The Big Idea

Get Ready For the PE Owner

Changes in league rules and ballooning valuations have drawn private equity (PE) investors into team ownership. Opening up ownership to a new class of deep-pocketed investors will likely fuel further valuation growth in the future. But these PE owners are likely to bring different perspectives and expectations to the executive suite. This has significant implications not only for current owners and top management but also for day-to-day operations. Savvy managers will thrive in this new environment if they can adapt to how PE owners are likely to think and act. Here are the types of questions that will become far more common in a PE-influenced environment:

Where Are the Opportunities for Revenue Growth?

The first rule of PE is understanding how a firm makes money and how it can make more of it. A business operator of a team should be able to explain the following:

• What are the different revenue streams available to the team (e.g., media, tickets, concessions, merchandise, real estate, events, etc.)?

• How are those streams performing?

• Where is the most potential for growth in those streams?

• Are there new streams to tap into?

Sure, data about players’ performance has skyrocketed in the last decade with metrics like WAR, VORP, and GAR. But the same cannot be said for data on fan performance. Players drive wins, but fans drive revenues. Many teams don’t have access to what would be considered fundamental customer information to a typical PE owner. Most teams have disparate measures of fan engagement, such as season ticket holders, social media followers, and TV ratings. But few know how those audiences overlap and how they translate to a holistic measure of a team’s total fan base. A PE-friendly manager would help determine:

Where’s the Data?

• How many fans do you have?

• How is the fan base growing, aging, or changing?

• What are the key fan types/segments by demographics and psychographics?

• How much do fans spend by type?

Who’s the Competition?

Conference groupings make a team’s on-field competition obvious. But it’s not as easy to understand the competition for fans. The competition for fan attention and wallets is likely to differ significantly between cities like Las Vegas, New York, and Kansas City. Understanding who your competition is will help you design programs and packages that can increase your team’s market share.

Where Can We Be More Efficient?

The second most important thing to PE investors, after growing revenues, is cutting costs. Of course, the most costly part of running a team is player salaries. That’s a deep topic unto itself, so we’ll set that aside for a moment. The next highest areas of expense are usually facility costs, travel and event logistics, and marketing. Business managers should evaluate whether there are untapped efficiencies in those areas. Areas to explore include:

• Is there an opportunity for new or improved technology to reduce operational costs?

• What are the comparative costs of in-house vs. outsourcing for various functions?

• When was the last time large third-party services were put out for bid?

The manager who can think and talk about the business of sports in these terms will fare well in a PE-influenced world.

Marketing

Five Proven Promotion Ideas

If you’re not fortunate enough to have a sellout for every game, you’ll likely turn to promotions to help drive attendance and attract new fans. We looked at teams across sports and levels to identify the five general themes that most consistently drive successful promotions.

Community Tie-In

Connecting your team to the local community not only generates goodwill but also appeals to groups instead of just individuals. Depending on your location and aspirations, these can be small, tight-knit communities or large regional groups. Examples include:

• School Tie-Ins: Dedicate a night to a local school or school district. Provide a special admission price for students and their parents.

• Heritage Celebration: Target groups prevalent in your area (e.g., Polish-American Night in Chicago, Brazilian Night in Boston, etc.). Feature special music or pop-up food offerings. If you're fortunate enough to have a member of the team or front office with a shared heritage, offer a pre-game or post-game fan event.

Affinity Groups

Affinity groups are existing networks built around shared activities or hobbies. Book clubs, cooking clubs, and running clubs are all common in many cities. Tapping into their passions can build enthusiasm for your team. For example, for a running club, you could host a pre-game Fun Run around or through your facility. Every finisher could receive a special ticket offer for the game or, if the budget allows, a t-shirt or hat that showcases your brand during their future runs.

Championing the Sport

Assuming the role of a sports leader attracts fans who already have a predisposition toward your sport and establishes your team as a mentor to up-and-coming athletes. Soccer teams hosting AYSO teams, baseball teams hosting Little League, and basketball teams hosting AAU clubs are all ways to both attract fans and elevate your team’s profile. Giving young players a chance to see—or even meet—the stars of the game is always a powerful draw.

Holiday Fun

People love to celebrate holidays, whether it’s Christmas, the 4th of July, or Valentine’s Day. Holiday themes easily lend themselves to costume contests, special giveaways, and other promotional attractions. Many holidays can be celebrated on the days or weekends before their official dates (e.g., St. Patrick's Day), which allows for more flexibility in scheduling.

Good Neighbor

There is never a shortage of deserving causes that teams can support. While a charitable effort is a good thing in itself, it can also build connections with grateful constituencies. Many established charities have robust networks of supporters who they can mobilize for collaborations with teams. Designating a night where a portion of ticket sales goes to a charity can build positive brand associations and expand your future circle of fans.

The key benefit to each of these approaches is leveraging a community that provides a built-in means to communicate and motivate people to participate. A great giveaway or unique theme may drive interest, but tapping into a pre-existing interest and audience makes it easier to drive engagement.

Nerding Out

The Jock Tax

For agents and teams negotiating player contracts, taxes are often an overlooked yet complicated issue. The difference between tax rates in various US states and different countries (yes, Canada, we’re looking at you) can have significant implications. For example, Sportico recently reported that Luka Dončić will lose several million dollars a year by moving from Texas (which has no state income tax) to California (home to the highest state tax rate in the US).

Adding to these complexities, several states began aggressively enforcing “jock taxes” in the 1990s. These taxes effectively levy an income tax on nonresident professional athletes for the time they spend playing in a given state. Some cities have even joined in. For instance, it’s reported that Alex Rodriguez paid over $500,000 per season in income taxes imposed outside of his home state. In 2018, when Hurricane Irma forced the Miami Dolphins to move their training camp to California, they inadvertently created a tax obligation for every team member who attended. As a result, professional athletes can end up filing over 20 separate income tax returns in a single year. Another layer of complexity is determining which types of income are included in the calculation of what is owed; signing bonuses, performance bonuses, and deferred salaries are all subject to debate. There is even discussion about whether NIL (name, image, and likeness) earnings should be included. While this might not garner much sympathy from everyday workers for athletes with multimillion-dollar deals, the jock tax technically applies to everyone on the team, including trainers, equipment managers, and other support staff.

On a practical level, this underscores the importance of tax services for player representatives. Taxes aren’t glamorous, but they must be taken into account when comparing competing offers. Two deals that look identical on an offer sheet could be significantly different once the tax implications are factored in. In addition to estimating the tax differences, a knowledgeable tax accountant can also devise strategies to minimize the jock tax through creative financial planning.

By The Numbers

Numbers That Jumped Off the Page

4.4-  Saturday's U.S.-Canada matchup in the 4 Nations Face-Off averaged 4.4 million viewers on ABC. Turns out people really like watching North American hockey rivals duke it out! Who knew? (Everyone. Everyone knew.) 

30– The MLS has hit 30 in more ways than one. Set to begin its 30th season this year they also have added another franchise to bring the league to 30 teams. San Diego FC is making history as MLS's 30th club and the first major men's sports franchise owned by a Native American tribe. The league seems to be starting its third decade out in style.

69- The Trailblazer's ratings luck has turned around, with the largest season-over-season increase in viewership in the NBA at  +69%. Their offseason change to ditch cable and Root Sports Northwest in favor of Sinclair’s local affiliate KUNP has been a decided success along with their direct-to-consumer streaming app BlazerVision in reaching their local fans. 

138.6-  The global sporting events market is projected to grow by $138.6 billion by 2029. According to Technavio, this expected increase can be attributed to the increasing use of social media in sporting brands' strategies as well as increasing sports sponsorship spending with the hopes of increased branding and collaboration. It turns out people like to post about sports. Who would’ve thought?

Pulse Check

What’s The Worst Managed Professional Sports Team?

We asked BTS readers who the worst-managed teams in US professional sports. With no specific evaluations of team success, work culture, ownership, or facilities, these responses showcase the general opinion of how some of these teams are viewed by the public and those in the industry. Fingers crossed that your team hasn’t made the list.