Debt Crisis Could Lead to NFL Labor Unrest

Further to last night's post on the impact of the auction rate debt crisis in sports, here comes NFL Commissioner Roger Goodell this morning citing the crisis as a factor in the owner's likelihood of opting out of the collective bargaining agreement this fall. The owners have an opt out window this November and have been making threatening noises directed toward the Players Association for some time. The increased pressure of the debt crisis allegedly tightens owners' margins and, according to Goodell, "right now there's a great more risk."

"When you shrink the margins by increasing player costs and increasing other costs, at some point in time the economics become untenable,'' Goodell said.

Now, I'm sure this was said with a straight face too, but it's a little hard to take this argument too seriously since the league is now receiving $5 billion in television revenue. Granted, that has to be shared with the players, and the players are receiving 55% of the total, but let's not kid ourselves, the teams can pay for the balance of their costs out of the rest and we haven't even begun to discuss ticket revenue, luxury boxes, and sponsorships. In addition, how many teams have stadium costs anyway? Five, six? Most of the league play in stadiums that are built by and owned by states or municipalities that are bearing the risks of the auction rate crisis. The four teams (Giants, Jets, Cowboys, Patriots) mentioned by Bloomberg may be the only ones, other than the Redskins, that actually have built and own their own stadiums.

Credit Crisis Hits NFL

The auction rate bond crisis now sweeping through the municipal bond markets has stuck the NFL particularly hard, although it has also taken a toll on stadiums in baseball. At least five states and cities -- Louisiana, Indiana, New Jersey, Washington, D.C. and Cleveland -- have used tax-exempt auction-rate bonds to host teams in the NFL, NBA and MLB since 2005. Now, as a result of the turmoil in the municipal bond markets, the interest rates on those bonds is anywhere from triple to five times what it was six months ago.

The average fixed rate municipal bond yielded 4.28 percent over the last 12 months. With the collapse of the auction rate market, the $238 million in bonds sold by Louisiana to finance the reconstruction of the Superdome lacked buyers and, as a result, reverted to a default of 12 percent.

Similarly, rates on $123.8 million of bonds sold to help finance the new Giants and Jets stadium in New Jersey were yielding in a range between 11.5% to 22% as a result of at least one failed auction in March. Bonds for Lucas Oil Stadium in Indianapolis suffered a similar fate, jumping in February from 3.5% to 15%. In Cleveland, rates on over $100 million in bonds sold to finance Browns Stadium jumped to 12% from less than 4% in March.

As a result, state and local budgets will come under increasing strain as debt service payments explode. In most cases, the additional debt service will have to come out of taxpayer pockets as the lease to the tenant franchise call for fixed payments and stick the governments with the full burden of the additional debt service. Depending on how long this crisis lasts, essential services may have to be cut back, pointing once again to the folly of committing too many taxpayer resources to the construction of playground for super rich sports team owners who can well afford the stadiums on their own.

Carnival of the NBA

The latest edition of the Carnival of the NBA is now up at Daily Basketball. Get over there and check it out.

Will the Credit Crunch Mean No Brooklyn Nets?

The ramifications of the continuing credit crunch the nation is enduring are being felt throughout the economy and the sports world is not immune. Earlier, I discussed how it impacted the English Premier League, but it is also being felt a little closer to home, just across the river from Wall Street to be more precise. The multi-billion dollar Atlantic Yards project in Brooklyn has as its centerpiece the Frank Gehry designed arena which is to be the new home of the now New Jersey, soon to be Brooklyn, Nets.

Today, Nets owner Bruce Ratner, the CEO of Forest City Ratner, the developer of Atlantic Yards, announced a delay in the development of the signature office tower and the three residential buildings at the heart of the $4 billion development. The current credit markets and the economic slowdown has made leasing a challenge and while Ratner pledges that the project is moving forward, delays like this one commonly lead to much quieter cancellations at a later date.

Today, Ratner pledged that construction of the arena would proceed on schedule, however, it is difficult to believe that it would actually happen on time when the balance of the project is in limbo. The arena was the effective loss leader for the entire development, although at $950 million and counting, it was perhaps the most expensive loss leader ever undertaken anywhere in the world.

Since the arena's footprint encompasses more than one block, eminent domain will be needed and the new administration in Albany may not be as friendly towards eminent domain as that of Client Number 9. As State Senate Leader in 2005, he held a rally calling for a statewide moratorium on the use of eminent domain.

Can you say Newark Nets?

CBS Sees Explosive Growth in Online NCAA Viewing

Opening March Madness On Demand to free viewing for all games has proven to be the correct strategy for CBS, as the network has seen explosive growth in the online viewership of the NCAA tournament's first round games. Viewership of just Thursday's set of first round games exceeded all of last year's online viewers combined, as the expansion of outlets to social networking sites fueled growth in demand. A total of over 1, 750,000 unique visitors accessed the site according to figures supplied by CBS, representing 122% growth over last year.

CBS attributes much of the growth to a drop in the requirement for advance registration. allowing for instant access to viewing. Also contributing greatly to the growth, and operating in conjunction with the drop in registration was the expansion of access to the player to partner sites across the Internet, including social networking sites including Facebook, Myspace and others. There was practically no major online presence where you could be where there was no instant availability of the March Madness On Demand player. Clearly, free advertising supported viewing of the tournament is well received in the marketplace and has become a now commonly accessed adjunct to the telecast of the tournament. I know that I had the tournament on both my laptop screen and my big screen for most of Thursday and Friday afternoon, as my local CBS was locked in to games without cutaways because local teams were playing. CBS should make well in excess of last year's $25 million from the On Demand product, which will be a welcome supplement to the broadcast revenues.

Becks to Be MLS Owner?

According to a report to be aired on CBS 60 Minutes this coming Sunday, David Beckham has been granted an option to buy a franchise in Major League Soccer, together with with his manager Simon Fuller. The option kicks in at the conclusion of his five year playing contract with the Los Angeles Galaxy. There is no denying that keeping Becks' worldwide star appeal attached to MLS after his playing career is over would be a major boost to the league. His arrival at the Galaxy has rocketed the club's stature worldwide, resulting in a huge upsurge in jersey sales a recently concluded pre-season Asian tour that would have been unthinkable before he arrived.

Neither the Galaxy nor MLS would confirm or deny report and Beckham's spokesman declined to comment.

British Soccer Clubs Sweat Out Credit Crisis

While March Madness occupies most American, at least those not preoccupied with either the Presidential race or the latest twists and turns of the credit crisis, Wall Street's issues are drawing close attention across the pond among the executive suites in the clubhouse across the English Premier League. It's not just because of the recent influx of North American owners into the league either. No, the credit crisis is playing out in surprising ways among some of England's top clubs.

The sudden fall from grace of Bear Stearns allegedly will not impact Tottenham Hotspur despite the investment of principal owner Joe Lewis. Billionaire Lewis, who controls Tottenham's parent company ENIC, spent about $1.2 billion in building up a roughly 10% stake in Bear Stearns over the last year only to see that essentially wiped out when the bank was sold to JP Morgan over the weekend for about $225 million in a Federal Reserve orchestra take out. Lewis, who is opposing the sale, claims the blow was not too severe and that the club will not be put up for sale. He has assured Daniel Levy, Spurs chairman, that all is still well. I guess that can be the case when you are the 16th richest man in Britain.

As for other club's problems, well the most immediate is probably Newcastle who should be looking for a new jersey sponsor as current sponsor Northern Rock is unlikely to renew following its takeover by the British government due to the mortgage crunch. The big three of Manchester United, Arsenal and Liverpool are all heavily indebted to the tune of several hundred million pounds each. While all of the debt is fixed rate and in the case of Man U and Arsenal looks clearly covered by adequate cash flow and has many years left on their terms, the likelihood of refinancing at lower rates, or taking the debt out by securitizing it or floating a public offering of a stock is, at this point too remote to contemplate in the intermediate term or for the next 12 to 24 months certainly.

The problem for Liverpool is a bit more acute as it will need to refinance its debt within 18 months as it matures then. In addition, it needs to build a new stadium, the financing for which is not in place and is not likely to be able to be placed easily in this credit environment. Add to this mix the toxic stew that is the current relations between the partners, Dallas Stars owner Tom Hicks and Montreal Canadiens owner George Gillett, and you have a situation that could rapidly escalate into a full blown crisis.

What Are the Cubs Worth?

As we all know, the Tribune Company has put the Cubs up for sale. New owner Sam Zell has said that he would like to sell the Cubs and Wrigley Field in separate transactions as he believes that would maximize the return to the company. You can quibble with his logic, but he is a buyout king and a billionaire, and I'm not, so I'll defer to him on this one. Besides, he owns the company, so he gets to set the rules.

Portfolio did a "back of the envelope" calculation which valued the team at about $600 million, figuring on 2.5 times revenue and about 20% premium for a contender. Add a little bonus for trophy value and that's where you get to. Now, my guess is the real number is substantially higher since there is likely to be a bidding war. Plus, what is a little unclear is what assets will be included in the sale. Specifically, will the Cubs' 25% interest in Comcast Sportsnet Chicago be sold with the team? That would likely add another 20% or so to the number.

If the Wrigley sale is not separated from the team, as it shouldn't be in my opinion, then the price for the whole package is likely to reach closer to $800 -900million. It's difficult to project what Wrigley is worth because you just don't know what a new owner will do to monetize the stadium. Will a new owner go forward with Zell's idea to sell the naming rights? What improvements will a new owner make to the stadium and will that mean new revenue streams?

Interestingly, Portfolio's calculation was not that far removed from Forbes' most recent valuation of the Cubs, which was $592 million. Of course, that means that Portfolio, has to be several hundred million dollars too low, because no team has sold within several hundred million of Forbes' valuation in years. It's sort of like your home and the local tax assessor - you know that your house is worth tens of thousands more than the assessed value and it will sell for more, but you keep the assessment low for your tax bill.

All this speculation is fun, but it would be nice if the Tribune Company and baseball would get on with it already and get the sale moving. I sure would like to see Mark Cuban as the owner of the Cubs already. I think he and Sam Zell would hit off but I just don't see Selig letting that happen.

Olympic Sponsors Face Darfur, Tibet Protests

The current funding model for the Olympics requires a substantial investment from the corporate sector in the form of sponsorships, often to the tune of $100 million and up for the foundation sponsors like Coke, McDonalds and Lenovo, and that is true even if the Games are held in a Communist nation like China. In fact, access to the billions of Chinese substantially raised the price of sponsorships for this summer's Games.

Now, however, those sponsors are facing an unexpected political and business crisis in the form of rising protest over China's involvement in the ongoing genocide in Darfur and the mounting protests in Tibet. In addition, the Games were awarded to China upon promises to the IOC of substantial improvements in human rights treatment in China and now those promises have been ignored.

The Games themselves may be marred by a substantial military presence to prevent Tibetan protests. Athletes may boycott Beijing in protest over Tibet or Darfur. IOC president Jacques Rogge, taking the same stance as each of his predecessor's when faced with the possibility that the Games may face the reality of world politics, told reporters that a boycott would only hurt athletes and "doesn't solve anything."

So, what do the sponsors do? Several plan to get together to discuss that very thing. They do plan to discuss their concerns privately with the Chinese, however, that doesn't satisfy the public need to be seen as doing something. The protesters need to know the sponsors have taken action, however ineffective it may be. Yet, the sponsors don't want to piss off the Chinese and risk being tossed out of the country. Ah, there is nothing like trying to do business with a dictatorial regime, hellbent on proving a point to a dissenting minority (Tibet) or doing deals with the devil for oil (Darfur)

There may not be good options for Western companies in this situation. To be seen to be kowtowing to the Chinese is to risk a consumer boycott. It may be an effective way to stay in the Chinese market, which is not yet a mature one for consumer products and has yet to reach the size of the US and the EU. To walk away in order to satisfy a vocal minority and to embrace a worthwhile principal may be conceding that market to your rivals for at least a generation. Will the goodwill you earn in your home market make up for the loss of China? Will you actually lose China if you just walk away? Hard questions with no easy answers - but it's what happens when you do business with maintain no illusions about democracy, human rights or basic freedom.

Jewish Jordan Back Home in Baltimore

After an extended tour in Israel that last saw him playing in the Israeli second level national league, Tamir Goodman, fated to be forever haunted as the "Jewish Jordan", is back home in Baltimore. He was recently signed to play with the Maryland Nighthawks of the new Premier Basketball League, a recently formed minor league which plans to take on the wild and wacky ABA. The PBL opened play this year with ten teams, several of which are refugees from the ABA.

Goodman returned from Israel for the chance to play basketball in his hometown for a professional team that would allow him to both play basketball professionally and still observe his faith. The Nighthawks, in conjunction with league officials, restructured their schedule to eliminate Friday night and Saturday afternoon games so that the team would not play on the Jewish sabbath, thus allowing Goodman to observe Sabbath restrictions prohibiting work. It made possible something he thought would only be available to him in Israel. Of course, it's not likely that even were his talent level high enough, (it's not) to make the NBA that David Stern would ever work out a schedule with whatever team signed him to allow that to happen at the Big Show. Enjoy while you can Tamir, you'll be back in Israel soon enough.

HT to Sports by Brooks

Wrigley Not Likely to Pay Naming Rights for Wrigley Field

The new owner of the Chicago Tribune has opened a hornets nest with his suggestion, made a couple of weeks ago, that he may sell naming rights to the cozy confines of the Chicago Cubs currently known as Wrigley Field. Now, most of you probably know that the Wrigley Company once owned the Cubs but the ballpark was actually named in the 1920s, for its then owner William Wrigley. The team was later acquired by the chewing gum company, now run by William Wrigley, Jr.

At the company's annual meeting today, Wrigley wouldn't totally discount that the company would pay for naming rights, but didn't indicate that it was high on its marketing agenda either.

"Certainly I and my family have a great passion for the Cubs and the tradition of baseball in Chicago and Wrigley Field and the whole package," he replied. But he indicated the company lacked a compelling business reason to pay for naming rights because Wrigley's marketing focuses on individual gums like Orbitz or Big Red

"We try to put the spotlight on our brands, and not the Wrigley name, and that would be our bias in evaluating any opportunities."

He did say that he would never say never but Cubs fans who want to see the park remain Wrigley, well, I wouldn't be too optimistic.

Does NCAA Online Viewing Account for CBS Rating Decline?

We all know that March Madness has become a national sporting icon, second only to the Super Bowl in the pantheon of the American sporting universe. The average 30 second spot in the championship game now sells for about $1.4 million, which is not quite Super Bowl money but it's certainly getting close. So, what accounts for the dropping Neilsen numbers?

CBS viewer numbers have declined by 12% during the past three years. Last year brought an average 6.1 for all games, the second lowest in the 25 years CBS has televised the tournament(the lowest came when the tourney coincided with the start of the Iraq War in 2003).

If you believe Billy Packer, the blame rests with CBS itself for placing games online for free. Of course, before this year, the availability of games was limited. This year, all 63 games ( every game except the dreaded Tuesday play-in game) will be available to anyone with a computer and a broadband connection. No registration is even required, allowing one click access from hundreds of websites (early registration is available here). Interesting that the man without a computer believes that allowing free online viewing to the one million folks who viewed the tournament at work last year is the cause of the drop in ratings is farcical at best. Listening to Packer rant while supposedly calling the games may contribute to the drop in viewing almost as much as opening up broadband access. The folks who access the tournament online are most likely unable to watch on TV not choosing it as an alternative, unless it is to watch a game not available in their region. It's incremental income CBS is thrilled to get, especially when it's estimated to be $25 million this year.

It's CBS' turn to do all of us a favor and retire Packer. Who knows, maybe the ratings will spike.

Should the NHL Fear Russia?

There was an interesting article in the New York Times yesterday about the return of numerous Russian and European hockey players to Russia to play and the concerted efforts being put in by Russian officials to upgrade the Russian Superliga in an attempt to provide a meaningful alternative to the NHL. While the focus of the article was on Alexi Yashin, a former star who had what could be charitably termed a tumultuous last few years in the NHL with the Islanders, and was bought out of the final four years of his contract for over $17 million. Yashin is 34 and his skills are not what they once were. Yet, he has convinced his supermodel wife, Carol Alt, to join him, when shes not working, in remote Yaroslavl where he plays for the local entrant in the Superliga, Lokomotiv.

Nevertheless, despite what my friends at The Sports Economist believe, I would not dismiss the Russians out of hand. Oil wealth and political power, combined with potential for a viable European league could join to give the NHL a real problem down the road. For the next few years, as the Russian flex their economic muscles, expect increasing fights over young players. The Russian hockey federation and the Superliga have not signed agreements with the NHL regarding transfer rights and I would not anticipate that they will sign one anytime soon. The next Ovechkin and Malkin will not get of Russia quite so easily (not that Malkin got out that easily as it was). With the Winter Olympics coming to Russia in 2014, look for the Russians to try and build a European league before then that can build off the hype generated by the Games.
Just what Bettman needs - yet another problem he can't figure out, and one with a better TV contract.

How the SEC Got Rich

The Birmingham News has done an enormous favor for all college football fans who are interested in just how college football arrived in the sorry state in which it finds itself. In a series of articles on the history of the SEC in commemoration of the conference's 75th anniversary, the paper attempts to explain how the SEC and its counterparts among the Big Six conferences have become the financial powerhouses we know today. The News documents not only the history well but the current state of the sport, together with linking to a database of conference financial information with team by team payouts from 2006.

The history may be familiar to many, but it is useful to review and to realize once again the vast sums that swirl around college athletics, and football in particular. No longer is this mere sport, or a sideline enhancing education. It is big business first and foremost, with budgets often swamping those of many academic departments. The pressures placed on athletic directors to produce revenue is immense and trickles down to coaches with their multi-million dollar contracts. It is the constant need for revenue that feeds the pressure to cut corners in recruiting or in academics to keep kids eligible that shouldn't be or to take kids that don't belong in college or in your institution.

The SEC isn't the only conference that is guilty of infractions like these but it is worse than most. At one point in the last couple of years, every member of the conference but Vanderbilt was on probation, a statistic I don't think any other conference can come close to matching. It is a conference that traditionally has had a fan base that doesn't care how you win, just so long as you do win. They also don't seem to care who you beat - witness the league's traditionally weak non-conference football schedule. There is a historical conference culture that accepts NCAA violations and weak academic standards. There has been some movement of late to correct that perception, but the SEC still has a long way to go.