The Making of the OKC Thunder

In honor of the opening of the NBA season, be sure to check out the article in Sunday's New York Times Magazine relating the saga of the creation of the Oklahoma City Thunder, or if you prefer, the hijacking of the Seattle Sonics to OKC. It's an interesting take on the story.

Kentucky's Governor Goes All In

I've been meaning to write about this amazingly ridiculous and downright scary litigation for some time but for some reason, just haven't gotten around to it. In case you haven't heard about it before now, let me fill you in briefly on what Kentucky's hypocritical Governor has been up to.

At the Governor's direction, the Commonwealth of Kentucky has seized the domain names of 141 online gaming companies, including some of the biggest names in the business. In an order issued in Franklin Circuit Court, in Frankfort, Kentucky, Judge Thomas Wingate agreed with the Commonwealth's argument that the website names were "gambling devices" under Kentucky's gambling statutes and therefore capable of being seized by the state. Since Kentucky residents could access the sites, Judge Wingate determined that they were doing business in the state and subject to the state's jurisdiction. A copy of the decision can be found here.

Needless to say, this case has stirred up a hornet's nest of opposition and not just from gaming site operator's. If this decision, which has been appealed, is allowed to stand it would set a very difficult precedent for the operators of websites everywhere. It would mean that all websites would be subject to 50 different state statutes not to mention 200 something different national legal schemes, rather than just the legal system in the state and nation in which the operator is physically located.

An appeal has been filed by the Interactive Gaming Council (IGC) and the Interactive Gaming and Media Association (IMEGA) and will be heard by the Kentucky Court of Appeals (the intermediate appellate court) on November 18th, which is unusually fast for Kentucky. It is difficult for me to believe that the seizures could ultimately be upheld, if not by this court then by the state or US Supreme Court. If ever there was an instance of interstate commerce which should be reserved to the federal government, this would seem to be a shining example of it. I would also point out that the state's signature industry, thoroughbred racing, is allowed to maintain its own Internet gaming sites, see twinspires.com, a unit of Churchill Downs, which certainly smacks of unfair and discriminatory treatment.

As this case moves forward, I will try and keep you posted. If you are concerned about the future of the Internet and ability to keep it free and unfettered from regulation, be very, very concerned about this case.

Curlin's Co-Owners Disbarred

Since today is Breeders Cup Day, I would be remiss in not updating the story of Curlin's minority owners, the lawyers who fraudulently diverted millions of dollars from their clients in the settlement of a class action arising out of the diet drug commonly known as fen-phen. The criminal trial of Shirley Cunningham Jr. and William Gallion ended in a hung jury and they are scheduled to be retried in federal court in February.

The two filed motions with the Kentucky Supreme Court requesting voluntary withdrawal from the Kentucky Bar as permanent disbarrment. The Court entered an order disbarring the pair on October 23.

In a separate state court civil action in which the lawyers former clients are seeking recovery of diverted funds and have received a $42 million judgement, the judge has ordered that the pair's 20% interest in Curlin be sold and the proceeds used to satisfy the judgement. The interest will be sold pursuant to a sealed bid auction with bids due by November 5. Curlin seeks to close out a memorable season by winning the Breeders Cup Classic this afternoon at Santa Anita. A hoped for match up with Kentucky Derby winner Big Brown will not take place as Big Brown has been retired due to injury.

Rutgers In Search of Naming Rights Sponsor

We should be getting a good indicator of the impact of the global credit crisis and the global recession on sports fairly soon. Rutgers is in the process of expanding its football stadium and, in conjunction with the expansion, is seeking to sell the naming rights for "somewhere in the $1.5 million to $2 million range." Supposedly there are four companies now interested.

Should Rutgers get that much and should it get at least a fifteen year deal, that would make the deal one of the higher naming rights deals in place for a college facility. It would indicate that the naming rights market remains strong despite the economy and should certainly make the New York Giants and New York Jets very, very happy. The Giants and the Jets are in the market trying to sell the naming rights to their new stadium under construction at the Meadowlands. Their target is to exceed the current market top reached by the Mets with CitiField opening next season. That deal is worth $400 million over 20 years, a figure matched by the New Jersey Nets for their new arena in Brooklyn with Barclays as the rights holder.

Moneyball to be a Movie

Looks like Billy Beane is slated to become not only a baseball sensation but a Hollywood screen idol. Moneyball, Michael Lewis' popular look at the use of statistics to run a baseball team, specifically the Oakland A's is being made into a movie. According to Variety, Columbia Pictures is putting together a movie focusing on Beane and based on the book as a potential starring role for Brad Pitt. That should do a little something for Mr. Beane's ego. HT to Clusterstock.

More on the Impact of Credit Crisis

The credit crisis and economic downturn is affecting sports in a myriad of ways. One sign that the impact is deeper than perhaps first believed are reports from the NBA that the league has laid off 80 employees, which amounts to about 9% of its workforce. In addition, Commissioner David Stern recently said that he expects tickets sales throughout the league to "drop modestly."

The New Jersey Nets, whose move to Brooklyn will be delayed at least a year by the downturn as groundbreaking on its new arena has been delayed, are employing a novel, for the NBA at least, "buy now, pay later" promotion for season tickets, which certainly reflects the times. It seems to be working too.

Also significantly affected are college athletic departments who have been receiving large donations that are either gifts of stock or are pledges to be paid over time and the donor intended to use stock sales to meet his or her pledge. With the market downturn, those gifts will be increasingly hard to collect. Exhibit A for this problem is Oklahoma State whose record $165 million gift from T. Boone Pickens is tied up in Pickens' hedge fund, which has sustained heavy losses this year. OSU is certainly not the lone ranger in this category as the market travails are affecting colleges and universities large and small. Only those institutions with the staying power to wait out the crash will escape with minimal damage.

Yanks and 'Boys Join Forces

From the "What took you so long department", came this announcement from the New York Yankees and Dallas Cowboys that they had formed a sports business enterprise together with, who else, Goldman Sachs and a private equity company from Dallas CIC Partners. The company, to be called Legends Hospitality Management will offer a broad range of sports business services. It will focus initially on catering, concessions, retail merchandising and other services for major sports and entertainment facilities. Initially it will provide catering, concessions and merchandising within the new Yankee Stadium and the new Cowboys Stadium.

The Yankees and Cowboys will provide the expertise for the venture while Goldman Sachs, a partner with the Yankees in YES Network the Yankees regional cable network, and CIC will provide financing. This business is a natural for both teams as they seek to leverage the opening of their new stadiums and try to boost the revenue streams in as many ways as possible. The Yankees and the Cowboys are the two biggest brands in American sports so it's only natural for them to join together to market the brands aggressively both within the new stadiums and in as many additional venues as possible.

Legends will also attempt to sell their expertise to other professional and college teams, which may be a bit harder task then perhaps it seems at first glance. After all, who in professional sports wants to give MORE money to either the Yankees or the Cowboys. Most, if not all, of the other baseball and football teams feel they are already operating at a significant disadvantage when it comes to those two, so maybe the NBA and college will be their best targets.

MLS Expansion Draws Interesting Bids

Major League Soccer took expansion bids last night for two franchises expected to begin play in 2011 or 2012. They will be the 17th and 18th teams in the league following the entrance into the league of Seattle next season and Philadelphia the following year. While certain of the bids were from expected bidders, there were a few surprises. Bids from seven cities were submitted this week and the first surprise was that a bid from Fred Wilpon, the owner of the New York Mets, for a second team in New York City was not submitted.

The seven bids included three cities in Canada, two expected bids from Portland and St. Louis and the biggest surprise, a bid for Miami. The Miami bid was submitted on behalf of a partnership of FC Barcelona and a Bolivian businessman, Marcelo Claure, who is the owner of a multi-billion dollar telecommunications company that is the largest Latino owned business in the US. While MLS shuttered the Miami Fusion several years ago, that was probably due as much to ownership and stadium issues as it was to the interest in soccer in Miami. This potential club would have one of the best soccer organizations in the world behind it, a better stadium situation and an owner with deep roots in the Latino community.

MLS has announced a desire to award two expansion bids by March, 2009 to begin play in 2010 or 2011, and possibly two additional bids begin play in 2011 or 2012. Given the strength of all of the bids submitted, I expect that the league will award four bids. It will have some difficulty in making its choices. The Atlanta bid was submitted by billionaire Arthur Blank, the owner of the NFL Atlanta Falcons. Its bid may be hurt by the lack of a definitive stadium plan, although potential sites have been identified. Portland is finalizing its stadium plans, and depending on what you believe, may have been promised a team after losing to Seattle in the last round.
St.Louis has an ownership group and a definitive stadium site and deal in place, along with architectural places for its stadium.

There are three Canadian bids from Vancouver, Montreal and Ottawa. I would not be surprised to see one team awarded to a US city and one to a Canadian city in each round, with the league definitely awarding four teams. The bids are strong enough and at $40 million each, the franchise price is tempting enough. Of the three Canadian cities, I think it is likely that Vancouver will get one. There is ownership and a stadium plan in place as well as a community which supports soccer. The bid was submitted by the owner of the USL 1 champion Vancouver Whitecaps so even that potential issue is solved and also includes Steve Nash for a little star power. Plus, Seattle needs a team close by for scheduling purposes.

The other Canadian bid may be harder. The Ottawa bid came from the owner of the NHL Ottawa Senators. It has demonstrated community but it's not clear that it has a stadium deal in place. The Montreal bid came from a partnership including George Gillett, the owner of the NHL Canadiens and significantly, the English Premier League's Liverpool FC. A stadium deal is not only in place, the stadium has been built. The USL Montreal Impact play in a brand new 13,000 seat stadium, which can easily be expanded to 20,000 to accommodate a MLS team. The stadium and Liverpool connection should probably be enough to convince MLS to put one of the teams in Montreal

So, if I'm handicapping, I would guess that it will be four teams, with the first two going to Portland and Vancouver and the second set going to Miami and Montreal. Miami could beat out Portland for the first round if necessary to satisfy Barca - I don't think the league will want to miss the opportunity to get one of the world's most important clubs on board.

WKU and the Costs of Big Time Football

You almost had to feel sorry for Western Kentucky University. There they were, one of the most successful programs in all of Division I-AA (as it was called then and as I will always continue to refer to it), having won the national championship in 2002, yet they still had trouble drawing more than 12,000 fans a game and received little media coverage outside of Bowling Green. Worse, the football program was a money losing black hole, that sucked up funds endlessly.

WKU president Gary Ransdell and athletic director Wood Selig decided on radical action to fix the problem, while at the same time attacking the image problem Ransdell felt plagued the university as it sought to move from a regional university to more of a national one. They decided to upgrade the football program from Division I-AA to D-IA. WKU is in the second of two transition years this season and next season will mark its first full year as a D-IA program, eligible for consideration for bowl games. The Hilltoppers will compete in the Sun Belt Conference, a league in which they were already members in other sports. USA Today recently wrote about the costs associated with upgrading the program, as well as the reasons behind the move.

The costs are substantial, making the move fraught with risk. While having a ready made conference affiliation is of some benefit, the fact that it is the Sun Belt, may actually make that more of a detriment than a benefit. Sure, scheduling problems are taken care of, but the quality of the opponents is low and the travel costs are not, while the league only has one bowl bid. All in all, I think Western should probably have explored its other options in greater detail than it appears that they did. There were many rumors of interest from the MAC, which would have given the Toppers a conference with more bowl bids, better football and significantly cheaper travel costs, not to mention games to which it would have been much easier for their fans to travel to see. I'm surprised that Selig didn't explore this option further.

Credit Crisis Hits NYC Teams

Any team building a new stadium and trying to sell sponsorships, luxury suits and personal seat licenses is facing a daunting landscape these days. The global credit crisis now strangling the financial world in a manner not seen in a generation has caused financial institutions to crumble and sponsorship and advertising dollars to disappear in a wisp of smoke and government takeovers.

The crisis probably hits New York City the hardest as it is home to so many of the American financial institutions and five teams in the major professional sports are bringing new stadiums online in the next couple of years. The Mets and Yankees have played their last seasons in Shea and Yankee Stadium and are selling season tickets, sponsorships and luxury suites for next season and beyond. The news is surprisingly good for the Mets as the club says that all 49 suites have been sold at prices up to $500,000. The Yankees have not been so lucky. There are 47 suites in the new Yankee Stadium although not all of them will be sold. The club still has 7 for sale at $600,000 each, having sold out all of the more expensive suites, which were priced at $650,000 to $850,000.

The Jets and the Giants are in the middle of the process of selling personal seat licenses for their new stadium being constructed at the Meadowlands. So far, the Giants have not had any cancellations, just requests for cheaper seats. The Jets are about to conduct an auction, which will be closely watched all around the league as a gauge on the impact of the crisis on fans willingness to part with money for PSLs.

Sponsorships are starting to dry up and that may prove problematic for the Giants and the Jets, as well as the Nets who are moving to Brooklyn in 2011. The Giants and Jets are seeking a naming rights sponsor for their stadium. Barclays is the sponsor of the Nets new arena paying $40 million over 20 years and while it has not yet indicated any intention of backing out of its agreement, the deal made sense to Barclays when it intended to expand its retail operation in the US. How much or if it even intends to do so given the current circumstances is certainly open to question. The other worry for the Nets is how the credit crisis will impact the team's ability to finance the project since the financing package for the project and its accompanying real estate development has yet to be finalized.

The Credit Crisis and Sports or What's the Name of that Building Again?

Sports is often said to be a microcosm of society and to the extent that is true, we shouldn't be surprised to see that the ongoing global credit crisis is adversely impacting sports in a number of ways. The most visible way perhaps is something that teams and their fans have experience with and that is the ever changing landscape of stadium and arena naming sponsors.

We have seen a number of financial institutions disappear from the landscape in the last few months and several of them, Washington Mutual and Wachovia among them, have their names on arenas around the country. Just like the period following the dot com bomb in 2000, I expect that teams will move quickly to attempt to reclaim the naming rights to those arenas and resell them. The Wachovia Center in Philadelphia, were it to be renamed following the sale of Wachovia's banking operations to Citigroup, would have its fourth name since 1994 as a result of bank mergers. Similarly, expect changes to the name of the WaMu theatre in Madison Square Garden and in Seattle.

The credit crisis has also caused the delay in financing and building of arenas. The new home of the Nets in Brooklyn has been delayed at least a year as result of the crisis. Barclays, the British bank which is the naming rights holder appears to be one of the banks which will survive the crisis, so we should expect that deal to go forward. Barclays is also the title sponsor of the Barclay's Open which is the kickoff of the PGA's year end Fed-Ex Cup playoff and is the sponsor of the English Premier League.

The PGA may be the sport most affected by the crisis as it has the most financial institutions as sponsors. One-third of the Tour stops are sponsored by financial institutions and 25% of network ad time comes from that industry. Golf's audience has always skewed upscale and financial institutions have been more than willing to pay a premium to reach it. Now, however, those dollars, and indeed, those institutions, may no longer be available. It doesn't help that golf ratings have been falling this year, particularly since Tiger has been out.

It's difficult to predict how this will all shake out. After the dot com imploded, replacements for title sponsors were found, and new names appeared on arenas and stadiums. Some of those deals were less lucrative but many were significantly better. This time, all signs point to a larger worldwide recession looming so it's not reasonable to assume that replacements will be either easy to find or as lucrative. The television marketplace is different as is the naming rights market. Nevertheless, replacements will be found because sports always represents unique properties that are in demand somewhere and with someone.