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Sports Leagues Could Be Looking for New Revenue Sources for Advertising and Sponsorships...
...By Hartley Henderson
It goes without saying that most U.S. sports leagues will feel some effect from the stock market meltdown. Many large consumer goods corporations have stated they will have to scale back on luxuries, including private boxes and advertising which will invariably hurt league revenues, but a more damning issue could be the inevitable scaling back of funding from the financial institutions. Wachovia, which was just purchased by Wells Fargo, has the naming rights to no fewer than 4 stadiums, the most notable being the Wachovia Center in Philadelphia. Fortunately for the arena's owners, the Wachovia contract extends until 2023 and the courts are now trying to determine whether the naming rights to that arena should go to Citi Group or Wells Fargo. However, the naming rights for the Wachovia Arena in Wilkes-Barr expires next year and is not expected to be renewed by Wachovia or picked up by any other financial company. As well, numerous other financial institutions, including Bank of America, AIG and Merrill Lynch to name just a few, also have the naming rights to sporting venues around the U.S., and unlike with the Wachovia Center some of these leases are up for renewal in the near future. In fact, the TD Group can relinquish the naming rights to the TD Waterhouse Center at any time and the MCI Center only has a few years left before their contract expires. It's quite possible that when looking at where these companies could save on needless costs, the naming rights to stadiums could be at top of the lists.
Of more concern to the leagues, however, than the naming rights of arenas are the sponsorship of events and the teams themselves. In golf one quarter of all tournaments are sponsored by financial institutions and advertising on the course is almost exclusively sponsored by financial institutions and automobile manufacturers. In fact JP Morgan Chase Bank, UBS Financial Services and Merrill Lynch paid PGA of America up to a million dollars for the privilege of advertising their products at the Ryder Cup. Even on TV, most of the advertising during golf tournaments on U.S. stations is for financial companies. When asked whether they were planning to pull out of their golf sponsorships, a spokesman for Merrill Lynch (now part of Bank of America) said they weren't, but that they were planning on pulling back in other areas, such as TV advertising.
But it's not just in golf that the lack of financial services advertising will be apparent. Many pundits have noticed that there is a huge void in financial services advertising for this year's baseball post season games, where in the past the commercials for banks and insurance companies would have been front and center. Other events, including the Olympics, saw a drop off of expected revenue from financial companies who just couldn't justify the enormous costs in these troubling times. Another area where not only financial institutions but all corporate advertising is on the decline is in NASCAR. In past years corporations waited in line to have their sponsorship on the hood of a NASCAR, but now many teams, including prominent names like Yates Racing, run without corporate sponsorships. Clearly the decision to bar tobacco advertising hurt the sport, but even in the years following the tobacco ban NASCAR teams had no trouble finding sponsorships, often from banks. But it appears in this time of crisis companies simply can't justify pouring millions of dollars into the hope that a sponsorship will raise revenues. Liquor companies, home improvement stores, energy drink companies, automobile and automobile parts manufacturers are the only corporations willing to fork out the tremendous costs of sponsoring a NASCAR.
Strangely, the same thing can not be said for sports leagues overseas. Recent reports have stated that revenues for soccer, rugby and horse racing have increased despite similar concerns there related to the U.S. housing issues. The reason why leagues are not concerned in Europe (and particularly the UK) is likely that most revenue does not come from financial institutions, but rather from gambling firms. A bet manager for a fairly large UK betting company who agreed to talk to me on the condition I not name him or the company in this article (which seems to be standard practice with UK companies) told me that his company spends a "significant" amount of money sponsoring teams, tournaments and even providing naming rights for some horse races. "It's been this way in England for years," the bet manager told me "and it's a win-win for everyone. We give the sports leagues a lot of money to help run the sports, pay salaries, increase purses in horse racing and so forth. And in turn they allow us to offer betting on their products without impediment. People will bet anyways (sic) so the governing bodies realize that it is in everyone's interest to have a working relationship with us. We also help them by identifying suspicious betting and in fact work with them in splitting advertising costs for many events. Best of all, everyone makes money under this agreement and the games or races are not compromised in any way."
It's not just Britain, however, where sportsbook advertising is prevalent in league sports, but throughout the European Union and even Australia. When watching Australian Rules Football or Australian Tour golf tournaments one will see ads for Australian Tab, which offers both sports and horse racing, and other Australian sportsbooks such as Centrebet. Ironically, while Australia has waged an all out offensive to stop online poker and casino wagering there, they seem to welcome sports betting. And within Europe ads from places like Bwin and Ladbrokes are prominent everywhere at tournaments and on various forms of media. Bwin had revenue increases of 7% in the last quarter compared to the same period last year, and more importantly sponsorships of sports teams by Bwin increased by 5% over the same span. And it seems that none of those leagues are struggling. In fact the only European sports league which has stated they need to start cutting back due to the financial crisis is Formula One. That shouldn't be overly surprising since AIG has been a major sponsor of F1, and unlike other European sports leagues advertising from gambling companies is practically non existent in F1 racing. When I asked someone on an F1 team whether they would consider sportsbook advertising if it helped increase F1 revenues, the only response he gave was "no comment," although I could sense from his body language that he would not rule it out if the governing body approved it. The truth is that gambling is almost recession proof. "When times are bad, that's when our numbers go up the most," the bet manager told me. "It seems people would rather watch the games from home with action on it than spend a fortune going to events if they have to choose (between attending an event or watching it from home)." A couple of sportsbook managers I spoke to from Antigua and Costa Rica that cater to the U.S. market agreed and seemed to suggest that while the UIGEA hurt their revenues because of the difficulty getting money in and out of the books, the actual amounts people are betting have not decreased at all.
It's not just in Europe, however, where sportsbook advertising and sponsorship has proven successful. In 2003 Bowmans International (www.bowmans.com), which is now owned by Bet365, became the official sponsor of the Toronto Argonauts CFL Football Club, and even today the company has sponsorships in the league. The CFL was struggling greatly and Bowman's management, realizing it would be a win-win for both the league and themselves considering the number of Canadian clients the company has, offered the Argonauts a large sum for the exclusive rights to advertise their company at games. Indeed, it worked well as Bowman's received great exposure, including a huge logo in the middle of the football field. and assumably Bowman's increased customer signups and retention, while the Argonauts received additional funds it could spend on salaries. At Toronto Maple Leafs' hockey games Pokerroom.tv was the feature advertiser at many of its home games, and Pokkeroom.tv actually handed out playing cards and information on the site itself. Pokerroom.tv is a Gibraltar based company that is part of the ongame network which features Bwin, Coral Sports, Eurobet and some other sports betting websites. While I was unable to get exact numbers that show how much Ongame paid the Toronto Maple Leafs for the rights to be an official advertiser and sponsor at the games, its safe to say it was substantial. And while the company may not have made back in terms of signups what it paid for advertising yet, it was a great way to get brand awareness for a group of companies that have been trying to increase Canadian interest and signups in light of the U.S. crackdown.
It is thus quite evident that there is a considerable amount of money that sports leagues could generate if they were to change their attitudes regarding betting on their sports and instead embraced the gambling firms the way they do overseas. And make no mistake about it: The current drive by the U.S. government to crack down on online sports betting, and the reason bills like those proposed by Barney Frank, Robert Wexler and similar bills that aim to legalize all gambling except sports betting were introduced is strictly because of the lobby of the sports leagues. If the commissioners of the NFL, MLB, NBA and NHL all of a sudden decided to welcome betting on their sports it is almost a certainty that the sports betting exclusions would be lifted from any laws designed to repeal the UIGEA, and in fact it is not inconceivable that the U.S. government would go the same way Australia has and legalize sports betting with some caveats and taxes while continuing to try and stop poker and casinos online. But the likelihood that any of the major leagues under their current structures with the present commissioners would actually agree to welcoming sportsbook advertising and sponsorships is slim to none, and slim just went home. Instead the leagues will continue to try and functionm, hoping that beer companies, energy drink manufacturers and car manufacturers will forever provide enough advertising to sustain future salaries and revenue.
How much money could online sports betting companies actually provide to the leagues? Prior to the UIGEA it was estimated that Americans wagered $5 billion online, of which about 1/2 was on sports betting. There is specualtion that had the UIGEA not passed, and if Americans had payment options open to them similar to those in the UK or Australia where there are few if any constraints, the number would have grown to close to $10 billion per year by 2012. As well, if American companies like Hilton, Caesar's and Station Casinos had entered the fray the number would be substantially higher than that. In a well known publicity offer, Mark Blandford, who was the CEO of Sportingbet.plc, offered the NFL one billion dollars if they would allow Sportingbet to be "the official bookmaker of the NFL." The offer stood until Blandford left. When I asked Blandford if it was a joke when he first proposed it, he claimed that if the NFL agreed he would guarantee a profit to the company within a decade based on the volume Sportingbet had just with NFL betting. In his scheme as the "official bookmaker," all bets would flow through Sportingbet (which of course is absurd). Nevertheless, the league never acknowledged the offer, and behind closed doors the commissioners probably threw darts at his picture. In any case, the amount of revenue to the leagues would be astronomical in an open sports betting environment like they have currently in Europe or Australia.
That brings us back to the PGA. While revenues and advertising options are still there for the major sports leagues, the same can't be said for the PGA. Like it or not the golf association relies heavily on financial companies for revenues. The two are intertwined, likely because of the cost to play golf for the average American. But it's impossible to see how the banks and insurance companies will be able to justify the huge expenditures for advertising or sponsorships in the future. After all, these companies were used to billion dollar profits each year which allowed them to spend whatever they wanted on PGA advertising. But now, almost all the companies have multi-billion dollar losses and are fighting for their mere survival. And to make matters worse, TV ratings were down almost 50% this year for the PGA, albeit much of that had to do with Tiger Woods missing the year with an injury. It's unlikely that companies like Miller Breweries or Red Bull will have much interest in sponsoring golf tournaments and they certainly wouldn't be willing to pony up the type of money that Merrill Lynch or Wachovia currently does. Online gambling companies, on the other hand, just might.
The British sports book manager I interviewed said he gets quite a few of bets on golf, but he claims golf is just one sport among the many the company packages in its betting options. It is estimated that Wachovia spends close to $1 million for the rights to the name for the Wachovia Championship, and while that is a considerable amount, the sports book manager said his company would have to seriously consider the option if it was ever available to them for a major tournament in golf, particularly if the UIGEA ever appeared like it may be overturned and his company could re-enter the U.S. market. But it's inevitable that at some point shareholders of the major banks will view the expenditures on these golf championships as frivolous and will demand the companies scale back. Furthermore, betting in golf is already commonplace. A major player in the game is currently working off his gambling debts for Las Vegas casinos by playing golf with the casino's whales. and another golfer is known to bet thousands each round with other players on shots they will make. It's almost a certainty that if the PGA ever lifted their ban on sports betting, many players who currently wear Nike, Callaway or Titleist clothing and hats would don clothes with the gambling website logos (even if they are .net). That would especially be a boon to the smaller players who often are competitive but aren't skilled enough to get the lucrative advertising deals that Tiger Woods, Phil Mickelson or even Davis Love III get. And don't forget, players are forced to pay their own costs for the tournaments, so this could provide some additional needed revenue for the up and comers who are not able to get the big checks.
Many reading this article will probably feel the whole notion that U.S. sports leagues would ever entertain gambling sponsorships or advertising as ludicrous. The detractors have forever claimed that gambling would be the inevitable undoing of the league. However, the same was true in Britain prior to the law that legalized wagering on sports, and now the two entities have a partnership. The financial crisis will not continue forever, but there is speculation it could take a decade or two until banks and insurance companies realize profits again. If that is indeed the case, and if those companies do pull their advertising, it is not inconceivable that the leagues will do whatever they have to in order to make sure that salaries do not start plummeting. That could mean cozying up to the sportsbooks to offer a win-win proposition. Stranger things have happened.
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