Startup leagues and niche sports

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Start-up leagues and niche sports

• Minor Leagues
• Player development, entertainment, grassroots
  marketing
• Minor League Baseball, Arena Football 2
• Aspire to become next major leagues
• Top level competition in respective sport
• Often many recreational participants
• Womens United Soccer Association, Major League
  Lacrosse, World Team Tennis, WNBA, professional
  softball/volleyball leagues, action sports
• Not yet for financial success (except action
  sports)

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Start-up leagues and niche sports

• In-door variation of traditionally outdoor sports
• Typically played in hockey/basketball arenas
• Extend use of facility
• Arena Football League, Major Indoor Soccer
  League, National Lacrosse League
• Gender-specific leagues
• WNBA, WUSA, World Team Tennis
• Substantial loss

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Major revenue sources

• Gate receipt/concession, broadcast fee,
  sponsorships
• MiLB rely heavily on gate
• Action sports rely on broadcast, no admission fee
• Sponsorship
• Provide revenue for new league
• May reach particular demographic in
  cost-effective way
• Lower cost for sponsor fee
• Reach audience qualitative not quantitative
• Emerging sports may be good value for sponsors

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Single-entity structure

• Major League Soccer, Golden Baseball League, WUSA
  (soccer)
• Limit operation cost, especially player salary
• Provide financial stability
• Recruit, negotiate, pay, assign players by League
• Flawed system, may be ineffective in long-term

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Major League Soccer

• MLS own all teams, tickets, broadcast rights
• MLS pay salaries to players, referees/personnel,
  stadium leases
• Assume all related liabilities
• MLS relinquished some control over team
  operations to certain investors
• League pay them management fee, mostly
  correspond to their team performance
• Investors hire general managers, coaches, other
  staff
• Responsible for local expenses and ½ stadium rent
• Not bid independently for players against MLS
• Columbus Crews first to turn profit in 2002

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Long-term financial success

• The sport must be appealing to an audience
• Highly skilled players
• Significant participation rate for general
  population
• TV exposure important Grow interest
• Increased number of cable channels created
  broadcasting opportunities, these networks need
  programming content
• Deep-pocketed ownership to sustain early loss
• Access appropriate markets
• Located in major market, but high operational
  costs and increased competition
• Regional popularity of the sport
• Strong leadership vision, build consensus

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WUSA

• WUSA start in 2001, after 1999 Womens WC
• Player accepted 20 pay cut to reduce losses
• Decreased gate, TV rating/revenue
• Folded after 2003
• Competitions
• Direct competition with MLS, broadcasting at same
  time
• MLS main audience young men with various ethnic
  background
• Same audience group with WNBA at same time
  family, younger females

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Action sports

• Appealing to 12-34 year-old males
• Exciting, fast-paced, dangerous, rebel style
• Highly desirable target market for advertisers
• Growing youth participation/interest, compare to
  decrease in major traditional sports
• Big 4 team sports adopt grassroots marketing
  program aimed at youth
• Extreme Games created by ESPN in 1995
• Changed to X Games in 1996 for greater audience
  appeal
• Winter X Games in 1997
• Annual profits 12M in recent years and growing
• Expand markets to Latin America, Asia, Europe
• Junior X Games, touring events

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Action sports

• Athletes compensation mainly from endorsements
• The best can over over 1M/year
• Also from prize money
• Attracted to sponsors, increasing participation
  rate, year-round presence
• Strong product extensions Video games, music,
  toy
• Life style represented by action sports
• Anti-corporate, not mainstream
• May conflict with increased media/corporate
  involvement
• How big business can be made from fans/athletes
  have traditionally avoided big business
• Separated vs collective sports?

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Arena Football League -1

• AFL governs teams and sell team memberships
• Started in 1987 with 4 teams, 19 teams in 2006,
  17 teams in 2008, 16 teams in 2009
• Season March-June, playoff in June-July
• Increased attendance and TV rates/revenue
• NBC 2003-06
• NBC became revenue-sharing partner, receive first
  8-10M in revenue, AFL receive next 3M, then share
  all advertising revenue equally
• rights to share any increased value from sale of
  teams
• No rights fee paid, has right to renew in
  perpetuity (??)
• NBC near-guarantee not lose money, potential high
  return
• AFL gain popularity in major TV network

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AFL -2

• 5-year agreement with ESPN from 2007
• Broadcast on ESPN, ESPN2, ABC
• ESPN Classic, ESPN HD, ESPN2 HD ESPN.com
  Spanish-language ESPN Deportes ESPN360
  (interactive, customizable broadband service)
  Mobile ESPN Publishing (wireless content
  licensing business) ESPN Radio, ESPN The
  Magazine and other ESPN-branded services (i.e.,
  iPod, video-on-demand).
• ESPN also purchased a minority ownership stake in
  AFL
• Continue to establish Monday night as football
  night, only few games broadcast on Sundays
  (afternoon)
• Has its own fantasy game

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AFL -3

• Played in indoor hockey/basketball arenas
• Climate controlled, intimate view
• Fast-paced, high scoring, emphasis on offense
• 10000 attendace/game in 2002, mostly young male
• Arena Football League Players Association
• CBA with league, salary cap, minimum salary
• Total team compensation 1.5M for 24-man roster
• Home team keep gate receipts
• Reimburse visiting teams for hotel expenses
• Revenue from Teams operations
• Gate/concession, sponsorship, local/regional
  broadcast rights (negligible), merchandise carry
  Teams logo

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AFL -4

• Each team pay annual assessment to AFL for annual
  operating costs, 470 K in 2002
• AFL operates League licensing program
• No cross ownership
• No person who owns any interest in any AFL team
  can own gt5 in other team without prior approval
  of AFL
• Risk factors
• Schedule competition with NBA
• Difficult to retain excellent players
• Established arenafootball2 League (af2) in 1999
• 31 teams in 2007, mostly in midwest/southeast
  smaller markets, March-July
• 26 teams in 2008, 1 more team in 2010

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Growth of womens sports

• All-American Girls Professional Baseball League
  1943-54
• Fill minor league ballparks, some in major league
• Philip K. Wrigley devised original plan, paid ½
  expenses of teams
• Initial success stimulated expansion, expansion
  cities paid all expenses
• Tennis only professional sport in which women
  can earn more than men
• Womens team sports unspectacular, even failure
• May change recently as growing interest at
  grassroots/amateur levels, college sports

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WNBA

• WNBA established in 1996, 14 teams in 2008, 13
  teams in 2009
• Season May-September
• Attendance 70 female, many non-adult
• TV audience 50 female
• Lower ticket price compared to NBA
• WNBA paid broadcasting/production costs
• Sponsorship the main source of revenue
• Lose money, receive assistance from NBA
• Transferred from centralized ownership to local
  ownership
• Mostly NBA owners
• Has its own fantasy game

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