Okay, now we're going to focus on revenue sharing, and, and we'll get into a little
bit more into sponsorships, and some other issues with Manchester United as we
go forward. But fist let's talk about how revenues
are shared. And this is probably the most complex
issue we'll talk about these first. Coupled modules, you'll actually get a
chance to revisit this again, so don't get frustrated if it's not clear the
first time through. And really what we're trying to get a
focus on, is how dollars are divided among members of a league.
And there's, there's two big pools to think about.
first there's the overall league pool, and this is where dollars come in and the
league determines how those dollars will be distributed.
The, the second pool, smaller is the individual teams' local revenue pool.
And you'll think about it. The value that a league brings is a
global media enterprise may say we wannna broadcast all of your games, all of the
games that the league has. So, we will pay the league this amount of
money, you figure out how to distribute it.
But there's also a local community that's only interested in the one franchise.
And there those revenues, and those games that are shown are just the local games.
So, there's some logic to the revenues just going to that team.
So, that's really the breakdown that we'll, we'll come to.
Each league does this differently. Each league has a different formula on
how to think about. The distribution of revenues.
This is also one of the determinates of how leagues are successful, and, and why
some leagues are not. There's a something special that has to
come into play to allow a businessperson to say, you know what, I should give up a
little bit more money here to the whole rather than taking it for myself.
So, this league will survive and be successful.
So, different ways to do this, different models for the allocations to take place.
number one up there is that there actually is some support for the teams in
the smaller markets. When you think about major league
baseball in the United States, for example.
The markets that you don't worry about financially, are the markets, the teams
that are in the big cities,the Los Angeles Dodgers, the New York Yankees,
the New York Mets. but what about those teams in the smaller
locations, the Milwaukee Brewers, the Minnesota Twins.
They don't, just front of mind, they won't make as much money as a team in New
York. They won't get certainly at the local
level, as much money as a New York team. So, so how do you make that distinction?
What do you do? Well, you come to some agreement among
league members of how you're going to support these teams that are essential to
the competition. But in fact they don't bring in as much
revenue as the big market teams. So, major League Baseball, our model
number one says the larger markets have to make some allocation to the smaller
markets. The second model is that, well, let's
just share everything equally, let's just pool everything and share it equally
throughout the league. And the third model and this kind of fits
with, the open kind of league model that we talked about earlier is, well, for the
most part, if you're not successful you shouldn't be in our league anyway.
So, this is the third model where there's a larger allocation to teams that bring
in the higher amounts of revenue. So, let's look at some specific
percentages on how this works. So, how is this practiced and let's look
at this in a bit more detail. So, the owners and the NBA and the
National Football League. And formerly the National Hockey League,
they looked at this without any consultation with the players' union.
They said look, we know how best to run our business we'll determine how this,
this money should be shared, and the union will have no conversation in this.
Well, if you think about it there is some value, there is some concern on the part
of the union and some players on how the monies are distributed.
I mean, for the players I mean, one issue could be, we want to not be concerned
with, which team has the most money. We want to be able to play anywhere, and
there are more jobs for us. The other way you can look at it is, we
want some teams to be able to pay more. We want New York to be a key destination,
a primo location, where you can go and make more money, so there are different
determinations on how this can be made. Well, so, leagues have come to a
conclusion in terms of these different revenues on how they should be
distributed. So, for the media dollars, which is the
national television contracts cable deals.
All the national deals across the leagues, and all the licensing deals, the
Coke deal throughout the league, or the Pepsi deal Or the Reebok or Adidas kind
of deal. Those are shared equally among the teams,
so if you think about, for example, the National Basketball Association, each
team gets one thirtieth since there are 30 teams.
The gate receipts is a little bit more complex and, and this is, as of the time
we're preparing this video, how the distribution takes place and it's varied
over the years. You can think historically that gate
receipts were kept all by the local team. Well, there was some determination, and
we'll talk about how this, this happened, when we talk in the media section a
little bit. That maybe the visiting team should get
something because they are bringing something to the table.
So, these percentages that you see, are the distribution that the various leagues
have come up with in terms of ticket sales, gate receipts for home games.
So, at the top, to, to be clear about this, the National Football League, the
home team keeps 66% of the revenues from ticket sales.
The visiting team gets 34%. You can see the NBA and National Hockey
League have a completely different look at it.
And, and essentially, the home team and for sure the National Hockey League keeps
100%. there's a slight variance in terms of the
NBA, where the league takes 6% and determines how to distribute that.
Major League Baseball is a little bit different again in terms of the way they
think about this. Because a small market issue has been
such an issue for that league, they've decided that all local revenues, TV
contracts, radio contracts, whatever else comes in locally should be pooled.
And then, distributed in some way. 34% of those local revenues should be
distributed among the teams via the formula.
So, other local revenues, how are those handled?
so, for the most part, the local revenues are not shared on a line item basis by
all the leagues, but again, for major league baseball, they stick with that 34%
formula. So, beyond gate receipts, you keep your
local TV, you keep your local radio, but it's not the case for major league
baseball, at least for about 34% of those dollars.
So, you can see, it's not a straightforward path in terms of thinking
about how the revenues are distributed. But it becomes a very important piece for
how successful a league is and how you support the weaker members of a league.
And how willing are the successful teams like the New York Yankees, the Dallas
Cowboys. How willing are they to share to support
the league and to support the, less financial successful teams within the
league. So, the next question we'll look at some,
and we'll talk about this a bit later on. What about when new revenues emerge?
there's big talk in, in, in, in the United States, and in Europe this
happens, already in terms of sponsors on jerseys.
This has been taboo, unaccepted within US-based sports.
But this has been viewed as a potential revenue model.
In the National Basketball Association, for example, this could be at least a
hundred million dollars in, in additional revenue.
So, how would those dollars be distributed?
Well, a lot of that would be determined again by the agreement between the union
and management and the league itself. but you can bet if there's not a
bargaining moment, the league will determine how it's distributed.
in basketball the thought is that half of that money would be channeled towards the
minimum that should be distributed for players salaries.
But these are the kinds of issues that emerge and, and especially I think about
this, we'll talk about it more with new technologies.
What happens when new dollars come in that you didn't contemplate before?
if for example, MLB.com with revenues that come from advertising, the like.
That wasn't something that was contemplated 20 years ago.
So, there had to be some determinations on how those dollars are distributed.
So, this is an example of what may come up new in the future.
Here's another example of the kind of problem that leagues are confronted with
and a determination, that, that has to be made.
So, you see pictured here one of the more successful owners in the National
Football League, Jerry Jones, and what he realized once he took ownership was you
know. There's a great potential here for me to
get sponsors for my franchise. That actually might conflict with the
sponsors the national football league already has.
But I'm an entrepreneur, I'm innovative, I'm going to give this a shot.
So, for him, as Lee had contracts with another beverage company and another shoe
company and apparel company. He went out and he got contracts with
Pepsi and Nike, that conflicted in 1995. Well, the league said, well, this
violates the league-think principle that we think is so important and that has
allowed us to be successful. You're a relative newcomer, you don't
understand that. And so the league sues Jerry Jones for
$300 million. Well, Jones, well, this is my business, I
should be able to do what I want to do with it, he countersues for $700 million.
So, as is often the case in sport, it moves from the field of play into the
courtroom. But eventually, the matter was settled
and what happened was that Jones was actually allowed, to pursue these
individual sponsorship deals. So, and you see more and more of these
deals across the league because of the efforts of Jones.
But there's also a greater understanding and the conversation that took place in
the NFL. That if individual teams do deals, then
this is going to lessen the value of the league wide deal to a Reebok or Coca
Cola. So, this case is important to understand
how there's a little bit of pressure between the success of a franchise and
the success of the overall league. The other piece that's, that's important
in terms of thinking about the success of these leagues is maintaining competitive
balance. And so I, I've alluded to the success
financially that some teams have had. And you see it across leagues again the,
the successful teams like Real Madrid, Manchester United, the New York Yankees.
The Los Angeles Dodgers, they have great financial success, so they could actually
pay players more than could a team in leagues or a smaller franchise that, that
maybe about to be relegated to a lower level.
So, how do you, how do you control for that?
Well, we'll talk about some of those, those methods, but, but one is the draft,
that, that allows an allocation of new players equally among teams.
The drafts typically take place with the team that finishes last gets to draft
first so they get to pick the best player that's available in, in the world in
whatever the sport might be. The other idea is free agency and we'll
talk about free agency in a future discussion but players are able to move
in most sports at some point in time. But the other limitation that's in place
are spending limits. So, salary caps only allowing teams to
spend a certain amount, they can't exceed that number, and also in place we'll talk
something about salary floors, that you can't go below a number either.
And this is largely again, where unions have looked out for the interests of
players. And then we've seen emerge, especially in
Europe again, this whole idea of financial fair play.
That we don't, want to look out for the interests of teams in terms of equal
spending, but we also don't want to have teams that step outside financially into
dangerous territory. And that they, they may actually begin to
cause some harm to themselves financially, if they try to pay too much.
So, these are balances that are in place to try to maintain competitive balance.
Now, in the end what's competitive balance?
What league commissioners battle [LAUGH] for what they, they preach that they want
is parody. They want to have the best competition on
the field of play possible. How do you do that?
You try to put these equalizers in place so there's not a team that has a huge
advantage in terms of the money they can spend to get better players.
So, let's, let's do a little bit more comparison and, and think about the
dollar's a bit more. I've talked about Manchester United a
little bit. And I want to go into a bit more depth,
in terms of the revenues that they've been able to bring in that are truly
exceptional in terms of the numbers we see teams bring in around the world.
So, we'll, we'll look at these in a bit of depth.
We'll talk about how this is evolved for them a little.
Based on success and then we'll move on from there.
So, the Manchester United franchise has been one of the most successful in the
world, as I've said a number of times. And what is striking, and we'll look at
these numbers in a moment is that relative to U.S based teams, the sponsors
that they have from around the globe are pretty wide-ranging.
Now, a lot of the success came because of their success on the field.
But their sponsorship income in 2013 actually increased by 52%.
So, a huge increase in terms of the sponsor dollars that came in.
And this excludes the eight-year long primary sponsorship from, from Aon of
$249 million. So, the idea that a team can make so much
from global sponsors is unique. And this is, this is one of the places
that we could look to in terms of thinking about how can a team or a league
be truly successful globally? So, if you look at these sponsor deals
and you look at the wide range that's up there, you, you see the different parts
of the world that they touch. many people know about the success that
Manchester United has in terms of the fan base in Europe.
But this is an astounding wide range of sponsorships.
the, the revenues following their title in 2012, 2013, increased 30%.
they also had to pay more in terms of wages to players, that was an increase of
25%, about $70,000,000. But they were able to do so largely
because this increase in sponsor numbers. So, this is when you think about what the
possibilities are And you think about some of the numbers that are out there.
And you look at some of the categories where they've, they've had success.
This gives you an idea of the kinds of numbers that are there.
And, again, you think about these and reflect back on the profit number that
the Green Bay Packers had of about 40,000,000.
Well, their kit spots, their sponsorship, their, their outfits 40 million alone.
So, it is an incredible level of success, in terms of the numbers, and in terms of
the wide range of categories that they've had success in.
this slide shows further some of the wide range.
You see Bulgaria, Pakistan. so it's a large number of locations where
they've had success. And including the continent of Africa,
which is, is one of the areas where US based sports have not begun to think
about how they can be successful. So, with that in mind I wanted to take a
look at the valuation issue again is, as you recall.
Earlier in this module we looked at some Forb's estimates of the most valuable
franchises in the world and we saw Manchester at the top.
We saw real Madrid up there. We didn't see Los Angeles Dodgers on
there at all. And what some people say the best way to
measure the value of a franchise is or anything is to see what the most recent
sales price was. And to the surprise of most people, the
Dodgers sold not too long ago, for $2,150,000,000.
So, this was considered a staggering ama, amount.
Probably $1,000,000,000 more than anyone had estimated.
So, that's one way to, to place the value.
Another valuation, and, and if, if, if you'll reflect back.
The valuation that was provided for Manchester United was $2.23 billion.
in terms of what Forbes projected. Well, if you do another analysis and that
is, since Manchester United is publily traded.
Well, the value of the outstanding stock there is $3.09 billion, so even
substantially more than even what the Forbes estimate was.
So, they would stay at the top but it gives you a way to think about how
valuable these franchises are and, and ways to measure it.
But, but also the contradictons that we'll get out there, in terms of the
numbers that are in the marketplace. So, to recap, we've looked at this
valuation issue pretty thoroughly. we've looked at it in a couple different
ways along the way, we've also looked at the revenue sources and how they're
distributed. And as, as I mentioned, you'll get a
chance to look at that issue again, especially when we talk about media
rights. And then we've taken a look in terms of
where revenues flow from, looking at the US, but also taking a close look at
Manchester United. Which also gives us a good model of
thinking about a truly global franchise in terms of pulling in revenues at the
sponsorship level from around the world. And, and maybe something for other
franchises, other leagues to aspire to. But even Manchester United has not
permeated US market in way but I'm sure they would like to.
So, that concludes this first module and the next module, we'll continue our
examination of teams, but we'll take a step in another direction.
We won't focus as much on the revenue sources as identifying success, we'll
look at popularity first. And then we'll take a look at the
leadership and we'll take a look at what it takes to be a successful leader, who
the successful leaders in sports have been from the commissioner level.
And then we'll look at ownership. Who are these people that invest money in
these franchises and what steps are they taking to try to make their franchises
even more profitable, and to make their leauges even more profitable.
Those are the topics we'll cover in module two.
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