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Business of Sports

The NHL's Icy Start


1. NHL Drops the Puck on Regular Season This week is traditionally a time to overcome jet lag for many players in the National Hockey League, as teams return from preseason games across Europe to prep for divisional foes here in the U.S. As the NHL gears up for regular season play to start on Oct. 1, the leagues slate of business issues for the 2009-2010 season is far from smooth as ice.

On the positive side, the league is already looking forward to major midseason marketing vehicles, including the hugely popular Bridgestone Winter Classic on New Year's Day (this year's edition features the Philadelphia Flyers playing the Boston Bruins at Fenway Park) and the Winter Olympic Games in Vancouver. Together, these events provide a huge boost for hockey in ub&eumlat;r fan-friendly environments. The rising rivalry between the Pittsburgh Penguins' Sidney Crosby and the Washington Capitals' Alex Ovechkin is also drawing interest outside of the sport's base of hard-core fans.

Gone are the salary issues that precipitated the league's 2004 work stoppage, as the new salary cap does not allow any player to make more than 20% of his team's total payroll (Ovechkin is the closest at 17%). And as the ultimate sign of stability,there is no shortage of cities itching for an NHL franchise, with Hamilton, Kansas City, and Seattle all lobbying for teams.

But serious carriage issues linger. A deal is not yet in place between the NHL and Time Warner Cable (TWC) for a Center Ice package this season, although executives on both sides seem confident that one will be in place by the end of this week. More critically, the current carriage dispute between Versus and DirecTV (DTV) has NHL Commissioner Gary Bettman urging hockey fans to "Call DirecTV and tell them you're not happy"—the league's viewership will obviously be way down without satellite TV coverage, a blow for the NHL and its sponsors alike.

In Arizona, the fate of the Phoenix Coyotes continues to distract, as issues surrounding the sale of the team loom over the preseason and the team's Oct. 10 home opener. With prospective owner Jim Balsillie amending his bid and the issue tied up in court, the franchise at least knows that it will call Glendale home for the entire 2009-2010 season. The Tampa Bay Lightning are also going through owner's box shifts, as co-owner Oren Koules takes on billionaire Miami real estate investor Jeff Greene as a partner to fend off takeover plays for the team.

Despite all of the NHL's success over the past five years, none of these benchmarks will matter if the league cannot maintain labor peace. The current CBA, which was ratified in 2005, expires in September 2011. Complicating negotiations, the NHLPA is without a permanent Executive Director, after Paul Kelly was fired earlier this month. Although the NHL managed to survive one lost season, another work stoppage would be devastating to the league and Commissioner Bettman's reputation.

2. "90 Days without Lost Time?" MLB Wraps 2009 Regular Season As its teams play the final handful of regular-season games and players clean out their lockers and arrange tee times, Major League Baseball has reason for minor celebration—it's been over three months since a MLB player tested positive for a banned substance, was the subject of a tell-all book, or dated Madonna. Let Plaxico Burress go to jail for shooting himself in the leg, let Lamar Odom marry Khloe Kardashian. MLB, for the moment, is solidly focused on the game at hand.

MLB finished its season with an average attendance of 40,055, down close to 7% from last year. Only nine MLB teams posted attendance increases over last year through Sept. 27, and fewer than a third of all teams seem poised to post attendance gains. All division leaders, with the exception of the World Champion Phillies, are down from 2008. The combined increase for the nine teams with gains "comes to 11,881 fans per game," according to MLB figures, while another nine teams—the Astros, Blue Jays, Diamondbacks, Indians, Mets, Nationals, Padres, Tigers, and Yankees—are "all down more than 4,000 fans per game." More than one pundit across the nation has pointed out that baseball standings tell the real story—the biggest spenders in the league are the ones who are headed to the playoffs. Of the nine teams starting the season with a $100+ million payroll, six are currently playoff-bound, meaning that only two teams with a sub-$100 million payroll can compete in the post season. What's more, as New York Daily News writer Bill Madden points out, the league's revenue-sharing policy seems to reward "incompetent ownership."

In 2008, MLB last year transferred about $400 million in revenue sharing and luxury tax. The Cleveland Indians received more than $20 million while the Pittsburgh Pirates—"despite their beautiful, eight-year-old, taxpayer-funded stadium," as Madden says—received more than $40 million. Adding in the $35 million each MLB team received from the league's central fund (which includes revenues from national TV, licensing, properties, and advanced media) the Pirates had banked $75 million and, with a $48 million payroll, were looking at a $27 million profit before ticket sales. But they're in second-to-last place in the league, ahead of only the lowly Washington Nationals, who also have a beautiful new stadium.

MLB Commissioner Bud Selig calls the league's current lack of parity "an aberration." "Am I discouraged from a competitive balance or parity standpoint?" he says. "No, not in the least. I believe that the competitive balance we've had the last four or five years is a more accurate reflection of where we are."

The biggest off-season story for baseball is likely to be the sale of the Texas Rangers. According to league sources, several prospective ownership groups have been vetted by the league and submitted bids to Hicks Sports Group and beleaguered franchise owner Tom Hicks. Estimated cost for full ownership of the franchise is $450 million to $525 million. One individual reportedly out of the running for the Rangers is former owner and former President George W. Bush, who has said he's "not interested in getting back to baseball" and that his "checking account is a little empty."

3. Going Dry as Jim and Jack Say Goodbye? For decades, "miles per gallon" in NASCAR could just as easily refer to the big jugs of Jack Daniels and Jim Beam whose sales to fans helped to fund multiple race teams. Within days of each other, however, the parent companies of these time-honored NASCAR brands announced that they were leaving the sport at the end of the season.

Beam Global Spirits & Wine, maker of Jim Beam Bourbon, and Jack Daniels' parent Brown-Forman (BF) insist that they are satisfied with the sport and are just shifting their marketing mixes. Jim Beam had been a sponsor of team owner/driver Robby Gordon's No. 7 Toyota (TM) since 2005, while Jack Daniels had backed Casey Mears, driving No. 07 Chevrolet for Richard Childress Racing.

Sponsoring a NASCAR team is a costly endeavor that can easily require $20 million to $30 million annually, with almost all of that spending squarely focused on an American audience. Notes USA Today, "the marketing options available to the spirits industry, including sports marketing and advertising, have increased, and with these added opportunities comes competition for marketing dollars." Industry analysts also point out that much of Jack Daniels' recent growth has been overseas, in Australia, South Africa, and China—not exactly hotbeds of NASCAR fans.

Richard Childress Racing execs have stated that the organization's "goal is to have four cars in 2010, but that is all dependent on sponsorship." Likewise, Gordon has "several sponsors that should help" his team fill the gap, including Monster (MWW), Polaris, and Camping World.

And liquor is certainly not leaving NASCAR forever. Earlier this year, Crown Royal extended its deal with Roush Fenway Racing's No. 18 Sprint Cup car. What's Prohibition for some is a splashy opportunity for others.

4. As Miami Resurfaces, ACC-TV Deal Nears Expiration Despite the University of Miami's crushing 31-7 loss on Sept. 26 to conference rival Virginia Tech, the program is once again garnering the attention it did from 1982 to 2001, when it won five national championships. Miami bested in-state rival Florida State in a thrilling Labor Day match up that drew 8.4 million viewers to ESPN, the second-most viewed regular-season college football game in the network's history. This weekend, the 'Canes face powerhouse Oklahoma in yet another nationally televised game.

This is all terrific news for the Atlantic Coast Conference as it prepares for its next round of television rights negotiations, over a bar raised by the Southeastern Conference's 15-year, $2.25 billion deal with ESPN, currently in its first year.

The ACC generated $162.8 million in revenue in the fiscal year ended June 30. The conference's current TV rights deals comprise a seven-year, $258 million deal for football with ABC/ESPN, and a 10-year, $300 million men's basketball deal with Raycom Sports, both of which run through the 2010-2011 season and give the ACC the opportunity to bundle new deals. Conferences typically look for a 50% to 60% revenue bounce when they ink new TV deals, though the economy will likely play a factor in keeping that figure down.

Overall conference performance is also a factor—a key reason why ACC officials are no doubt secretly rooting for Miami. While the conference has done well in basketball, with the University of North Carolina winning it all last spring as well as in 2005, only Virginia Tech has made it to a BCS bowl in recent years (winning the Orange Bowl last season).

Both Raycom and ESPN are reportedly interested in striking new deals with the conference or looking at forming its own network (as the Big Ten has done). UNC's hoops dominance could provide some needed leverage—as could University of Miami victories throughout the rest of the football season.

5. Last Oligarch to BrooklynDon't know about you, but we figured that the first Russian to invest in an American sports franchise would purchase a hockey team. Just think of it as fiscal revenge for the Miracle on Ice.

However, it is the NBA, not the NHL, that scored big in the oligarch ownership derby, as Russian billionaire Mikhail Prokhorov announced his intent late last week to buy the New Jersey Nets and the proposed Barclays Center from Forest City Enterprises' Bruce Ratner. Terms of the deal, according to a letter of intent signed by both sides, call for Prokhorov's company to invest $200 million and other considerations for 80% of the Nets, along with a 45% stake in the Barclays Center (Ratner will retain control of the arena and keep 20% of the team). The deal must be approved by the NBA's board of governors.

Prokhorov, called the richest man in Russia, has an estimated fortune of $9.5 billion. He also has a reputation as a party guy and was arrested in France in 2007 "on suspicion he was supplying prostitutes to wealthy friends." However, a hard-living reputation shouldn't be much of a barrier to ownership in the NBA, where Jerry Buss has held court for years and players are constantly linked to celebrities. And Prokhorov is likely to be embraced with nary a &quotnyet" in Brooklyn, which has more than 150,000 documented immigrants from the former Soviet Union. The new relationship also furthers NBA Commissioner David Stern's broad vision of globalization.

And forget Jim Beam and Jack Daniels. Stoli, Smirnoff, Belvedere, Chopin, Grey Goose, and Absolut—we're waiting for you.
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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