Many Hineys in House?

Conference by conference, NCAA officials saw attendance fall during the just-completed men's basketball regular season. From the ACC to the Big East, all the way to the Mountain West, most leagues saw per-game averages dip 1% to 5%, according to individual conference data.

Even the venerable Big East tournament at Madison Square Garden in New York City—which delivered no less than three No. 1 seeds to the Big Dance—saw fully 50% less value in tickets sold, according to TicketsofAmerica.com President Michael Lipman.

For the moment, however, the NCAA tourney is looking to provide welcome economic respite to its host cities. In the Dayton region, for example, officials predict the NCAA Tournament will bring more than $6 million in economic benefits, as 10 top teams and their followers travel there this week. More than 13,000 people are expected for each game at the University of Dayton Arena, according to organizers there. The university itself is expected to take in $600,000 to $650,000 for hosting the games.

In Portland, Ore., the eight schools that drew seeds there have a ticket allotment of 6,800 Rose Garden tickets to first- and second-round games. Drew Mahalic of the Oregon Sports Authority is estimating a $10 million economic impact there, even if not all the tickets sell.

NCAA Tournament Associate Director David Warlock claims the main criteria when selecting host communities are the arenas, the number of available hotel rooms, and the airport and transportation infrastructure. The competition for bids for first- and second-round games is heaviest in the South and Midwest, Warlock adds.

3. March Mad Men: The Advertising Scene

Is CBS' $6 billion, 11-year rights deal with the NCAA for basketball properties including the centerpiece tourney paying off? To most, it looks like the deal, which goes through 2013, has been a better gamble for the network than betting on No. 1 seeds—even though the rights fee for this year alone tops $571 million.

The clincher in the profitability picture, of course, is the digital media rights portion of the deal. As of today, CBS claims it has sold almost all of its online ad inventory to more than 35 advertisers including AT&T (T), Coca-Cola (KO), and even troubled General Motors (GM). Industry executives project online ad revenue for the tournament will reach $30 million this year, up about 30% from 2008. Also sweetening the digital pot are CBS' mobile partnership with AT&T and its satellite distribution deal with DirectTV (DTV).

Outside of the online inventory, total ad revenue tied to the tournament in 2008 was $643.2 million, up 24% from $519.6 million in 2007, according to TNS Media Intelligence.

More and more advertisers are reaching out to fans to up the creativity. Last week, vitaminwater launched its Revive to Survive campaign, asking fans to re-create "a great moment in NCAA March Madness history" and upload the videos to ncaa.com/revive. The winner receives a VIP trip for two to the Final Four in Detroit.

4. NFL Owners Convene in Dana Point

While the biggest news concerning the NFL this week surrounds the appointment of DeMaurice Smith as the new National Football League Players Assn. executive director, NFL owners gathering in Dana Point, Calif., on Mar. 22-25 have a laundry list of issues to discuss far beyond the new NFLPA chief's challenge on Monday to open labor talks immediately.

As in most business discussions these days, the economy tops the list, with league owners and executives trying to find new ways of maintaining the league's profitability without laying off more personnel or raising ticket prices.

Not on the agenda for the annual meeting is the woeful Detroit Lions' annual Thanksgiving Day game. NFL Senior Vice-President Greg Aiello confirmed that owners "will not discuss taking away the game from the Lions unless someone raises the issue unexpectedly." Sure to be discussed, however, is the NFL Network, which is facing the loss of 2 million more subscribers next month when its carriage deal with Comcast comes to an end. Top NFL executives including Commissioner Roger Goodell have reportedly "stepped up their negotiating efforts to convince Comcast (CMSCA) to cut a deal that would put the channel on its digital basic tier," as well as continued discussions with Fox about that network taking an equity stake in the channel, according to SportsBusiness Journal. Whether to allow hard alcohol advertising is also reportedly on the docket.

The meetings at the pricey St. Regis resort are already receiving media backlash à la Northern Trust and AIG. The NFL, says the Pittsburgh Post-Gazette, is "throwing people out of work, not because they're losing money but because, at best, they fear the future—although it won't stop the owners from staying in $500-a-night rooms."

5. Sportel America a Bit Quieter This Year

It's quiet at the Miami Beach Resort this week, and not just because spring break has yet to reach its peak. At Sportel America, the revolving international sports program market for television and new media that complements the major show each October in Monaco, conference organizers claim that attendance is holding steady from last year, with more than 500 attendees from 40 countries present. It's clear to longtime exhibitors in the echoing ballroom, however, that attendance is down considerably.

That's not to say deals aren't getting done. Far more electric than the half-empty trade show hall are gathering spots around the resort—particularly the beachside cafÉ, where animated discussions in many languages contrast with the languor of beachgoers. Nearly every major international broadcaster has a presence here, with digital platforms taking center stage. Stats show off new SportVU technology, which allows complex data on players moving around a soccer pitch to be gathered using adapted Israeli military technology. Meanwhile, Sportcal.com is promoting its online sports marketplace.

What's hot? We'd have to say fight sports and martial arts are still the new wave of rights sales, with Ultimate Fighting Championships, CSI Sports, and World Wrestling Entertainment commanding the largest stands on the floor. Asia continues to be a hot growth market, and with 2010 being both a Winter Olympics and World Cup year, deals around those two properties dominated discussions.

From here, it's on to Monaco in the fall—that show regularly draws 2,500 attendees from 80 countries. We'll see how it does this year.

6. Sounding Off: MLS Season Begins

Now that the David Beckham/Los Angeles Galaxy drama has been put to rest, Major League Soccer can focus on its new season opening Thursday. All eyes, for the moment, have shifted from L.A. northward to Seattle, where the expansion MLS Sounders FC prepare to take the pitch for the first time.

Defying the recession, the Sounders landed more than 30 sponsors and sold more than 20,000 season tickets ahead of their Mar. 19 opener at Qwest Field against the New York Red Bulls, according to the Puget Sound Business Journal. Tickets for the opening match are completely sold out, with the club adjusting seating to accommodate more than 32,400 fans. (All other matches will accommodate 27,000.)

Much of the team's sponsorship and promotional success can be attributed to its affiliation with the city's Seahawks—about half of the club's sponsors have partnerships with the NFL franchise. By contrast, the Mariners expect to sell only about 14,000 season tickets by opening day—although the MLB team plays more than four times as many games as the Sounders, and season tickets are much costlier. Clearly, it pays to be the new kid on the Seattle block.

7. BNP Paribas Open Heats Up, Sans Williamses

The BNP Paribas Open at Indian Wells, Calif., moves into high gear this week, with tennis aficionados around the world hoping for yet another Roger Federer-Rafael Nadal rematch in the men's final.

The tournament is certainly good for the local economy. Coachella Valley hosts a lot of top-tier events for such a small region—besides the signature Indian Wells tennis event, there's the PGA Tour Bob Hope Classic, the LPGA Kraft Nabisco Championship (the former Dinah Shore), and the annual PGA Skins Game. Also on tap is the Coachella Music Festival on Apr. 17-19, the second biggest annual music fest in the country outside of Bonnaroo, drawing 150,000 and headlined this year by Paul McCartney.

One player who definitely won't be reprising her role in the BNP Paribas (BNPP) women's final is Australian Open winner Serena Williams, who with sister Venus is once again skipping the tournament as the pair has done for the past eight years, after allegedly enduring racist taunts in 2001 when Venus defaulted to Serena 10 minutes before their scheduled semifinal match. Angry spectators, left to watch a doubles match instead, suspected that the girls' father, Richard Williams, had engineered the default, and Serena was booed during the final.

Under the new WTA Tour Road Map 2009, players who skip one of the WTA's five mandatory tournaments face heavy penalties unless they perform "in-market" promotional activities around the skipped event. In the Williams sisters' case, the Los Angeles Times' Bill Dwyre estimates that Serena alone could be missing out on more than $3 million, or about 13% of her $23 million in career earnings, because of her decision to skip the event. Dwyre's estimate takes into account a $75,000 fine if she declines the in-market activities, foregone prize and bonus money of $1,293,500 if she were to win the singles and doubles titles as she did in Melbourne, and $2 million in lost incentive money from Nike (NKE) should she keep the No. 1 ranking.

For tennis fans who like to fill out brackets, March Madness-style, the ATP Tour has introduced a new online bracket contest for men's tournaments called "Game, Set, Match." Prizes will be awarded to the best tennis bracketeers at the end of the season; Nadal tops the contest picks for the BNP Paribas Open at 37.3%.

8. Satellite Radio Sports Contracts per Game

As MLB and Sirius XM Satellite Radio (SIRI) continue to spar over making MLB game broadcasts available to all of Sirius XM's 19 million subscribers, it's instructive to look at satellite radio sports contracts per game. As of now, how much is MLB per game relative to other sports leagues?

4. NHL: $8,130.08 per game

3. MLB: $24,317.25 per game

2. NFL: $122,767.86 per game

1. Nascar: $597,222.22 per race

*Figures for the NBA's contract with Sirius not available

9. FA Fears £425 Million Domestic TV Contract

British broadcasters Setanta and ITV are both looking to renegotiate their television broadcast contracts with the English Football Assn.

Pay-television broadcaster Setanta delayed making a scheduled payment of more than £10 million on their £150 million contract. ITV is looking to reschedule payments on their £275 million deal but has met all scheduled installments so far.

The FA's £425 million, four-year deal with the broadcasters began this season covering England home internationals and the FA Cup. Both broadcasters are addressing separate financial issues. Setanta's management has instituted a major review of the business, prompted last month by losing one of the two packages of Premier League rights they owned. ITV is currently addressing a short-term cash-flow problem. Under the terms of Setanta's deal, the broadcaster is understood to have more time to pay before they are in breach of contract.

10. Top Five Sports Feuds

With Shaquille O'Neal and Stan Van Gundy jawing back and forth this past week, it got us thinking: What are the best sports feuds of all time?

5. Mike Piazza vs. Roger Clemens (MLB). Intentional or not, the bad blood started when Clemens hit Piazza in the head with a fastball. As fate would have it, the two met again in that year's World Series. After sawing off Piazza's bat, Clemens picked up a splintered piece and threw it at the catcher as he was running to first base. Piazza will likely have the last laugh, because he will make it into the Hall of Fame, while steroids will ruin Clemens' chance.

4. Bob Clarke vs. Eric Lindros (NHL). Clarke stripped Lindros of his captaincy after openly questioning his toughness. When Lindros suffered a collapsed lung, the trainers misdiagnosed the injury and wanted to fly him back to Philadelphia, a move that could have killed him. The feud between GM and player got so bad that Lindros' father wrote a letter to the team, blasting the medical staff's ignorance.

3. Shaquille O'Neal vs. Kobe Bryant (NBA). As teammates, Shaq and Kobe won three consecutive NBA Championships. When the relationship soured, the Lakers sent The Big Shaqtus to Miami. What followed was years of public jabs, although Shaq recently wrote the feud off as "marketing," we're smarter than that.

2. George Steinbrenner vs. Billy Martin (MLB). Martin was known for his bad attitude and drinking problem. At a press conference during his first stint as manager, Martin called Steinbrenner a convict in reference to his illegal campaign contributions to Richard Nixon. Their relationship was so rocky that Steinbrenner hired (and fired) Martin on five separate occasions.

1. Muhammad Ali vs. Joe Frazier (boxing). Their trilogy of matches is arguably the greatest in the history of boxing, but in this decade-long feud, Ali brought trash talking to a new level. Frazier dealt Ali his first career defeat. Ali responded by winning the next two bouts and giving Frazier a slew of nicknames, including the "Gorilla" and "Uncle Tom." The two made peace in later years.

Rick Horrow is a leading expert in the business of sports. As CEO of Horrow Sports Ventures, he has been the architect of 103 deals worth more than $13 billion in sports and other urban infrastructure projects. He is also the sports business analyst for CNN, Fox Sports, and the Fox Business Channel.

Karla Swatek is vice-president of Horrow Sports Ventures and co-author of Beyond the Box Score: An Insider's Guide to the $750 Billion Business of Sports.
Rick_horrow
Rick Horrow is a leading expert in the business of sports. As chief executive officer of Horrow Sports Ventures, he has been the architect of 103 deals worth more than $13 billion in sports and urban infrastructure projects. He is also the sports business analyst for CNN, Fox Sports, and the Fox Business Channel. Karla Swatek is vice-president of Horrow Sports Ventures and co-author of Beyond the Box Score: An Insider's Guide to the $750 Billion Business of Sports (2010). Horrow is also the host of Sportfolio, a new program on Bloomberg TV that airs Wednesday nights at 9 pm ET.

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