Moag & Company Sports Notes (21 Jan 2022)

Date: Jan 2022

Trivia

A sporting event is held every year on Memorial Day. What is it?

Last Week’s Answer: A conversion kick worth in a game of Rugby is worth two points. 

Football:

Kansas City Chiefs QB Patrick Mahomes views his investments into sports ownership groups as “internships of sorts in preparing him for his next job,” according to ESPN.com. Mahomes “bought into the ownership groups” of the Kansas City Royals and Sporting K.C. Mahomes said of owning a team in the future, "I don't think you've been able to see a football player be able to do that yet, but it's definitely something I've looked into.” Mahomes has “dabbled in NFTs and has other business interests.” He has a “heavy interest" in philanthropy through his 15 and the Mahomies Foundation. But he is “setting himself on the path to sports ownership” with an eye on “expanding Kansas City's offerings.” Mahomes is “equipped to buy into ownership” with his contract extension that “will pay him $450 million over 10 years.” That contract extension “kicks in” beginning next season, and that money “does not take into account” a growing portfolio of endorsements that already includes State Farm, Adidas, Oakley, DirecTV and Hunt's Ketchup. Royals Owner John Sherman and SKC Owner Cliff Illig both said that their decisions “to allow Mahomes to become a minority owner” had far more to do with his “sincerity about learning the business end of ownership than anything else.” Illig: “He's a sponge. He's trying to learn as much as he can learn. He knows he'll learn more by being involved more. We have three or four owners meetings a year with our little owners' group, and he will be welcomed at those”.

Basketball:

In the best-case scenario that it presented to investors over the past several weeks, Sinclair’s Diamond Sports Group projected that it would have 975,000 paying subscribers to its planned direct-to-consumer platform by the end of the year, according to documents the company filed with the U.S. Securities and Exchange Commission. That’s provided the service launches in April. Sinclair executives have said they plan a soft launch in the second quarter of the year, and a full launch in the third quarter, right before the run-up of the NBA and NHL seasons. In the worst-case scenario that Sinclair presented to creditors, the platform, which has the rights to stream some local MLB, NBA and NHL games, would have 309,000 paying subscribers by the end of this year. Those numbers will jump significantly by 2027, according to the filing. Sinclair predicted that its direct-to-consumer platform would reach between 3.446 million and 9.702 million by then. Those were some of the points Sinclair pitched its creditors as it secured $600 million in financing to help fund its direct-to-consumer launch. During its pitch, Sinclair’s executives promised creditors that the launch of a direct-to-consumer service would not speed up the cord-cutting trend. This is an important point for Sinclair, since its regional sports networks and local broadcast channels make the bulk of their money from cable and satellite distributors, making it somewhat risky to move forward with a direct-to-consumer bundle so quickly. In an interview with the Wall Street Journal, Sinclair CEO Chris Ripley said, “All research points to very minimal cannibalization,” adding that the service would attract “a growing fandom outside of the [cable] bundle.” The projections that Sinclair shared with its creditors push a similar theory. Diamond Sports Group projections have it bringing in $2.56 billion in distribution revenue this year. By 2027, that figure will be virtually flat: $2.389 billion. Those numbers remain consistent in both its aggressive and conservative projections. A concern some debt holders had after last week’s announcement is that the distribution projections seem to fly in the face of distribution realities, in which networks are losing 10% of their subscriber base per year from cord cutting. Sinclair’s creditors waited until both the NHL and NBA had agreed to sell their streaming rights to Sinclair before they agreed to float the $600 million in financing. The NHL cut a four-year deal with Sinclair last month that covers 12 of its teams. The NBA’s deal, announced Jan. 13, covers 16 teams. Sinclair has not cut an MLB deal — those two sides are said to be at an impasse — but the company has individual streaming deals for four teams: the Detroit Tigers, Kansas City Royals, Miami Marlins and Milwaukee Brewers. In its most recent negotiations, the NBA pushed for a short-term deal — a series of rolling one-year deals that would allow either party to pull the plug on it after each year. That was a sticking point, as the NBA ultimately agreed to a deal that has similar terms as the NHL one cut the month before. The NBA is receiving a small fee for the games, a source said. The $600 million loan grants Diamond Sports Network a security that it didn’t have previously. The message to sports leagues is that they will have to deal with Diamond Sports if they want to move in the direct-to-consumer world. The platform will not be national. It will be priced at more than $20 per month, sources said. It does not have the streaming rights for a lot of teams in the biggest markets. But the loan and the NHL and NBA deals do represent a first step for this direct-to-consumer platform. And it ensures that Sinclair will be part of the sports leagues’ streaming plans. The deals mean that Sinclair has solved some of its thorniest direct-to-consumer issues. The next step for Sinclair is to solve its distribution issues with Charter, which owns the Spectrum cable systems. That deal is up in the first quarter of this year. Sources said the two sides already have started negotiations but are far apart, with Charter looking for more flexibility about how it can offer Sinclair’s regional sports networks.

Baseball:

Tampa Bay Rays Owner Stuart Sternberg reacted to MLB killing the team's split-season plan with Montreal, saying that the team will now "regroup to consider explore their next step," adding that he "still believes that a two-city concept will work in the future." Sternberg said officials in Montreal were "more devastated'' than he was with the news that MLB was officially killing the plan. He also reiterated that he is "not interested in selling" the Rays and "doesn't plan to threaten the Tampa Bay community with potential relocation". Sternberg, when asked if he felt betrayed by his fellow owners for turning down his plan, said, "That's a word".

Soccer:

Milwaukee Bucks co-Owner Wes Edens and Egyptian billionaire Nassef Sawiris have entered into an "exclusive negotiating agreement" with MLS to "move toward bringing an expansion team to Southern Nevada." Las Vegas is "poised to become home to the MLS’ 30th team, winning out over competing bids from Phoenix and San Diego." It remains "unclear when the team could potentially begin play." In December, MLS Commissioner Don Garber said that the 30th team "would not begin play before 2023." The agreement means the sides "will now work together, focusing on market analysis and planning for a practice facility, corporate offices and stadium." The team "would be jointly owned" by Edens and Sawiris, who were "behind a group who filed in June to trademark the name 'Las Vegas Villains'".

Sources: SportsBusiness Journal, Bloomberg; The Athletic; Las Vegas Review-Journal; Reuters; ESPN.com

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