Banking on High School Ballplayers

            Even though he is currently recovering from a knee injury, Chicago Bulls point guard Derrick Rose has been working hard off the court. Rose appears in advertisements ranging from national television commercials for Adidas to local billboards for Chicago-based pizza chain Giordano’s. For his participation in these campaigns, Rose is compensated with a 14 year, $250 million deal by Adidas and has become an equity partner in Giordano’s.

            While Rose makes millions from sponsorship deals now, that was not always the case. As a star player at his high school, Simeon Career Academy in Chicago from 2004 to 2008, Rose provided significant increases in brand awareness, exposure, and perception by wearing a jersey made by Adidas rival Nike. Simeon’s deal with Nike has continued with the school receiving $26,000 per year in “gear” annually in large part because of its latest star player, Jabari Parker. Simeon’s senior small forward has committed to play at Duke University next year.  Parker’s skillset has landed him on the cover of Sports Illustrated and caused “300 people [to come] for the made-for-TV news conference announcing where Chicago's best high school basketball player since Derrick Rose will spend the nine months preceding the 2014 NBA draft.”

            The combination of this national attention combined with being both “articulate and charming” has made Parker an attractive company spokesman for brands focusing on the teenager and young adult demographics. In article posted yesterday entitled “Skullcandy gets the better end of Simeon sponsorship deal”, the Chicago Sun-Times examines the relationship between headphones manufacturer Skullcandy and Simeon. The Sun-Times claims that “terms of the contract essentially call for Parker and his teammates to be unofficial spokesmen for the company.” As a result, Simeon receives, “headphones for its media lab and $1,000 a year through its five-year contract. Additionally, the girls basketball team, which is without stars, has received headphones.”

            The Sun-Times is absolutely correct that this is a great sponsorship deal for Skullcandy, which has identified and taken advantage of a very valuable business opportunity.

While Parker may not (yet) be as famous as Rose, Parker (and Simeon) have high brand recognition among Skullcandy’s target demographic in Chicago. More importantly, the thousands that Skullcandy pays Simeon in cash and merchandise is far less than the hundreds of millions of dollars that Rose receives for his endorsement deals. Skullcandy recognized that inner city high schools, like Simeon, often struggle to provide the resources for its students and its athletes to be successful. As Simeon coach Robert Smith says, “We’re an inner-city school. We have to be thankful for whatever we can get.”

There is no financial reason that companies thinking of using athletes to target key demographics should not consider entering into contracts like Skullcandy has done with Simeon.

There is, however, an ethical dilemma.

Parker is clearly the primary reason that Skullcandy entered into the agreement. In fact, Parker already has appeared in a promotional video for the company. Yet, traditional high school and NCAA rules prevent Parker (or any of his teammates) from being paid by Skullcandy if he wants to compete as a high school or collegiate athlete. For years, compensating NCAA athletes has been a huge issue in collegiate sports. In addition to ESPN and the NBC Sports Network spending entire programs on this issue, numerous lawsuits have challenged whether players should receive compensation for the likeness and image being used to sell products such as video games.   

            Yet, collegiate athletes at least have the opportunity to receive scholarships for their participation in their chosen sports. At a private institution like Duke, tuition, room, and board would cost a non-athlete at least $200,000 for a four-year education. Because Simeon is a public high school, Parker does not need tuition assistance. While some private high schools provide athletic and merit-base aid to athletes, many high school athletes will receive little, if any, compensation. For example, Parker and his teammates expect to “keep the headphones customized with their jersey numbers” as their part of the compensation with this deal.”

            In many instances in the past B6A has demonstrated where the right ethical decision translates to the right financial decision.

For sponsorships involving high schools, however, this does not appear to be the case for athletes. The companies partnering with high schools, particularly inner-city schools such as Simeon, will receive tremendous amount of value for their sponsorship dollars. High schools will receive at least some amount of money and merchandise. The players, usually the primary drivers of high school sponsorships, will receive almost nothing in these deals given the current student-athlete environment.

The one recent development that may change this dynamic is a class action lawsuit against the NCAA lead by the former UCLA All-American basketball player Ed O'Bannon. If successful, former NCAA players would receive "billions of dollars in television revenues and licensing fees" for the NCAA using their likeness and image. This suit "could also force the development of a more equitable system in which the [student-athletes] who do the work get a decent share of the profits. All the profits." However, this case is not scheduled to go to trial until July 9, 2014. In addition, it is not clear how a favorable ruling for college players would impact high school students. Because the NCAA is currently not currently using the likeness or image of high school athletes in its products, it would appear that current high school students might not have legal standing to challenge the organization in this type of suit. And it would be unlikely to change this type of rule that allows high school athletes to receive compensation unless required to be law.    

Even if high school students ultimately are allowed to receive compensation, however, it will likely take years for this occur. The professionalization of amateur athletes, particularly at the high school level, is understandably tough to stomach for many people. However, it is clear companies and organizations are already monetarily benefitting from these teenagers. As deals like Skullcandy’s with Simeon continue to grow in number, playing professionally instead of attending college would make it much easier for high school athletes to be fairly compensated for their sponsorship value.   

Sticking A “Dagger” In Broadcasters Sitting Close To The Action

            Should Steve Buchkhantz consider sticking a fork in using “Dagger!”? The Washington Wizards broadcaster goes to his signature call when a Wizards’ player sinks a shot that clinches a victory for D.C.’s NBA team. Buckhantz hit high up the decibel chart after Trevor Ariza’s last-second shot hit nothing bottom of the net during last night’s game against the Detroit Pistons. The problem is that the shot only hit the bottom of the net (i.e. the ball failed to pass through the rim before hitting the net). Instead of calling a dramatic Wizards win, Buckhantz had to retract his “Dagger!” call.

What is odd about the situation is most people appear to be empathizing with Buchantz rather than blaming him for the mistake. In fact, a large number of people would be more surprised if Buckhantz actually got the call right in the first place. The Washington Post’s Dan Steinberg states that the Detroit Pistons’ broadcaster as well as “thousands of fans in Verizon Center, and thousands more watching on television” believed Ariza made that shot. Deadspin, certainly not a sympathetic outlet to broadcasters making mistakes (just ask ESPN), said: “From [Buckhantz’s] seat (and from the first angle) it really did look like Trevor Ariza sealed an incredible Wizards’ comeback.”

If Buckhantz and the “Dagger!” seem safe then the real question here is why does Buckhantz have seemingly such a bad angle from his seat that he could not see what happened to Ariza’s shot. Don’t broadcasters usually sit courtside to avoid these types of situations?

Monumental Sports & Entertainment, which owns the Wizards, decided to move broadcasters from their traditional courtside seats to the Verizon Center seating bowl prior to the 2012-13 NBA season. That decision likely was made so that the team would have more premium tickets to sell. For years, broadcasters and reporters sitting courtside meant some of the most valuable seats in the arena were given away for free. However, the media rights deals that Monumental has signed clearly do not require that the broadcasters sit courtside for games. Therefore, it would seem to make financial sense to move the broadcasters to an area that is not in as much demand and less lucrative rather than have them occupy courtside seats.

Maximizing ticket revenue by eliminating free seats for reporters in the most expensive parts of the venue is an approach taken by many other sports organizations. The University of Kansas opened 40 new courtside seats, previously only available to the media, $15,000 per seat in 2009. The Cleveland Cavaliers created a new scorer’s table that was designed both to increase the number of courtside and the amount of television exposure for sponsor promotions in 2012. This follows the examples by the Washington Redskins, Utah Jazz, and Chicago White Sox, who all moved their press boxes further away from the action to sell premium tickets in the mid to late 2000s.

Monumental, however, took this process a step further. It did not solely move reporters who cover Wizards’ games farther away from the court. It also appears to be the only team that actually moved the home / away television and radio broadcasters farther away from the game action.

This move would seemingly not make much financial sense for Monumental. Regional sports networks (RSNs) such as Comcast SportsNet, are rapidly becoming sports teams’ largest source of revenue. As has been pointed out in many B6A blog posts, media rights deals with regional sports networks are the engine that is driving increased revenue growth and valuations for many sports teams. The $2.1 billion price tag for Los Angeles Dodgers acquisition derived from a new media rights deal with Fox Sports West estimated to now be worth $8 billion over 25 years. The Miami Heat also recently signed a new media rights deal with Fox Sports Florida that will pay the team $80-100 million on an annual basis.

Because Monumental is a privately-owned company, it does not have to disclose how much the Wizards make on courtside tickets. However, an analysis of publicly available information can provide a good estimate. Searching TicketMaster reveals that the highest price for a single courtside ticket for today’s game against the Knicks at the Verizon Center is $946.25. Most courtside tickets in the NBA are only sold as part of a season ticket package – meaning that they likely do not cost as much as the most expensive ticket. Even adding just eight courtside seats where television or radio crews sit at this most expensive price point, however, would generate an additional $310,000 per year for the Wizards. This is not a small amount of money but it is less than the league minimum for a veteran NBA player.  

At a time when media rights deal are driving so much value to sports teams, it seems like the Monumental is being a penny wise and a pound foolish. More specifically, Monumental is maximizing its ticket sales revenue at the expense of having a good a relationship with its broadcasting partners. For most sports organizations, maximizing ticket revenue to potentially damage a relationship with its RSN does not make sense. Why jeopardize a partnership that generates millions of dollars to make an extra few hundred thousand dollars?  

For Monumental, however, this decision actually does make financial sense. It is clear that Ted Leonsis (rightfully) thinks the Wizards’ current media rights deal with Comcast is undervalued: “They don’t pay us enough money. … It puts us at a competitive disadvantage. We don’t have the resources to be able to compete with some of these teams. So at some point, we have to either launch our own cable network (or get higher rights fees).” Earlier this season, Leonsis told several media outlets about the launch of the Monumental Network and how this channel is preparing to broadcast games in the future.

Instead of worrying about future negotiations with Comcast, Leonsis statements likely mean that Monumental is planning to broadcast Wizards games on the Monumental Network once its current media rights with Comcast’s agreement ends in four to five years. If Monumental does end its agreement with Comcast then it is actually making a smart move by moving the broadcasters away from valuable courtside real estate. While this may cause the occasional “Dagger!”-type mistake, it would be a bigger mistake for Monumental not to maximize all revenue streams at a time when the Wizards are struggling financially since it is not likely jeopardizing any future media rights money.

B6A also believes that what Monumental has done is the beginning of what will be a larger trend that will happen in the sports industry. The rapid increase in the value of media rights deals and the decreasing costs of broadcasting games makes it more likely that sports organizations will consider creating their own networks like the Monumental Network. This means it will become more common for television and radio broadcasters to lose their current seats close to the action. Since sports organizations are putting a “Dagger” in their RSN relationship, they can afford to sell broadcasters seats to season ticket holders.