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Sale Of Phoenix Suns Proves That Small Market NBA Teams Will Spike In Value.

Written by: Leonard Armato for

Written by: Leonard Armato for

The sale of the Phoenix Suns sent shock waves through the sports world when Robert Sarver agreed to sell the team to Mat Ishbia for $4 billion. When the sale closes it will be the largest purchase in NBA history. Sarver had purchased the Suns for $401M in 2004. That is a pretty nice return on investment.

PHOENIX, ARIZONA – MAY 15: Chris Paul #3 of the Phoenix Suns stands on the court with Mikal Bridges #25, Devin Booker #1 and Cameron Johnson #23 during the first half of Game Seven of the Western Conference Second Round NBA Playoffs at Footprint Center on May 15, 2022 in Phoenix, Arizona. The Mavericks defeated the Suns 123-90. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and or using this photograph, User is consenting to the terms and conditions of the Getty Images License Agreement. (Photo by Christian Petersen/Getty Images)

The Brooklyn Nets sold in 2019 for $3.3 billion and Steve Ballmer bought the Los Angeles Clippers for $2 billion back in 2014. While both these transactions involved teams in large markets, the sale of the small market Suns have eclipsed both of these sales by a large margin. which is contrary to past sales where small market teams were value at significantly less the their counterparts in large markets.

LOS ANGELES, CA – AUGUST 18: New owner of the Los Angeles Clippers Steve Ballmer reacts after being introduced for the first time during Los Angeles Clippers Fan Festival at Staples Center on August 18, 2014 in Los Angeles, California. (Photo by Jeff Gross/Getty Images)

The reason that this sale is such good news for the future valuations of NBA small market teams like Phoenix is that the price of teams can only be attributable to one thing: projected future revenues. Here is a breakdown of how money is distributed in the NBA and why the small markets will experience a disproportionate growth in their valuations.

The general rule of the NBA is that all revenue outside of a 90 mile radius surrounding the location of each team is controlled and exploited by the league. This includes media and IP rights for all NBA teams. These revenues are distributed equally to each NBA team without regard to the size of the market. While it is left to the NBA to exploit these national and international rights, the teams are free to make deals in their local markets and this is where the big markets have the advantage.

Historically the teams in these large markets, like the Lakers and Knicks, would enjoy exponentially greater revenues than their small market counterparts from sources such as ticket sales, and local sponsorship and media rights. Even when combined with the revenue contributed by the NBA, the result was a huge difference in total revenue, and in turn, franchise value, with large market teams worth significantly more than those in small markets However, the recent sale of the Phoenix Suns for $4Billion may be a sign that that percentage of the valuation gap will decrease significantly in the future.

While the big city teams still will be able to extract more revenue from their larger more affluent markets, Adam Silver, and his team at the NBA, have either created or identified many new sources of revenue at the national and international level resulting in NBA proceeds increasing dramatically with no end in sight. And small market teams like Phoenix are entitled to their equal share of those proceeds.

Historically, the NBA revenues came from limited sources: media, sponsorship and licensing. In 2001 the total revenues at the league level were roughly $2 billion per year. Last year Adam Silver announced that the NBA had eclipsed $10 billion in revenues. There are a number of reasons for this dramatic increase in revenue and a good indication that this growth will only continue at a rapid pace.

OAKLAND, CA – JUNE 01: NBA Commissioner Adam Silver speaks to the media before Game 1 of the 2017 NBA Finals at ORACLE Arena on June 1, 2017 in Oakland, California. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and or using this photograph, User is consenting to the terms and conditions of the Getty Images License Agreement. (Photo by Ronald Martinez/Getty Images)

The primary reasons are the growth of international markets and new forms of consumer engagement and monetization. Regarding international, the NBA has enjoyed explosive growth in revenues from the distribution of international media, sponsorship, licensing and merchandising. NBA “League Pass”, a DTC media offering, has been fueled not only by current stars like LeBron James and Stephen Curry, but by internationally popular players such as Luca Doncik and Nicola Jokic. Also, NBA teams can now sell patches on uniforms which are visible throughout the world due to their international broadcast deals, spawning investment from international companies looking to reach their audiences outside the USA that are fans of the NBA.

DALLAS, TEXAS – JANUARY 03: Nikola Jokic #15 of the Denver Nuggets dribbles the ball down court against the Dallas Mavericks in the first half at American Airlines Center on January 03, 2022 in Dallas, Texas. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and or using this photograph, User is consenting to the terms and conditions of the Getty Images License Agreement. (Photo by Tom Pennington/Getty Images)

Another source of revenue growth for the NBA will be in its domestic media rights deal which expires at the end of the 2024/25 season where they are reportedly seeking $75 billion from domestic broadcasters alone. This deal will be offered to the traditional players like Disney/ESPN and Turner, but there are new kids on the block like AmazonAMZN -0.9%, Apple and GoogleGOOG -1.5% , all of whom have all have expressed interest in these rights. These tech giants have huge market caps and a lots of dry powder to throw at a prize property like the NBA and will likely drive up the price. We have already seen this play out a bit in the NFT’s media negotiations. Also a component of that media deal will likely include a smorgasbord of direct to consumer (DTC) offerings which may be more appealing to younger audiences with a shorter attention span. Many of those younger NBA fans often interact with the league via highlights, social media and gaming rather than watching live games. The NBA media deal of the future may solve that problem through some form of micro transaction perhaps even facilitated by blockchain technology.

Moreover, the NBA has been working diligently on engaging fans in every way possible to increases their affinity for the NBA and extract more money from them. That includes AR/VR, alternative broadcast streams, and more interactive elements where the NBA can charge fans directly or monetize these new forms of engagement through sponsorship. Digital collectables in the form of NBA Top Shots was all the rage generating more than $1 billion in revenue (although that market has cooled a bit). And finally, the league is looking to gambling as the holy grail of new revenue with the NBA feeding betting odds to fans throughout the game to stimulate their interest in wagering and facilitating it through the NBA app capable.

All of this new or increased revenue will be shared equally among the teams in small as well as large NBA markets. This augurs well for the future value of all league franchises and bodes even better for the small market teams that will realize an equal share of the most powerful growth engine of future revenue.

Despite FTX And The Crypto Winter NFTs Are The Future Of Fan Engagement.

Written by: Leonard Armato for

Written by: Leonard Armato for

Forget the “crypto winter” and the collapse of FTX. Blockchain technology is still the future of consumer relationship management (CRM) and holds the key to unlocking amplified consumer/fan engagement in the sports world. Many of the leading consulting firms including Accenture, Deloitte, PwC, KPMG and McKinsey & Company have published research reports expressing positive views on the potential for blockchain technology and NFTs to transform the way the sports teams and leagues promote fan loyalty.

The reason, according to their research, is that blockchain technology provides valuable tools for both the issuer of the token (NFT) as well as the recipient. For the issuer, it improves the quality of the data on their fans. For the recipient, (the fan) blockchain technology, through NFTs, provides those fans with unprecedented benefits they can actually own, trade or sell in a controlled marketplace.

Lisbon , Portugal – 4 November 2022; Speakers from left, Molly White, Creator, Web3 Is Going Just … [+]

And it is coming faster than you think. The primary barrier to mass adoption was the necessity to create a crypto wallet, such as Metamask, which required some knowledge of crypto currency. As a result, adoption was limited to a rabid, yet niche, community. However, recent advances in technology have made the adoption friction-less and makes issuing and collecting these NFT simple for anyone even those without any knowledge of crypto currency or how to set up a traditional “wallet.”

Think of an NFT simply as a receptacle or the connective tissue for anything a fan values, whether that be digital goods or access (collectibles and admission to special places in the Metaverse) or things in the real world such as tickets, merchandise, food and beverage, experiences and even voting rights. The beauty of issuing these assets in the form of an NFT is that they are registered on the blockchain and can be used, traded or sold by fans in a marketplace created by the issuer.

NEW YORK, NEW YORK – JUNE 23: Stickers of NFT projects are seen inside Marriott Marquis during the … [+]

For the issuer, the “wallet” provides a treasure trove of data that helps them better understand the fan and they learn from the “wallet” their fans behavior patterns which allows the issuer to understand them better and provide incentives for engaging in desired conduct.

It has its origins in the collectible space fueled by the breakout success of Dapper Labs NBA Top Shots. Dapper and the NFL have partnered on a similar project called NFL “All Day” that allow fans watching a game to own collectable moments.

Toronto , Canada – 22 June 2022; Speakers from left, Josh Hart, NBA Player, Portland Trail Blazers, … [+]

FIFA has also entered the space by partnering with the blockchain AlgorandALGO+2.1% to launch their FIFA+Collect program which allows fans to own digital collectibles featuring iconic moments from the FIFA World Cup and FIFA Women’s World Cup, claiming to reach 3 to 5 Billion people.

LUSAIL CITY, QATAR – DECEMBER 18: Lionel Messi of Argentina lifts the FIFA World Cup trophy as he … [+]
Argentina v France: Final - FIFA World Cup Qatar 2022
LUSAIL CITY, QATAR – DECEMBER 18: Lionel Messi of Argentina lifts the FIFA World Cup trophy as he … [+]GETTY IMAGES

However, the collapse of the digital collectable market has caused many of these stakeholders to pull back. The creators of NBA Top Shots, Dapper Labs, just laid off 22% of its workers as the collectible market cratered and Candy Digital, a division of fanatics, did the same with 1/3 of its employees

Notwithstanding all this, the market opportunity is ripe for growth as attention turns from NFTs as simply collectibles to NFTs representing the fan’s right to “own” the things most engaging and valuable to them often sometimes through dynamic gamified experiences. NFTs will unlock for the first time the fan’s right to own, trade or sell these assets in a controlled marketplace and will be used to track and reward fans for attending games or events, purchasing merchandise, or participating in social media campaigns and could even give them voting rights on team related decision (solely at the discretion of the team, of course) This will create a more immersive and interactive experience for fans, and help the team better understand and engage with their audience. All of this is coming and it is just a matter of how quickly.

Pay For Play Is Alive In College Sports And Free Agency Has Arrived.

Written by: Leonard Armato for

Written by: Leonard Armato for

A few days ago, a report came out of Ohio State University (OSU) that they lost a 5 star recruit to #1 ranked Georgia because OSU only offered the recruit $750K as compared to Georgia’s $1.8M.

ATHENS, GA – AUGUST 30: Todd Gurley #3 of the Georgia Bulldogs returns a second-quarter kickoff for … [+]

While the player has yet to be identified we know that there’s lots of shenanigans going on and it is only a matter of time before it surfaces. It is equally clear that a whole new subculture has emerged of “under the table” negotiations between athletes (now represented by their agents) and boosters or collectives representing schools hoping to land these athletes for their athletic program. There are now more than 100 collectives exist for the purpose of attracting top athletes to the college sports program they support.

Not long ago, Arch Manning, a top recruit and nephew of former NFL stars Peyton and Eli Manning, and eight other recruits visited Austin during the weekend of June 17. Texas spent over $600K including such things as rooms at a five-star hotel, open bars for parents, food and entertainment, like a visit to a Top Golf driving range.

The visit apparently paid off, as Manning and his high school teammate, three-star tight end Will Randle, both committed to the school within days of their official visit. Twelve of the 14 recruits that visited the following weekend—when the school spent almost $350,000—committed to Texas.

AUSTIN, TX – NOVEMBER 12: Texas Longhorns recruit Arch Manning watches warm ups prior to Big 12 … [+]

In all, The Athletic reported that 16 of the 23 combined recruits that visited over the two weekends landed with the Longhorns, accounting for almost two-thirds of their 2023 class and ranks them second overall behind Alabama, per 247Sports. After spending roughly $1M to entertain these recruits, it makes you wonder what else was promised to them in exchange for their commitment to join the Longhorns football team in 2023?

While the NCAA now permit athletes to profit from their NIL, NCAA rules still prohibit schools or from paying athletes or directly participating in NIL deals. In fact, in May the NCAA issued a new set of guidelines applying to the recruitment of student-athletes indicating that “booster/NIL entities” cannot talk to recruits about enrolling at a school or offer deals based upon whether athletes select a particular school.

For years, college booster supported athletic programs with financial contributions directly to the school. However, the NCAA has always had a strict rule prohibiting “pay for play” in recruiting student-athletes to participate in sports at their college or university. Notwithstanding, it was common knowledge that those boosters often provided “under the table” payments or benefits to athletes as a means of recruiting them.

There were many schools that cheated in this way and some even got caught and punished. But no case was more publicly visible than the one involving Southern Methodist University (SMU) which resulted in SMU receiving the infamous “death penalty” and barred from NCAA competition for 2 years. The program never really recovered from this sentence.

However, with the NCAA’s recent setbacks in court, it has embolden schools across the country with high-level boosters to use NIL deals as a guise to stock pile talent. It is “back to the future” with no end in sight. The result is “black market” free agency for student-athletes being recruited from high school or through the “transfer portal” (the NCAA created system which allows athletes to freely move from one school to another).

The sooner we come to grips with the realities of this, and establish some uniform rules, the better. It is the same argument used to legalize the gambling business—they are doing it anyway, so why not legalize it so there is transparency and protections.

So let’s scrap these silly ineffectual NCAA rules that no one is following anyway, and allow free market conditions to prevail. College athletes should be paid fair market value by the schools for the services they provide, and let this process become open, transparent and visible to the general public. Not only will this create good sports stories, but is consistent with the tenets of capitalism based upon competition and free market conditions.

FTX Crash Has Sports Leagues, Teams, And Athletes Running Scared.

Written by: Leonard Armato for

Written by: Leonard Armato for

The entire sports world has been turned on its head following the arrest of FTX CEO Sam Bankman-Fried Monday. Before the scandal, FTX had sponsorship deals with sports leagues, teams, arenas, celebrities and even made its way onto the chest of Major League Baseball umpires.

DETROIT, MI – AUGUST 19: MLB umpire Hunter Wendelstedt looks on during the game between the Los … [+]

FTX was a major sponsor of several high-profile sports teams and events including the Miami Heat, the Dallas Mavericks, and the Ultimate Fighting Championship (UFC). It is unclear how these organizations will be affected by the loss of FTX’s sponsorship, but it is likely that they will need to find new sponsors to make up for the lost funding.

In addition to sponsoring sports teams, FTX trotted out a host of athletes and celebrities such as Tom Brady and his ex-wife Giselle BundchenSteph Curry and Trevor Lawrence, among others, to promote the crypto exchange in a highly public fashion. All these athletes and celebrities are being sued in a class action lawsuit for promoting FTX through advertising.

FTX even ran a Super Bowl ad starring Larry David, and it was reported that the company used customer deposits to fund that ad. This has implications not only for FTX, but the agencies and media companies associated with that deal. Namely the money FTX spent with its agency, Dentsu, and Super Bowl broadcaster NBC, which was likely misappropriated customer funds. Wow!

But we may be only scratching the surface of what is yet to come. Crypto firms have spent $2.4 billion in sports sponsorships in 2022. One example is ,which has leveraged sports for brand recognition, agreeing to pay $700 million (over 20 years) to put its name on the arena formerly called the Staples Center. Around the water cooler, people are asking how much of the $700 million committed to the arena is “at risk?” And beyond, how much of future sponsorship commitments secured from Crypto firms, which total in the billions of dollars, are at risk for sports leagues and teams? The short answer is “all of it.”

A man takes a picture of the statue of former Los Angeles Lakers player Elgin Baylor in front of … [+]

This latest controversy has grave implications regarding the role of cryptocurrency in the sports sponsorship industry for leagues, teams and athletes, so what does the future look like? Normally, these types of deals are led by sponsor sales agents looking to maximize company revenue and have but one mantra: show me the money. Generally speaking, money is the determining factor in sizing up the available opportunity. It leaves the potential for oversight on the risk versus benefit analysis and due diligence that should follow any initial pitch, including whether or not the business in question will be able to follow through on promised future payments.

With the FTX collapse and spate of lawsuits involving athletes and celebrities that endorsed the company, a whole new level of scrutiny will emerge. The risk factors that will be examined include such things as company history, their regulation and governance practices, as well as the financial stability of company and the track record of the management team. Akin to the process that a private equity firm puts in place for the potential acquisition of any given company.

Overall, the highly public and far reaching implications of FTX’s implosion has magnified the risks, and challenges associated with the cryptocurrency market. But expect that same trepidation to carry over into all sponsorship deals in the future that will necessarily trigger greater diligence and less tolerance for risk. Sports organizations will adopt a highly cautious approach when considering partnerships with cryptocurrency-based companies, because of the highly volatile and virtually unregulated nature of the industry, but a higher level of scrutiny will also be applied to company partners bringing anything less than a long standing and proven track record of excellence and trust.

High School Athletes Facing Discrimination And Lost Opportunity In Exercising Their NIL Rights.

By Leonard Armato for

By Leonard Armato for

The National Collegiate Athletic Association (NCAA) recently voted to allow student-athletes to profit from their name, image, and likeness (NIL), a major victory for college athletes who have long been unable to monetize the value of their public persona. This decision, however, does not apply to high school athletes. Most jurisdictions have strict rules prohibiting them from profiting from their NIL, including the state of Georgia.

Julian Lewis is a 14 year old prodigy and Freshman quarterback for Carrollton High School in Atlanta, Georgia. Last weekend Julian set a State Finals record by throwing for 531 yards and 5 touchdowns in the State Championship Game. Although he is already a star athlete with influence, over 100K Instagram followers, and recognized as a phenomenal college prospect, laws in the state of Georgia do not permit Julian to profit from his NIL.

Julian Lewis 14 year old record setting quarterback : JULIAN LEWIS

He and his family have already begun to feel the effects. Julian’s father, TC Lewis said: “We have turned down multiple money making opportunities over the past year that would sure help offset the expense our family must undertake to ensure that Julian receives the best training. We are aware of high school athletes from other states, no more talented or influential than Julian, generating substantial income through their NIL. We love the football program, education, and culture at Carrollton and it is sad that if Julian wanted to capitalize on his football achievements and influence the only option we have would be to move to another state which allows high school athletes to capitalize on their notoriety”.

Justin Giangrande is the CEO of the The Network Advisory (TNA) and an NIL pioneer who advises and represents college and high school athletes said: “This amounts to outright discrimination and lack of equality for young athletes that are similarly situated. NIL must be applied equally to everyone and it is incumbent on each state to recognize that and protect its resident athletes”.

Notable sports attorney Tabetha Plummer, who represents Deion Sanders among others, cut to the heart of the problem stating: “states are slowly coming on board but unless they move quickly many good people will be adversely affected. The families of talented athletes will have no choice but to move or send their kids off to schools in states that permit high school athletes to profit from their NIL. In states that do not recognize these NIL rights the result will be that coaches and local communities will suffer by losing these outstanding young men and women.”

Plummer believes that time of the essence for state lawmakers to take action and pass laws that allow high school athletes to profit off of their NIL. This would level the playing field and give young athletes like Julian Lewis the same opportunities as college athletes and certain of their their high school counterparts.

NIL legal specialist Darren Heitner sums it up nicely: “The biggest mistake states made when they passed NIL legislation leading up to the NCAA removing its prohibition on NIL transactions was that they stopped at college athletes and did not mandate that high school athletes have the same rights.”

Julian Lewis is just one example of the many high school athletes who are just as talented and deserving of the opportunity to earn income from their NIL as college athletes. The NCAA’s decision to allow college athletes to profit off of their NIL is a step in the right direction but neglecting to address the issue of high school NIL was a huge misstep that must now be corrected by state legislation. Until then, high school athletes in states like Georgia and Texas will be unfairly disadvantaged and unable realize their full potential to earn the income they deserve.

How Prime Time Deion Is Changing College Coaching And The Transfer Portal.

By: Leonard Armato for

By: Leonard Armato for

It was national news when Deion Sanders was hired last week as the head coach of Colorado University’s struggling football team and college football will never be the same. “Prime Time” Deion lit up the media with his press conference announcing his new coaching job and his first meeting with the current University of Colorado football team.

At his press conference Deion made it clear that he was “old school” and that there was “new sheriff in town” that would hold his players to the highest standard of accountability both on and off the field. He then conducted a players meeting and told them to go get on the portal or be ready to compete against the top tier new talent he would attract to the school. Following his announcement, it was reported by that the school has had over 200 players including a number of 4 and 5 star recruits inquire about transferring to play at Colorado and 4 star running back Dylan Edwards de-committed to Notre Dame and put Colorado on his list, alongside Kansas State as his school of choice. The smart money is on Colorado and Coach Prime.

BOULDER, CO – DECEMBER 4: Deion Sanders, CUs new head football coach, holds up a personalized … [+]

Deion’s media blitz made it clear to the world that college coaches are the new rock stars of collegiate sports and have the power to transform a program through the use of the transfer portal. But Deion wasn’t the first charismatic coach to re-ignite a flagging program through the use of the portal. Lincoln Riley did it spectacularly this past season for the University of Southern California by taking a 4-8 team to a record of 11-2 by taking Caleb Williams, his Heisman Trophy front runner and star quarterback with him from Oklahoma via the transfer portal. Riley also brought in roughly 40 new players via the portal including star wide receiver, Mario Williams and CB Latrell McCutchin.

The message is now clear to conferences and universities that charismatic coaches are the key to building a successful program and schools must be willing to make the investment if they hope to compete. Deion Sanders agreement averages roughly $6M per year and while Colorado has never awarded that type of lucrative contract to a coach before, the expectation is that the investment will provide the school a handsome return by transforming the football program and super charging fundraising from boosters of the school. Sponsorship and ticket sales have already increased dramatically and boosters are for the first time in years lining up to provide financial support to the program.

The effects of all this have filtered up all the way to the Conference level. At the Sports Business Journal Intercollegiate Athletics Forum in Las Vegas this past week all of the Conference Commissioners discussed the importance of their media deals and how they were driven by the success of their football programs. Pac-12 Commissioner, George Kliavkoff, was one of the few Commissioners still in the midst of negotiating the media deal for his Conference and he said they would not likely conclude until early 2023. It has been widely reported that ESPN and Amazon are the prime candidates to secure these rights but that the parties are still far apart. Admittedly several factors will impact the value of that deal and how the negotiations ultimately conclude. One is whether UCLA will be permitted by the California board of Regents to withdraw from the Pac-12. That decision is expected by next week. If UCLA is somehow forced to stay that would strengthen the Pac-12’s hand in its media rights negotiations. And second, Kliavkoff openly shared his enthusiasm that Colorado (a Pac-12 schools) had secured Deion Sanders as its head football coach. If you read the tea leaves, Deion will likely turn the Buffs into a football powerhouse which makes the Pac-12 media rights significantly more valuable.

It will be exciting to see where this is all headed but every Conference and University needs to come to grips with the reality that coaches are king and every school is but a charismatic head coach away from being a contender for the National Championship and the money and prestige that comes along with it.