Saturday, December 30, 2006

The NBA – an uneventful 2006 II

In a player centric sports league like the NBA it shouldn’t have come as a surprise so much of the ongoing business of the NBA was on its marquee athletes. That said, the failed introduction of the new Spalding basketball, the failed sale of the Memphis Grizzlies to former Duke basketball players Brian Davis and Christian Laettner, the future of the Sacramento Kings and the Seattle Sonics all simmered in 2006, but could easily boil over early in 2007 for David Stern and the NBA. And then there’s the issue of revenue sharing – all that and a great deal more for Stern and the NBA to look forward to.

Two weeks before Christmas Spalding’s plans to market the new NBA game ball blew up in the faces of a key NBA supplier and sponsor. On December 11, the NBA realized it was time to correct their error in judgment.

“Our players' response to this particular composite ball has been consistently negative and we are acting accordingly," said NBA Commissioner David Stern. “Although testing performed by Spalding and the NBA demonstrated that the new composite basketball was more consistent than leather, and statistically there has been an improvement in shooting, scoring, and ball-related turnovers, the most important statistic is the view of our players.”

"In the meantime, we will work with our players and our partners at Spalding to determine the best possible ball for the NBA."

Spalding who has supplied the NBA with their basketballs since 1983 made the only decision they could from a marketing perspective – seeing the bigger picture.

“Spalding’s main objective is to uphold the integrity of the game of basketball,” stated Spalding Group President and CEO Scott Creelman. “For 130 years, Spalding’s commitment has been and remains providing the best players in the world with the best product for the game. We believe the micro fiber composite ball offers many superior characteristics to leather however we firmly support any decision that improves player satisfaction. We will work closely with the NBA to ensure a smooth transition and to determine the best product going forward.”

A day later, Spalding announced it would offer $115 refunds to consumers who purchased and wanted to return the National Basketball Association's composite ball after the league said it is switching back to a leather ball.

The NBA’s decision followed a decision by the NBA Players Association to launch a lawsuit against the NBA for introducing the new basketball. Evidently the NBA and Spalding failed to check with players (the end-users) how they felt about the new basketball.

"How they could actually even get it that far and not have even run it by the players is just an amazing, amazing exercise in ineptitude," Rob Frankel, a Los Angeles-based branding expert told Bloomberg News. "When you produce a ball that nobody wants to play with, that's pretty damaging for your credibility as a sports authority, wouldn't you say?"

"Not only is it 13 days before Christmas, but they had the entire NBA season they were counting on . . . and also the millions of dollars they put behind the marketing of the basketball," said Robert Tuchman, president of New York-based consultancy TSE Sports & Entertainment in a Bloomberg News report at the time of the announcement.

"It's really a disaster. I wouldn't put it on the same page as the New Coke fiasco, but it really is an unfortunate situation. It's like an endorsement gone wrong."

Three of the biggest names on the basketball court, made it clear they had no interest in the new basketball.

Shaquille O'Neal, Miami Heat: [The new balls are like] cheap balls that you buy at the toy store.

LeBron James, Cleveland Cavaliers: You can change the dress code, you can make our shorts shorter, but when you take our basketball away from us, that's not a transition we handle.

Steve Nash, Phoenix Suns: It's awful. [The friction burns], it's like an irritant. . . . Sometimes, I even have to tape my fingers in practice.

The good news, the NBA realized they had made a mistake and brought back the old basketball. That style of leadership has been a hallmark of Stern’s tenure as NBA commissioner. Stern has served as the NBA’s commissioner since 1984. 2006 may have been a relatively easy year for David Stern, 2007 may be an entirely different story.

Michael Heisley who has never been the NBA owner the league hoped he would be when Heisley purchased the Vancouver Grizzlies from Orca Bay Entertainment in April 2001, believed he had reached an agreement in principal to sell his 70 percent share in the Grizzlies for $252 million, based on a $360 million franchise value to Davis and Laettner had a January 15 deadline to complete their deal – that will not take place. Clearly Heisley wants to end his NBA ownership. The NBA doesn’t need an owner who doesn’t want to be involved with the day-to-day management of one of their franchises. With no short-term solution on the horizon Memphis will require Stern’s attention early in the New Year.

On September 29 a collective group of NBA team owners drafted a letter to David Stern that focused on the economic challenges so-called small market teams are facing. The Seattle Times who obtained a copy of the letter which among other issues raised, challenged the NBA’s front office belief the league collectively had turned a profit of $46 million for the 2005-06 season the first year of the latest collective bargaining agreement.

According to the letter the Minnesota Timberwolves believe they could lose $30 million between the 2005-06 season and this season. Paul Allen surrendered the Rose Garden to Portland in 2004 by declaring it bankrupt and expects $100 million in losses the next three years. Utah claims to have lost $25 million the past two seasons. Eight NBA team owners that signed the letter, made it clear to Stern the NBA needs significant revenue sharing.

The letter states: "We are asking you to embrace this issue because the hard truth is that our current economic system works only for larger-market teams and a few teams that have extraordinary success on the court and for the latter group of teams, only when they experience extraordinary success. The rest of us are looking at significant and unacceptable annual financial losses."The letter to Stern also says: "If appropriately managed teams can't break even, let alone make a profit, we have an economic system that requires correction. The needed correction is serious revenue sharing not just modest revenue assistance and we urge you to address this issue on an urgent basis this year."

Blazers owner Paul Allen, Heisley, Charlotte owner Bob Johnson, Milwaukee owner Herb Kohl (a member of the United States Senate), Utah owner Larry Miller, New Orleans owner George Shinn, Indiana owner Herb Simon and Minnesota owner Glen Taylor each signed the letter.

Joe and Gavin Maloof didn’t sign the letter. Good judgment on their part. Sacramento voters on November 7 overwhelmingly rejected two key measures that would have provided a publicly funded arena for the NBA franchise. Owned by Joe and Gavin Maloof, the arena measures were rejected by a resounding 80 percent. Nine days after staring at the end of the NBA in Sacramento, Joe and Gavin made their first intelligent decision in months – they turned their arena fortunes to NBA Commissioner David Stern.

“The Maloofs have never wavered in their interest in keeping their teams in Sacramento and they have requested that we take a leadership role in helping them achieve that goal,” Stern said.

“We believe that David Stern’s combination of experience and creative thinking will help us find a plan that will work for both the public and the team,” Joe Maloof said. “We will remain an integral part of the process, but the league is going to take the leadership role going forward. Gavin and I and the rest of the management team are going to be spending 100% of our time supporting the Kings and Monarchs and enhancing the experience of our loyal fans and community partners.”

Stern has made his initial visit to Sacramento and has turned the future of the Kings over to John Moag one of the most respected deal-makers in the sports industry. It remains to be seen if the Kings will be playing in Sacramento in the next few years, or in Anaheim or possibly Las Vegas. However, the Kings could be one of two NBA franchises that might be on the move in 2007

The Seattle Sonics play in a facility so terrible it forced Seattle native and Starbucks founder Howard Schultz to sell the franchise to Oklahoma City interests. In late October before the start of the NBA season, the NBA approved the transfer of the teams’ ownership to Clay Bennett. Bennett continues to say all the right things about the team staying in Seattle, but let’s make it clear – Bennett is from Oklahoma City, and if Bennett and the NBA can’t convince Washington taxpayers to support the building of a new arena for the Sonics, Bennett will move his team to the city he lives in.

“Well, actually I have sort of a sense of optimism because although Clay and his ownership group are based in Oklahoma City, almost from the first day that Clay started looking at Seattle as an investment and then as a purchase, he stressed to me the vibrancy of the Seattle market, the revenue streams that could be available there, and its jumping off status to Asia and its business relationships to Asia, which is a subject on which the Board spent some time today, not in terms of Seattle, but in terms of the NBA’s opportunities. So, I went from kind of skeptical in a way, to kind of getting on line with “Ok, I get what you see here.” But, of course, the large investment that they’re making and that they’re continuing and willing to stand behind is dependent upon a new building. And, they actually have committed to resources for experts and consultants and the like, to follow a critical path that seems designed to exhaust every opportunity, including the political route, the governmental route that is necessary to have a new building. I’m delighted to see the effort so focused, and hopefully their intentions here will be reciprocated by the decision makers who have the opportunity to impact it in a positive way, “Stern offered after the BOG’s approved Bennett’s ownership of the franchise.

“David has said it very well. We, first and foremost in our evaluation, made a decision to invest in the NBA and to be a shareholder in what we view as a very important and growing, global business. We also view the Seattle marketplace as a remarkable opportunity – very dynamic, expanding economy, beautiful place to be. The connection to the Pacific Rim, the existing trade that is there, the future trade that will happen, and the league’s potential internationally and really a lot of work that is already being done in that pursuit. So, our interest is in that marketplace and in that economic model. I am encouraged by what has happened so far in terms of the development of a building. I think we’re being well received, and I think we’re making constructive progress toward that end. So, we’ve been working -- although we didn’t receive board (NBA Board of Governors) approval until today – we’ve been working, really since the day we announced (the purchase), on this project. So, we’re excited to really hit the ground and begin some serious work,” Bennett saying what any new owner would say on the eve of his first year as owner of an NBA franchise based in Seattle.

Bennett has made it clear he’ll give it a year (the Hornets “plan” on moving back to New Orleans in one year) and then he’ll look at his options – moving the Sonics from Seattle to Oklahoma City, in time for the 2007-08 season. Whatever Bennett and Stern suggest, Bennett bought an NBA franchise to ensure the city he does business in and lives in (Oklahoma City) has an NBA team. Once Bennett moves the Sonics to Oklahoma City the NBA may expand to Seattle (the Charlotte Bobcats) or move a team to Seattle (the New Orleans Hornets) but take it to the bank Bennett -- will move the Sonics to Oklahoma City, if George Shinn follows through and moves the Hornets back to New Orleans.

For his part as the year came to an end and David Stern had an opportunity to reflect on the current state of business for the National Basketball Association.

“I would say that in a market in all ratings are going down we are holding about steady and we project that come the playoffs and the Finals that our ratings will be up. Both of our network partners, The Walt Disney Company and Time Warner are extraordinarily interested in extending our relationships because sponsor sales are strong and demographics are strong.”

“Attendance, although it is getting very difficult to keep going up, will be up for the fourth year in a row and we will once again have record revenues. We’ll be playing at about 92 percent capacity this season, which is continued growth, but its hard to inch up a percentage or two each year and I think we’re getting close to that.”

“And on a global scale, we continue to have enormous growth in television, in broadband, in sponsorship sales and in merchandising so actually all of the business indications are extraordinary and players as well in terms of a flood of endorsement opportunities and campaigns and the like, we’re seeing it more intensely than we have in years. And so we’re feeling pretty good about it. But it’s far from perfect and Saturday night can tell you why it’s not perfect.” Stern said

David Stern had every right to believe the business affairs of the NBA as they currently stand are in decent shape. That said the challenges David Stern faces in the coming weeks and months will challenge him like few other periods of time have required David Stern’s focus. The good news for the NBA, the best in the business, David Stern is at the helm.

For Sports Business News this is Howard Bloom

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