News Article: Bubble bubble, toil and trouble - Pro Sports House of Cards

[Edgar Halliwax]

Very interesting article about the state of Pro Sports in general, including the NHL:

http://www.winnipegfreepress.com/sports/Bubble-bubble-toil-and-trouble-365506561.html

"The only way any of these recent deals make sense is if you believe the professional sports party of the past few decades will never come to an end: franchise valuations will continue to soar, player salaries will continue to skyrocket and fans will continue to pay ever-higher prices to make it all work.

But what if it’s all a house of a cards? What if pro sports is actually an overinflated bubble on the verge of bursting, just as the U.S. housing market did in 2007, the dot-com craze did in 2001 and every other irrational economic boom in history has done, dating to the Dutch tulip bubble of 1637?"

I agree with the premise of this article. I do believe this is a bubble of sorts. Salaries in pro sports are so out of touch with reality. I don't believe the underlying economics will support this craziness (my choice of words...) for much longer.

Click to read more...

 

[Johnny HFBOARDS]

Such a dirty racket but don't tell me how the product got to me, go teams go!

 

[civic204]

Interesting article from a local guy.

The TV ratings are interesting. I know a lot of people (younger couples with money) who have cut their cable and can't casually watch HNIC like people did back in the day.

Rogers giving their customers gamecenter has given a lot of tech-savy people a reason to cut their cable. I could cut my cable and watch all jets games on both of my tvs if I wanted to.

I can see a significant change in revenue streams and franchise values in the next 5-10 years.

 

[blues10]

Who took Wiecek off the curling/CFL beat?

TSN laying off staff. Gee not securing a national NHL contract may have something to do with that. They have also hired staff such as Gary Lawless away from the Freep.

TSN CFL ratings down. Not surprising, the fanbase is an aging demographic and the league has had trouble swaying younger fans away from the NFL. Many see the league as second tier.

Rogers NHL TV ratings down. Sure, fans have clearly not connected with the hipster Strombo as discussed in many threads. As well Kypreos et al leave much to be desired. However, what are the numbers of people streaming games via Rogers NHL Game Centre? I have watched 60+ games on Rogers game centre this season and have been paying Rogers good money for the privelage.

Bad contract for Rogers? really they negotiated the terms in CDN$$$ and immediately sold TVA the French language rights for $120 million a season. If the deal was in USD$$ it would have been bad.

Wow - Stan Kroenke is building a new stadium. The guy is worth $7+ billion dollars and married to the daughter of the founder of Wal Mart and himself is the 9th largest land owner in the USA. Also owns the Avs, Nuggets and Arsenal among his stable of pro sports teams. I think he'll be OK in his new stadium.

Kopitar deal. Perhaps someone should tell Wiecek that there is a salary cap in the league that is linked to HRR.

Baseball. I have a feeling that the Red Sox will be able to meet payroll when cutting David Price his pay checks.

The NFL is a license to print money. No need for discussion.


ESPN ratings are down and they laid off staff. Full thread about that in the BOH. It is not because people don't like sports it's because they don't like what ESPN has to offer.

Unless the population of North America quits following their favourite pro sports teams and no new generational fans jump on board, Wiecek's little theory is not worth a page hit for the Freep. North American pro sports did not burst during the last recession or any recession prior.

Yup, I am going to wake up tomorrow and quit cheering for the Jets, Bombers, Broncos, Blue Jays, Dodgers and also dump my EPL team Chelsea. I will not buy anymore merchandise, tickets or watch them on TV through my satellite provider or on my streaming devices through my wireless provider. My friends and family will do the same as will millions across NA. People choose to spend their disposable income and time this way. It is entertainment. Has the Hollywood bubble burst because actors are paid alot of $$$$$ and movie budgets have risen? I think not. North Americans have decent disposable incomes and an appetite for pro sports/entertainment.

The only bubble bursting is an article written to garner page hits much like the one about the Jets dire ticket situation. The Freep may be laying off staff soon as printed newspapers become a thing of the past and paying to access articles gains little traction amongst readers across North America. Now that is a bubble that I can see bursting.

 

[Channelcat]

Interesting article from a local guy.

The TV ratings are interesting. I know a lot of people (younger couples with money) who have cut their cable and can't casually watch HNIC like people did back in the day.

Rogers giving their customers gamecenter has given a lot of tech-savy people a reason to cut their cable. I could cut my cable and watch all jets games on both of my tvs if I wanted to.

I can see a significant change in revenue streams and franchise values in the next 5-10 years.

I'm done with the phone companies and this will be my last year paying for cable. What a wonderful thing. One little independent ISP will be my portal to the world.

 

[Mathmew Purrrr Oh]

that hurt my brain[sup]1[/sup]

seriously, how in the hell can someone not know what the word 'evidence' means?



1. <citation needed>

 

[BigZ65]

Wiecek lacks basic knowledge of the North American financial system required to make the argument he's trying to. I've read more coherent position papers written by middle schoolers. Our society and financial system has been built on growth and inflation since it began. Our society would essentially have to collapse for what he is suggesting possible to happen.

He's locked into a mindset from decades ago (not surprising given his industry) that is fixated on traditional media. ESPN etc collapsing has basically no effect on the leagues if the people are still consuming the product through other means that can be monetized. It's just an evolution. Some media organizations will shift with it, others will wither and die (like the Free Press).

 

[Conflicted Habs fan]

Interesting article. A good example of man-made overvaluation of corporate based sports products at public expense would be Glendale and their Coyotes. They've been running a 20-30 million annual deficit since 1996 but they're still there. It's insane. If public money goes to private companies for free - then the system in place will do anything to keep it going. The only way this bubble can burst will be when consumers halt mindless consuming habits towards products they don't need or even afford

 

[KingBogo]

Interesting article. A good example of man-made overvaluation of corporate based sports products at public expense would be Glendale and their Coyotes. They've been running a 20-30 million annual deficit since 1996 but they're still there. It's insane. If public money goes to private companies for free - then the system in place will do anything to keep it going. The only way this bubble can burst will be when consumers halt mindless consuming habits towards products they don't need or even afford

Boy that extends far beyond the realm of professional sports. Half the corporate world would cease to exist if that were ever the case.

 

[Yukon Joe]

On the one hand the article is problematic because it links two mostly unrelated things - player salaries and team valuations.

Player salaries, as mentioned, are linked to team revenues. If team revenues decrease, then inevitably so will player salaries.

But team valuations... hard to argue with them being a bubble when the NHL is looking for a half billion dollars for expansion teams.

 

[blues10]

Wiecek lacks basic knowledge of the North American financial system required to make the argument he's trying to. I've more coherent position papers written by middle schoolers. Our society and financial system has been built on growth and inflation since it began. Our society would essentially have to collapse for what he is suggesting possible to happen.

He's locked into a mindset from decades ago (not surprising given his industry) that is fixated on traditional media. ESPN etc collapsing has basically no effect on the leagues if the people are still consuming the product through other means that can be monetized. It's just an evolution. Some media organizations will shift with it, others will wither and die (like the Free Press).

Pretty much.

Exactly - This is why the Rogers deal was structured the way it was.

The multimedia-platform element of the agreement was especially appealing to the NHL and Rogers as it provides ways to use digital technology to stream games on the Internet, wireless and mobile devices, and satellite radio to Canadian consumers. Rogers will also operate NHL Center Ice and NHL GameCenter Live in Canada.

"The multi-platform was part of the strategy we believed we needed to use moving forward to embrace and respond to digital technology and the way people are consuming entertainment, particularly sports," Commissioner Bettman said.

http://www.nhl.com/ice/news.htm?id=693152


and coming soon in the USA

On Tuesday, MLB Advanced Media and the National Hockey League held what could only be described as a historic press conference via conference call. NHL Commissioner Gary Bettman, along with MLB Commissioner Rob Manfred announced that the NHL had sold media rights to another sports league’s media company. Along with the deal, the NHL would have equity in what is now called BAM Tech, a wholly new digital company that will be spun-off of MLB Advanced Media.

http://www.forbes.com/sites/maurybr...r-bam-tech-spin-off/#2715e4857a0b7aa732553970

It doesn't matter if the product is consumed through something other than a TV set and cable box as long as people are still paying to watch it.

 

[BigZ65]

On the one hand the article is problematic because it links two mostly unrelated things - player salaries and team valuations.

Player salaries, as mentioned, are linked to team revenues. If team revenues decrease, then inevitably so will player salaries.

But team valuations... hard to argue with them being a bubble when the NHL is looking for a half billion dollars for expansion teams.

Those valuations are essentially artificial though. It's not an open market like housing. That's why this argument is beyond dumb. Pro sports leagues are a closed industry. If you want in, you pay a premium that they set. There are people willing to pay it. There's about 150 major pro franchises in the whole continent depending on what leagues you're counting. It's really comparable to almost nothing.

I also don't believe that the valuations are all that crazy given the revenues and access to capital that the owners who do it right on the business side have.

 

[Stej]

The current financial system is a joke; there are bubbles everywhere. You'd have to be crazy to think that won't eventually affect the pro sports market, which is the definition of discretionary spending.

If you think everything is fine, then please at least buckle up.

 

[DeepFrickinValue]

Only form of TV that makes money is sports. Cash cow for future to come

 

[White Out 403*]

Only form of TV that makes money is sports. Cash cow for future to come

Tell that to ESPN, who are bleeding money.

This is a great article and really paints a sobering picture of how insane pro sports have become. Maybe not a bubble, who knows. But a good read and should be a cause for concern for the sports industry.

 

[Jeti]

Great premise for an article. Really weak argument.

One would need to look at the inflation in ticket prices and merchandise and then compare that to growth in wages to even begin to make the argument of a bubble. I would guess they're outstripping growth in wages, but that's a guess. Then look at how much revenue in pro sports comes from alternative sources like advertising, and speculate that advertisers are going to continue to move away from traditional marketing techniques.

He almost lands a decent point on stadium costs and the Olympics. There just isn't the same political will to dump tons of money into pro sports when these projects have been shown to not pay off in terms of improving the economy of the city - it's simply redirecting personal entertainment budgets that otherwise would have been spent elsewhere. The fact so many cities are deciding to not submit Olympic bids anymore should be alarming for the IOC, but that's not directly related to pro sports.

Cable cutting isn't a huge concern. Eventually the NHL will have to get its act together and bring gamecenter up to the standard of grey-market offerings like hockey streams. Cable revenue will shift to a more direct source and probably be even better for the league.

 

[blues10]

Keep in mind that North American Sports teams currently have a gigantic untapped revenue stream in jersey ads.

If it was considered HRR in hockey everyone would share the loot that the big clubs pull in. (think original six)

I can't imagine what some MLB teams would get (Red Sox, Cubs, Yankees, Dodgers). NBA (Lakers), NFL (Cowboys) . The sky is the limit. It may not be close to EPL but it will certainly be big when it happens.

Deals: Arsenal, Chelsea, Man United and Liverpool receive the most from shirt sponsorship in England
For the first time in history, Premier League clubs will earn more than £200million in just one season from shirt sponsorship.

http://www.mirror.co.uk/sport/football/news/premier-league-shirt-sponsorship---6100527

Chelsea FC Signs $300 Million Sponsorship Deal With Yokohama Rubber

http://www.forbes.com/sites/kurtbad...ith-yokohama-rubber/#2715e4857a0b1030f9ff2a09

The brand is paying $559 million for a seven-year deal in which the Chevrolet logo has replaced Aon’s on the most hallowed real estate in soccer, the Man U jersey.

http://www.forbes.com/sites/dalebus...in-in-the-big-house/#2715e4857a0b6294ff4c63cd

 

[BigZ65]

Tell that to ESPN, who are bleeding money.

This is a great article and really paints a sobering picture of how insane pro sports have become. Maybe not a bubble, who knows. But a good read and should be a cause for concern for the sports industry.

The problems he identifies have more to do with changes in how people consume media than pro sports. The leagues are still cashing the cheques for the broadcasting rights and most of them are planting their flag on the digital side to reap that revenue.

I think the media piece is very interesting. In Winnipeg we have one private broadcaster that produces more than a single newscast a day locally, that's CTV. Our newspaper of record has lost 75% of its share value in a year and our main talk radio stations are resorting to canned and replayed programming relentlessly.

And while governments are hedging more now, in the end there are still billions and billions of dollars being spent by them on pro sports facilities and grants every year.

 

[JetsFan815]

I cut the cord a couple of years ago and don't miss it one bit. Between NHL GCL/*************, Netflix, HBO GO and Hulu all the media that I care about is available to me . Cable is just a headache that I don't wanna deal with

 

[Edgar Halliwax]

The current financial system is a joke; there are bubbles everywhere. You'd have to be crazy to think that won't eventually affect the pro sports market, which is the definition of discretionary spending.

If you think everything is fine, then please at least buckle up.

Agreed. I don't buy the argument, as some have suggested, that pro sports operates in some kind of separate "realm", for lack of a better term, that's completely isolated from the rest of the economy.

For instance, it's going to be interesting to see how many corporations in Alberta tied to the oil industry (most of them) - who are cutting back on spending in all areas - will extend that practice to the purchase of season tickets for the Flames and Oilers in the next few years...

 

[BigZ65]

Agreed. I don't buy the argument, as some have suggested, that pro sports operates in some kind of separate "realm", for lack of a better term, that's completely isolated from the rest of the economy.

For instance, it's going to be interesting to see how many corporations in Alberta tied to the oil industry (most of them) - who are cutting back on spending in all areas - will extend that practice to the purchase of season tickets for the Flames and Oilers in the next few years...

Alberta is an extreme example as an economy that is incredibly dependent on one resource and prone to these alternating boom and bust cycles.

Pro sports isn't isolated from the economy, but it's not at all comparable to something like the housing market. Almost every league has cost control and a waiting list for new or existing franchises.

 

[ps241]

Alright then where to start

The soaring value of the Jets franchise, however, should be more a cause for concern than celebration as this franchise ponders its biggest financial investment to date: what to do about the $152 million in total contracts players Dustin Byfuglien, Andrew Ladd and Jacob Trouba are reportedly demanding.

It brings to mind the scene in the movie The Big Short in which a stripper tells the character played by Steve Carell that she owns five homes in Florida because, hey, the price of real estate can only keep going up, right?

It’s funny because we know how it all turned out: sub-prime mortgages very nearly brought down the entire world economy.

Perhaps people shouldn’t own five homes they can’t afford any more than the owner of a hockey team in Winnipeg should let the unsustainable rise in the valuation of his franchise convince him to give a $50-million, long-term contract to an aging defenceman.

First bolded point is Paul actually trying to make the argument that the franchise valuation is related to player salaries? Hockey is not baseball the NHL has a salary cap which sets upper and lower limits on what a team can commit to players salaries.

Second bolded Subprime mortgages and that entire animal is fascinating but has nothing to do with the sport franchise economy. Is Paul trying to draw some kind of a parallel between a stripper having five mortgages vs a small group of under 150 billionaires (most private) who buy and sell pro sport teams in North America?


The changing media markets is a bit more interesting but probably not as flushed out as I would have liked. Now I am not saying there isn't a potential bubble happening in pro team valuations but this article doesn't really effectively advance that debate IMO. If he would have focused in on the LA Clippers deal and Steve Balmer's bid of $2 billion for the massive overpayment (compared to historical rates) then he might have had a point. I still think that one single play caused an instant spike (inflation) to sport property asset values but who knows.

Anyways.

 

[BigZ65]

Alright then where to start



First boled point is Paul actually trying to make the argument that the franchise valuation is related to player salaries? Hockey is not baseball the NHL has a salary cap which sets upper and lower limits on what a team can commit to players salaries.

Second bolded Subprime mortgages and that entire animal is fascinating but has nothing to do with the sport franchise economy. Is Paul trying to draw some kind of a parallel between a stripper having five mortgages vs a small group of under 150 billionaires (most private) who buy and sell pro sport teams in North America?


The changing media markets is a bit more interesting but probably not as flushed out as I would have liked. Now I am not saying there isn't a potential bubble happening in pro team valuations but this article doesn't really effectively advance that debate IMO. If he would have focused in on the LA Clippers deal and Steve Balmer's bid of $2 billion for the massive overpayment (compared to historical rates) then he might have had a point. I still think that one single play caused an instant spike (inflation) to sport property asset values but who knows.

Anyways.

Even on a simplistic level, ignoring all context, the comparison of mortgages to pro sports owners makes no sense. People were/are taking on loans many times greater than their net worth to purchase homes. Even at $2 billion, Steve Ballmer is putting up 1/10 of his worth for the Clippers, an asset that generates capital from its operation. Unless you are doing something out of the ordinary your house isn't going to make you money day-by-day, year-by-year.

 

[ps241]

Even on a simplistic level, ignoring all context, the comparison of mortgages to pro sports owners makes no sense. People were/are taking on loans many times greater than their net worth to purchase homes. Even at $2 billion, Steve Ballmer is putting up 1/10 of his worth for the Clippers, an asset that generates capital from its operation. Unless you are doing something out of the ordinary your house isn't going to make you money day-by-day, year-by-year.

Yea in a lot of ways it's almost the polar opposite of the Subprime fiasco. Extremely high net worth individuals acquiring assets that have a built in scarcity of supply. Really odd choice for Paul to use?

 

[sipowicz]

I'm done with the phone companies and this will be my last year paying for cable. What a wonderful thing. One little independent ISP will be my portal to the world.

Any hints?