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Entertainment%20and%20Media:%20Markets%20and%20Economics

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Title: Intellectual Property Author: William Greene Last modified by: Sherrie Created Date: 10/15/2000 9:18:33 PM Document presentation format: On-screen Show (4:3) – PowerPoint PPT presentation

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Title: Entertainment%20and%20Media:%20Markets%20and%20Economics


1
Entertainment and Media Markets and Economics
  • Entertainment and SportsMega Deals

2
Huge Entertainment and Sports Deals
  • A Capital Budgeting Decision
  • Costs
  • Known with certainty
  • Known at the time the contract is signed
  • Benefits
  • Uncertain depend on success of the agent
  • Long term in the future adding to the
    uncertainty. Need for discounting
  • Occasional performance benchmarks are generally
    only a small part of the deal. (E.g., total
    home run bonuses, for Barry Bonds)
  • How can the investor do the cost/benefit test?

3
GLITTER! And Uncertainty
  • (Need we say more?)
  • Marriage to EMI Mariah Carey
  • More 1 hits than anyone else in history
  • April 2001 100M contract by EMI
  • 5 albums in the 100M contract.
  • How well must she do for them to make ANY
    money????????
  • Glitter!!! Bad reviews, downward slide. You
    know the career is on the way down when they make
    the movie. Glitter revenue 16M
  • Costs 26M
  • Loss 10M
  • How do I get out of this?
  • Divorce EMI pays her 28M at the end of 2001 to
    go away.

4
Long Term Deals and Risk/Uncertainty
Shuler was a first-round selection in the 1994
NFL Draft, taken by the Washington Redskins with
the third overall pick. He held out of training
camp until he received a 7-year, 19.25 million
contract, although most of the holdout was due to
Shuler's agent and Redskins general manager
discussing the parameters of the contract. The
Redskins had fallen on hard times since winning
Super Bowl XXVI, and Shuler was looked on as the
quarterback of the future. Shuler never
succeeded at anything, and was let go after 2
seasons. Football statistics site Football
Outsiders called Shuler "The least valuable
quarterback of 1997.
5
Kevin Garnett
In 1995, one month after turning 19, Garnett
agreed to play pro basketball without having gone
to college. He was the first player in 20 years
to do so. At 22, he signed (with his team, the
Minnesota Timberwolves) the biggest sports
contract in history six years for 126 million.
6
Kevin Garnets Contract
  • The contract gave team owners nosebleeds. It also
    quickly precipitated last season's lockout and a
    new labor agreement that mainly guaranteed that,
    for decades to come, no one will get as rich
    playing basketball as has Kevin Garnett.
  • Equivalent Every dollar of every seat sold in
    every game for 5 years
  • He is, team owner Glen Taylor said at the start
    of this season, worth every penny. What does
    this mean?
  • This is not a labor contract. (Is this a
    salary?)
  • (Lebron James, Kobe Bryant, Michael Jordan)
  • (ex) Tiger Woods. What Mike Tyson might have
    been.

7
Lebron James Looks Like Kevin
8
Quarterback Arms Race in the NFL
  • Aaron Rodgers, Green Bay
  • 2013 12M (35M signing bonus)
  • 2014 17.9M
  • 2015 18.6M
  • 2016 19.6M
  • 2017 20.7M
  • 2018 20.9M
  • 2019 21.1M
  • Joe Flacco, Baltimore 52M
  • Tony Romo, Dallas 55M
  • Drew Brees, New Orleans 100M (Incl 35M SB)

9
Labor Contract Supercedes Ownership Claims
HOCKEY Lemieux Is Finally the Emperor of the
Penguins By RICHARD SANDOMIR Published September
2, 1999, New York Times Mario Lemieux's path to
majority ownership of the Pittsburgh Penguins
began in a most peculiar way the owners of the
team he led to two Stanley Cup championships
defaulted on paying him more than 30 million in
deferred salary. Then the team went bankrupt 10
months ago. So Lemieux put together a group of
investors that slogged through the thicket of
Federal bankruptcy proceedings, the demands of
creditors who were owed more than 90 million and
the complexity of negotiating arena leases and
television contracts that would take a financial
straitjacket off the team. Lemieux never did
get his deferred salary, but the team's debt to
him turned into the controlling stake in his
former team, making him one of only a few players
to own a major league team, following a path
blazed by George Halas (Chicago Bears), Connie
Mack (Philadelphia A's) and Charles Comiskey
(Chicago White Sox).
10
(No Transcript)
11
That David Beckham Contract
  • 6M/Year
  • The Beckham rule Each team can have a Beckham
  • Beckham reportedly negotiated a profit-sharing
    plan with the Galaxy and AEG that, depending on
    the club's finances, could deliver another 10
    million annually

http//www.latimes.com/entertainment/news/arts/la-
et-rutten15-2009jul15,0,818801.story
12
David Beckham
  • 50m / year, 5 years
  • Major league soccer (entire league) does not
    clear 50m in any year. (LA Galaxy was the only
    team that made a profit at all as of 2006.)
  • As of 2016, the 20 league team is getting close.
    Observers differ whether MLS is profitable at
    all.
  • What is the nature of the Beckham contract
  • Salary is about 6,500,000
  • The rest is anticipated endorsements
  • Beckhams relationship to the LA Galaxy
  • For whom does Beckham work? He essentially
    owned the team. (Retired in 2012)

13
Large sports contracts are now routine mostly
in baseball
Traded to NYY 2004, 21.3M subsidy to NY from
TX until 2007.
14
The Alex Rodriguez Deal
  • Direct Costs
  • Year Salary Bonus Deferred Salary (3/year)
  • 2001 21 2 10 5 to 2011 (Interest
    150,000)
  • 2002 21 2 4 to 2012
  • 2003 21 2 3 to 2013
  • 2004 21 2 4 to 2014
  • 2005 25 2 4 to 2015
  • 2006 25 4 to 2016
  • 2007 27 3 to 2017
  • 2008 27 3 to 2018
  • 2009 27 3 to 2019
  • 2010 27 5 to 2020 (Interest gt 1,000,000)
  • Insurance, Taxes, Loss of Revenue Sharing About
    50 of the contract per year
  • Benefits
  • Projected 8 more wins per year
  • More fans in the seats because of those wins
    Gate, Parking, Stuff
  • What is the relationship between wins and
    attendance?
  • Not known precisely

15
A Regression Model to Translate Wins into
Attendance
Loyalty effect
i team, t year
  • 31 teams, 17 years (1985-2001 fewer years for 6
    teams)
  • Winning percentage Wins 162 percentage
  • Rank
  • Average attendance. Attendance 81Average
  • Average team salary
  • Number of all stars
  • Manager years of experience
  • Percent of team that is rookies
  • Lineup changes
  • Mean player experience
  • Dummy variable for change in manager

16
About 250,000 fans
17
Marginal Value of an A Rod
  • 8 games 63,734 fans 509,878 fans
  • 509,878 fans
  • 18 per ticket
  • 2.50 parking etc.
  • 1.80 stuff (hats, bobble head dolls,)
  • 11.3 Million per year !!!!! Its not close.
    (Marginal cost is at least 16.5M / year)
  • Total of other benefits, about 1,000,000 (if
    they do it every year, which is impossible!!)
  • The entire team was sold for 385M in 2010.

18
The Ghosts of Seasons Past Long Run
Implications - The Shadow Cost
The commitment to A-Rod limited the ability of
the Texas Rangers to field a great team. The
same problem now faces the Yankees. A-Rod is
aging and becoming less likely to break the
records. His steroid use has tarnished his
reputation and reduced the value of his
history. Why do teams do these long term mega
deals for baseball players?
19
Kershaw vs. A Rod ? Shorter term, risk
shifting onto the team ? Bargaining strength
has shifted in favor of the player.
20
Live Nation 360 Contract
21
Two Sides to the Madonna Bargain
  • Announcement 10/16/07 Madonna would abandon
    Warner Music Group Corp., which refused to match
    the Live Nation deal.
  • The deal with Live Nation encompasses future
    music and music-related businesses, including the
    Madonna brand, albums, touring, merchandising,
    fan club and Web site, DVDs, music-related
    television and film projects, and associated
    sponsorship agreements, the statement said.
  • Under terms of the deal, Madonna, 49, would
    receive a signing bonus of about 18 million and
    a roughly 17 million advance for each of three
    albums, the person said. A portion of the
    compensation would involve stock.
  • The agreement gives Live Nation the exclusive
    right to promote her tours.
  • Live Nation CEO Michael Rapino said in the
    statement that Madonna will be the founding
    artist in its new Artist Nation division, created
    to partner with musicians to manage their diverse
    rights and provide global distribution and
    marketing.
  • A new business model for our industry
  • Some Wall Street analysts have questioned whether
    Live Nation can squeeze out a significant profit
    from the deal.

22
Madonna Cost Benefit Test
  • Her side 50M cashstock, 18M signing bonus,
    51M for 3 albums
  • Their side Assume 200M in tour revenue (as of
    2006).
  • Net (after cost, 50M, 90 to Madonna 70 of
    merchandise 50 licensing)
  • Net net 5-7M in tickets, 6-7M merchandise.
  • If as in the past, 3 tours in 10 years.
  • Not an obvious winner
  • After various considerations, a deal with a label
    could be just as good.

23
The Missing Elements
  • Other markets Madonnas clothing line
  • Live Nations image
  • Live Nations signal to market
  • Attract Jay-Z and others

24
New 360 Deal for Madonna?
Her 10-year partnership with concert-promoter
Live Nation expires in 2017, just nine months
after she wraps up her third and final tour under
the deal. And no one expects the soup-to-nuts 360
deal that guaranteed Madonna an unprecedented
120 million in 2007 to be renewed in its current
incarnation. The 360 contract is a relic,
Albert Fried analyst Rich Tullo said of the deal
pioneered by Live Nation that, in exchange for
providing marketing, promotion and touring
support, gave the promoter income streams from
merchandising, performing and recording. But
consuming patterns have changed drastically in
the past decade. Music lovers often stream or
pirate their favorite tunes as US album sales
have cratered to 257 million units last year from
501 million units in 2007. Only a half-dozen
artists make more than 10 million from any one
album anymore not nearly enough to justify the
upfront expenses of a 360 deal, Tullo said. That
places unprecedented emphasis on an artists
concerts, at which Madonna has historically
excelled. Her Sticky Sweet tour in 2008 raked
in 408 million, the biggest box office ever for
a solo artist, while her MDNA tour in 2012
netted 305 million.
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