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The Business of Sports

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Show Me The Money

When the infamous words “Show me the money!” in Tom Cruise’s blockbuster movie Jerry Maguire came out in 1996, Hollywood brought attention to the world of sports and entertainment agency. Since Cruise’s classic, Hollywood has highlighted the glitz and glam associated with that world – the big egos, flashy athletes and everything in between. America has seen Ari Gold in the HBO tv series, Entourage and most recently, Dwayne “the Rock” Johnson in HBO’s comedy-drama series, Ballers.

Screen Shot 2017-10-26 at 7.22.07 PM
Tom Cruise (Jerry Maguire), Jeremy Piven as Ari Gold (Entourage) and Dwayne Johnson (Ballers), all portray the hustle behind the glitz and glam of sports agency. 

 

It sounds fun, doesn’t it? Scouting and identifying talent, working with professional athletes, and getting paid millions of dollars in commissions on big 7-figure contracts … who wouldn’t want to do it? Oh and you don’t necessarily have to have a JD, MBA or PHD from a top 10 school to be qualified to do it … if you have the rolodex of contacts, the savviness to build those relationships, and fortitude to build a reputation of trust, and maybe a little luck, you’re right there.

So let’s cross from Hollywood into what the sports agency landscape looks like in reality today.

To a large extent, Hollywood is not far from the truth. The spots agency business is booming. Media right deals, salary caps and the size of professional athletes’ contacts are bigger than ever. In Forbes’ 2017  ranking of the “World’s Most Valuable Sports Agencies,” the firms featured have negotiated a collective $43 billion in current professional athlete contracts, netting over $2.1 billion in commissions, nearly a 10% increase from 2016.

CAA
CAA, the number one sports agency in the world, lands 5 out of the 20 most successful individual sports agents. 

There is one agency that is head and shoulders above the rest. Creative Artists Agency (CAA). Their total in contracts managed is larger than the next three top agencies combined at $8.5 billion (equating to $318 million in commissions). CAA leads the way in football and hockey, and is only second behind to Excel Sports Management in basketball. CAA has 5 of the top 20 compensated sports agents:

  • #9, Pat Brisson – Hockey – $44.05m in commissions
  • #11 Tom Condon – Football – $42.17m in commissions
  • #16 Nez Balelo – Baseball – $28.92m in commissions
  • #17J.P. Barry – Hockey – $28.75m in commissions
  • #18 Todd France – Football – $27.95m in commissions

*Scott Boras (with Boras Corp) ranks #1, earning $108.33M in commissions via baseball.

ScottBoras
The world’s most lucrative sports agent, Scott Boras (right), sitting side by side his client Max Scherzer. Boras negotiated Scherzer’s 7 year $210 million contract. 

CAA’s biggest contracts include Matthew Stafford’s 5 year $135 million deal with the Detroit Lions, Robinson Cano’s $240 million deal with the Seattle Mariners, and Patrick Kane’s 8 year, $84 million deal with the Chicago Blackhawks.

Right behind CAA is Jeff Schwartz’s Excel Sports Management who may be the quickest growing sports agency company, acquiring an increase of over $300 million in contracts last year. Managing a roster of over 60 NBA players, including Blake Griffin, Kevin Love, and Andre Drummond, Excel has dominated the basketball space.

 

Behind Excel, is LA based, Wasserman, with about $2.7 billion in contracts. Wasserman recently acquired European soccer agency Mondial Partners, which makes them  the No. 1 ranked agency in soccer combined with its domestic soccer division.

Rounding out the top 5 is Independent Sports & Entertainment at No. 4 and Octagon at No. 5.

The sports agency business has traditionally had several barriers to entry. In fact, the top 5 conglomerated sports agencies in the world represent over one third of all professional athletes. While the top 40 agencies representing 3,6000 clients, this equates to about 60% of pro athletes in the top 4 US sports leagues (NFL, MLB, NHL, and NBA).

Today, a 24 and a 25 year-old out of New York City are dispelling that stigma. Two years ago, Andrew Hoenig and Daniel Hazan became the youngest agents with a player on a NBA roster with the New York City Knicks Jameel Artis. Today they have 20 clients and have negotiated 11 contracts. Neither of them were certified agents when they started, nor did they have many contacts, so they networked organically by adding athletes on Facebook while taking them to D-League open tryouts, paying for their travel and they learned the business instantaneously on their own. And while they still consistently loose guys they recruited (many of times starting at the beginning of an athletes’ 4 year high school career) to the big agencies like CAA, Excel and Wasserman who come in at the last minute and scoop up the highly talented.

Hazan and Hoenig are trying to develop their own niche specifically within the NBA. They are starting to get guys after they leave Wasserman, or CAA, who want more personal attention. For Artis, it was exactly that, “With me, it’s not about the age of the agent, not about how many people you are representing … They were all focused on me. They were all about Jame Artis getting in the right position.”

AHoenigDHazan.jpg
Andrew Hoenis (left) and Daniel Hazan (right) negotiated their first contract wiht the Knicks for client Jamel Artis (center). 

While the vast majority of agents’ income is made through commissions on their clients’ contracts, the other component to it is marketing and endorsement. Hazan owns his own marketing company called New Generation Management which promotes events and products for Jonathan Simmons, JR Smith and Charles Oakley. Agents typically earn 20-25% from marketing and endorsement contracts. Typically, however, these endorsement earnings just make up 1-2% of their overall player contract.

Needless to say, the sports agency landscape is an interesting one … filled with big egos and lots of money. Whether you’re a young entrepreneur, a seasoned sports marketer, or even an ex-professional athlete, there is opportunity.

 

Adidas Loves the Beard – Rockets’ Harden Inks $200 Million Endorsement Deal

Adidas has lured Houston Rockets guard James Harden away from the Swoosh with a 13-year, $200 million offer that was announced yesterday.

 

Right now, Harden will average $16.78 million on the final three years of his deal with the Rockets and $15.38 million annually. However, if Harden reaches certain benchmarks, it’s entirely possible that he will earn from Adidas than he will from the Rockets.

 

Adidas was in significant need of signing a marquee player. Under Armour has Stephen Curry, Nike has LeBron James and now Adidas has James Harden … all 2014-15 All-NBA first team selections. Nike claims approximately 95% of the U.S. basketball sneakers, while Under Armour is very quickly expanding its own line of products and passed Adidas last year as the second-largest seller behind Nike. In the first six months of this year, Adidas sold fewer shows in the U.S. than Skechers and New Balance. Part of Adidas’ underwhelming basketball brand performance can be attributed to big injuries to two of their main stars, John Wall and Derrick Rose.

Adidas' new superstar James Harden faces off against the face Under Armour's brand, Steph Curry.
Adidas’ new superstar James Harden faces off against the face Under Armour’s brand, Stephen Curry in last year’s NBA Playoffs.

Earlier this year, Adidas chose not to renew a deal with the NBA that had established it as the official outfitter of the league and in came Nike with an 8-year partnership that is worth roughly $1 billion. Moreover, Under Armour announced its own global marketing partnership with the NBA, which positions the brand as a title partner and outfitter of the NBA Draft Combine, presenting partner of the Junior NBA program in the U.S. and allows Under Armour to work with the league to launch an NBA FIT mobile app.

Nike and the NBA agreed on a league wide partnership worth about $1 billion last month that will make Nike the official jersey provider.
Nike and the NBA agreed on a league wide partnership worth about $1 billion last month that will make Nike the official jersey provider.

Adidas foresees Harden making a big splash in China, as the Rockets have remained a fan favorite in the Far East since the days of Yao Ming. The deal will feature a signature Harden shoe, his own apparel line, as well as Harden traveling on extensive brand tours in Europe and Asia. Additionally, Harden has started dating Khloe Khardashian who is a marketing machine herself and will undoubtedly raise his visibility into other demographics. Nonetheless, Harden’s jersey sales were only 14th in the league last year behind players like Damian Lillard, Dirk Nowitzski and Chris Paul. Adidas is expecting the deal to help move his merchandise sales upwards.

James Harden and TV personality, Khloe Kardashian, have started dating.
James Harden and TV personality, Khloe Kardashian, have started dating.

Harden’s endorsement deal with Adidas, which will officially begin on October 1st of this year, speaks to the increased value placed in brand marketing. Harden, who was not that long ago a sixth man for the Oklahoma City Thunder, will now be making more money from this deal than what seven-time NBA All Star Tracy McGrady and eleven-time NBA All Star Allen Iverson made throughout their respective careers from on-court earnings. In basketball and major U.S. sports in general, a highly marketable player and personality like a James Harden can earn more money by pushing a brand than his performance on the court. While on court performance and off-court marketability are highly correlative, Harden’s Adidas deal speaks to how marketability is valued more so now than ever.

James Harden will earn more money in his new deal with Adidas than either Tracy McGrady or Allen Iverson earned for their on-court performance in their entire careers.
Harden will earn more money in his new deal with Adidas than either Tracy McGrady or Allen Iverson earned for their on-court performance in their entire careers.

One thing remains the same, Nike is still firmly established as the dominant shoe and apparel company in basketball, as they hold long-running endorsement deals with the three most globally popular (active or former) players in the world in LeBron James, Kobe Bryant, and Michael Jordan. And so they have the luxury of being able to allow MVP runner-up and All-NBA mainstay James Harden bolt to their three-stripe rival without much fuss. Nike had the option to match Adidas’ offer but chose not to, perhaps because of their recent large investment in getting the NBA league wide deal.

James vs. Curry: Magical Marketing Matchup

The NBA Finals this year features perhaps the most entertaining matchup since Larry Bird and Magic Johnson in the 1980’s. LeBron James, the 4-time NBA MVP and the 2-time NBA Finals MVP is considered the best basketball player on the planet and certainly has the personality to back up his game. His polarizing presence has made him hated by many and a villain looking to dethrone MJ as the best ever. On the other side of the court is Stephen Curry. The humble, soft-spoken kid who got passed over by all the top college programs, to later prove everyone wrong and become the best shooter of the game’s generation, and perhaps of all-time.

While Cleveland and Golden State are not exactly big market basketball cities, the matchup of James vs. Curry is making this Final one of the more hyped matchups in recent years. It is good versus evil. Two kids both born in Akron, Ohio; one of whom exploded as a youth, was a can’t miss athletic specimen, went from the preps to the pros, and was taken #1 in the NBA draft, while the other was a skinny lanky kid who struggled to make his High School basketball team, was overlooked by almost all big college basketball programs, surprised everyone in the NCAA tourney at Davidson, and then exploded to win the 2014-15 NBA MVP.

Lebron James (left) at St. Vincent-St. Mary High School and Steph Curry (right) at Charlotte Christian High School.
Lebron James (left) at St. Vincent-St. Mary High School and Steph Curry (right) at Charlotte Christian High School.

The story of these two could not be any more different. One is a pure athlete, the other is a pure shooter. Many dislike one, while the other seems to be loved by all. One is supposed to win everything, whereas the other wasn’t supposed to win anything. And yet both were born in the very same town of Akron, Ohio and they meet for the first time in the NBA Finals.

The NBA, as a whole, does an extremely good job at marketing. Their International Global Marketing division has greatly contributed to the league expanding to Latin America, Europe and Asia through various exhibition events, leveraging marquee foreign players, and developing key strategic global partners.

Moreover, the League tends to be opportunistic with moments like this one. Golden State and Cleveland are not exactly huge markets, and yet they have already strategically branded this Final as “James versus Curry.” James and Curry are 1-2 in jersey sales this season, while Curry edged James for the most All-Star votes. Between the two of them, they have been mentioned 28.8 million times since October on Twitter.

Steph Curry has endorsement deals with Under Armour, Degree and Muscle Milk to only name a few.
Steph Curry has endorsement deals with Under Armour, Degree and Muscle Milk to only name a few.

Both are marketing machines, as James has deals with Nike, Kia, Samsung, among several others, and has his own TV production company. Meanwhile Curry has become one of the most sought-after endorsers in the game today, as he has deals with Under Armour, Muscle Milk and Degree. The baby-faced 25-year-old has about a dozen endorsements that he didn’t have when he was left off last year’s All-Star team and is pulling in about $3.5 million a year off the court.

Simply put, LeBron James and Stephen Curry are the two best in the game today. For that reason alone, the NBA Finals matchup this year is special. On the surface, they are polar opposites: personality, playing style, their paths to this point. And yet here they are, pitted against each other on the game’s largest stage.

The NBA Finals Game 1 is on tonight … and you better believe, people will be watching.

The Rise of Branding and Social Media in Sports

A hot topic right now in sports is the power of branding. “Branding” has been a hot topic in the business world for quite some time; however, it is just recently being introduced as a term in the sports industry with more and more organizations learning how to become better and better at it.

 

So what is branding? Branding can be defined as a distinctive picture and association positioned in the mind of a consumer to a product or service. When applied to sport, this definition can pertain to a league, an event, a professional team or even an individual athlete. The brand gives an impression on its consumers; it stands for a set of values and reputation in our mindset.

 

Branding simplifies the ability to distinguish products from amongst a wide range of offerings. Sports is becoming an every growing, over-crowded marketplace, where differentiating yourself in the marketplace is becoming more and more important to outperform your competitors.

Manchester United is one of the most widely recognized brands amongst professional sport clubs in the world.
Manchester United is one of the most widely recognized brands amongst professional sport clubs in the world.

 

A strong brand can create the transfer of a brand to new products. It is why Tom Brady can start selling a line of Uggs for Men. Furthermore, a strong brand helps create customer loyalty and trust. Think of the brand of Manchester United FC. The Manchester United logo has come to signify an unbelievable tradition of the highest quality of football in the world, and so fans buy season tickets years and years in advance despite perhaps wavering results or momentary crises. Manchester United is an example of an international brand, as they can claim not only to their expected 7.5 million fans from the United Kingdom, but also 14 million fans in Thailand. A strong brand presents proof of competence for its buyers and bestows prestige to its consumers.

 

In 2014, Manchester United ranked as the 5th among most valuable professional sports teams at $399 billion, only surpassed by the Dallas Cowboys, Barcelona FC, Real Madrid, and the New York Yankees (who are estimated at approximately $521 million). In looking at the most valuable event in brands the top five is: the NCAA Men’s Final Four, the Fifa World Cup, the Winter Olympics, the Summer Olympics and then the Super Bowl ($500 million). The top five business brands in sports included Under Armour, Sky Sports, Adidas, ESPN and then Nike ($19 billion). And lastly the top five athlete brands in 2014 consisted of Mahendra Singh Dhoni, Phil Mickleson, Rodger Federer, Tiger Woods, and Lebron James (leading the way at $37 million). These above mentioned brands all have a huge following over the world and command a significant monetary premium to their rivals due to a combination of their size and profitability.

Nike is the most valuable brand in all of sports, estimated at $19 billion.
Nike is the most valuable brand in all of sports, estimated at $19 billion.

 

In managing a brand, the main objective is to maintain a strong position within the mindset of consumers. In order to do this, you have to do a couple things first. One, what you are good at? Whether you’re a sports league, a club, an agency, or even an athlete yourself, you have to do what your strengths and weaknesses are. Then you need to figure out what it is exactly you want to brand and where you want to market it whether it be regional, national or even international. After this, you want to do an analysis on where your competitors are positioned in this specific market. And lastly you need to figure out where your customers ideally perceive you on this map.

 

As you can see branding is a process and takes a close self-examination to understand not only your branding image but also your brand awareness (that is, how many people know your brand. If the image (product’s reputation) is clear and the communication (marketing) is effective, the awareness that is consequently created will be of great value for whatever the sports entity we are talking about.

 

A huge branding tool recently for many leagues, teams, agencies and athletes has been social media (Facebook, Instagram, Twitter, LivingSocial, YouTube, and SnapChat). Dan Reed, Head of Global Sports Partnerships at Facebook, says, “We like to refer to Facebook as the world’s largest stadium, because about half of the 1.35 billion people who use our product declare themselves sports fans.” In fact just six months after Facebook produced personalized auto-play sports video content on their News Feed, they were receiving over one billion views per day. Furthermore, I believe video content will be the best path to digital and social media monetization for sports teams.

 

Today, with a wider variety of social media platforms than ever, Mary Scott (President, Sports and Experimental Marketing, United Entertainment Group) explains, “The media landscape is rapidly evolving to meet the ever-growing demands of the next-generation sports fans who expect their content to be highly relevant, up to the minute and digitally driven.” In the future I think it can be expected that the term “social media” will transform into “digital media” as sports organizations will begin to focus more on content rather than directly communicating with their consumers.

 

The Olympics have already begun using various social media platforms to connect with audiences across the world.
The Olympics have already begun using various social media platforms to connect with audiences across the world.

Scott adds, “In order to stay current and break through, leagues, teams, companies and brands must adapt how they tell their story to match the environments in which their consumers consume media.” Today, there are 400 social media platforms worldwide and there are more launching every day; thus, consumer attention span is shrinking, as it is averaged to be a mere 7 seconds. Lia Vakoutis (Senior Digital Marketing Manager, Adidas America) explains Adidas’ strategy in 2015, “As social environments become overloaded with content, Adidas will continue to focus on creating quality stories that are backed by strategic media plans and distribution partners.”

 

Of the five major sports leagues in the United States, the NFL has gained the most equity in brand value through recent years. The NFL leads in television ratings and gets $3 billion a year in media rights, another $3 billion in licensing, average attendance of nearly 70,000 a game, and leading sponsors like Motorola paying over $20 million a year to simply associate with the League.

 

The NFL leads all United States professional sports leagues in regards to brand value.
The NFL leads all United States professional sports leagues in regards to brand value.

Branding is obviously extremely important in terms of creating value in the sports landscape today. Social, or “digital”, media has become one of the most common ways to help shape that branding. Looking at trending topics in sports business, I believe that using social media to shape brand value will be increasingly important through the next year.

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