Youtube has been messing with the magic quite a bit lately. Wide screen, high quality and the drive me crazy pre rolls to subscribe among many others. (BTW, watching the subscribe button scurrying around the screen was fun the first 300 times). But lets talk Youtube business. Thats the source of their desperation.
From all appearances, Youtube is trying to squeeze every last nickel they can out of Youtube. Overlay ads. Adding licensed content from major media companies. Segregating professional content like movies and TV shows. They are doing everything they can think of to create advertising inventory. Pre rolls, overlays, display ads, you name it. And thats before you get to the inventory the creators of the videos insert and overlay in the content itself. Does anyone else out there think that the advertising in youtube videos is more intrusive than any other form of content ?
Without writing a dissertation on the subject, what are the quick and dirty conclusions that we can draw from all of this ? Why all the desperate maneuvers ?
I see two plausible options:
1. Youtube’s video delivery costs are far, far higher than the estimates we give them credit for. Youtube says they have 13gbs of user uploaded content EVERY SECOND. At 12 cents per gbs, thats about 50mm dollars per year in upload costs. If over the coarse of a year, each of that video is watched only 10 times, thats another $500mm in bandwidth costs. If videos are watched more than 10 times, the number grows exponentially. Thats a lot of money, but if that number happens to be low, its easy to see why Youtube would be desperate in this economic climate.
or
2. Youtube is truly scared they are going to lose, or may feel they have already lost the Viacom case. They could fear a judgment that requires them to breakup Youtube into 2 websites. One only with content for which they have licenses and the other for purely user generated content on which they have zero advertising. That doesn’t really sound like Google, but their actions do suggest they may fear they will have to negotiate a settlement with Viacom and the other plaintiffs.
In a recent NYTimes article they admitted to having lots of bodies doing nothing but reviewing for porn. Recently they said they are going to set higher standards for sexuality and profanity. If you can review for levels of porn, sex and profanity, you can review for copyright violations.
Youtube seems to be acting as if they have already lost the suit. Rather than integrating licensed content into the “community” of user generated content, they are doing everything they can to segregate it. That is consistent with what I would guess Viacom would ask for in a settlement.
If I’m Viacom, I ask not only for a big chunk of cash, but also for them to stop violating the DMCA . The solution is for them to set up 2 seperate websites. One for content for which they have licenses and on which they can sell advertising, and the other on which they have user uploaded content and on which they can not sell any advertising. That would put them completely in compliance with the DMCA and make content owners happy.
The good news for Youtube is that other than the check they will write, they are well on their way to solving this problem. A look at the current Youtube home page demonstrates the new reality of user generated content. Everyone wants to get paid. Rare is the widely viewed video that doesn’t have a profit or stardom motivation. For everyone else, they don’t really care where their videos are hosted. They use Youtube to take advantage of the free hosting costs and will be viewed by friends and family.
Where does that leave Youtube ? Actually in a far better place. Two websites. One of which becomes a video search engine , with out any advertising, that hosts purely amateur video. The other becomes a Hulu on steroids. A destination site that becomes a real media site. It becomes the ultimate content DVR where users can expect to find professionally created content along side the amateur videos that Youtube thought enough of to license.
This segregation would also mean that Youtube could leverage all the monetization skills of Google and probably REDUCE the number and types of ads that have infested the current Youtube. The new site could be designed to maximize user satisfaction and revenue rather than skirt the language of copyright laws.
There is no question that Youtube is taking monetization to an extreme. Its either because their costs are more than anyone has estimated or because they are trying to squeeze every last dollar out of the current Youtube configuration before a big change
This is a simple issue.
It used to be that you couldn’t short a stock unless there was an uptick. The idea was that this uptick rule would prevent short sellers from piling on a stock and driving the price down. Then the uptick rule was removed. It became permissable to borrow shares of stock and sell them whether or not the stock had ticked up or not. The result ? Nothing. Not a darn thing changed.
Good companies operated their companies well. They recognized that short sellers just created future demand for their stocks. If they pushed the price down to new lows, it just created an opportunity for investors to buy the company at cheaper prices. So be it. Good companies aren’t defined by their stock prices, they are defined by their operations.
On the flipside are poorly managed companies. Poorly managed companies always presume the current business environment will stay the way it is. The big investment banks thought they could always raise capital and deploy it at higher returns. Which is a great model to lever up to squeeze every possible nickel out. It makes it easier to get your bonus and makes shareholders who only pay attention to the stock price happy.
Except that leverage is risk. Always has been, always will be. When you dont manage your risk well, you pay the consequences.
The problem with the likes of Lehmans, Bear Stearns et al, wasn’t that their stock prices were pushed down, it was that they had become myopic and overly leveraged. They had not considered all possible negative scenarios. When they were forced to write down assets and couldnt get access to loans because no one trusted their balance sheets, they were without capital. When they were without capital, they were SOL. Deleveraging brought their entire business models crashing down along with their stock prices. Lehman disappeared, the rest got government bailouts or were pushed to be bought out.
If they had not over leveraged, the price of their stock would not have mattered. If they had managed their risks properly, their stock price would not have mattered. The uptick rule had nothing to do with their failures. Management did. To blame it on the uptick rule is ridiculous. Companies that hadn’t overlevered and stuck by their lending and business principles got along just fine. Their stock prices did just fine as well. It really as simple as that.
Does anyone really think that even if there was an uptick rule and stock prices were not as volatile and even possibly higher, that anyone would have given Lehman’s capital in a private raise with all the uncertainty about their balance sheet ?
Put another way, if the uptick rule drove down prices, it should have been EASIER for the financial companies to raise money. Smart investors would have recognized the strength of their balance sheets and gladly jumped at the chance to invest money at prices depressed by those nasty short sellers capitalizing on the lack of an uptick rule.
That’s not what happened. What happened is exactly what should have happened. Good companies did well. Poorly run companies didn’t. Those in the middle got lucky and bailed out. The uptick had zero impact.
Thats not to say short sellers didn’t pick on the financial companies. Of course they did. They did so because they were poorly managed. They were right
When you hear someone talk about bringing back the uptick rule as a solution. Laugh. Then tell them “Larry Bird is not waking through that door”.
My Marketing Advice to Professional Athletes.
There are right and wrong ways to market yourself as an athlete. To become a successful brand you have to do any number of thousands of different things to reach a level that leads to marketing and off court/field success.
On the flipside, all it takes is one mistake to bring it all crashing down. I have noticed a trend that is creeping through the NBA that truly disturbs me. It disturbs me because its the equivalent of burning 100 dollar bills. That is how debilitating to any hopes a player may have of making money through endorsements.
In the spirit of partnership as an NBA owner, I am asking the commissioner to extend the dress code to exclude the…
The Dreaded FroHawk
Friends don’t let friends wear the FroHawk. If you are a soon to be pro athlete and are considering hiring an agent. Just do the “FroHa Search”. If they have any clients with Fro Hawks, pick a different agent.
In this economic day and age, cash is king. As markets, industries and companies delever in what seems to be a chorus of balance sheet deflation, the value of cash as an investment vehicle has increased exponentially. What does this have to do with Yahoo’s strategy ?
First of all, it means that MicroSoft would have to be roofied in order to part with the 10 to 15billion dollars in cash that some Yahoo shareholders hope they will pay for Yahoo Search. As of sept 30th, 2008, MicroSoft had about 14 billion dollars in net current assets. Why anyone thinks that MicroSoft is stupid enough to give up what amounts to most, if not all of their liquidity is beyond me. Particularly when their net current assets have now fallen a little below Google’s. Between liquid assets and borrowing capacity, both have about the same amount of “powder” in place in the event “the next big thing” appears on the radar. I doubt either wants to be at a disadvantage to the other when it comes to potential opportunities.
MicroSoft also has the issue of Facebook. They made a material investment at what was reported as a $15Billion dollar valuation. So making a major Yahoo acquisition probably means walking away from Facebook for the foreseeable future. In what seems like an inconceivable situation, MicroSoft recognizes it doesn’t have enough liquidity to buy one or both companies and in these uncertain times, its smart enough not to try to lever up and use debt for acquisitions. So forget about any MicroSoft acquisition of Yahoo or Yahoo Search.
It is this recognition which I believe has defined the Ballmer and MicroSoft strategy towards Yahoo. Ballmer has become the master of talking in circles about what might happen with Yahoo. He knows when and how to say enough about Yahoo that it totally confuses the Yahoo Board and Executive Team. Confuse them he has. Rather than determining a strategy of profitability and growth, from my outsiders viewpoint, large shareholders and directors of Yahoo have become the “HuggyBear Contingent”. Just a group trying to dress up Yahoo in order to pimp it out to any bidder it can find.
Big Mistake. Yahoo should be taking the exact opposite approach.
Yahoo has a very simple business. Generate traffic and monetize it. It generates traffic through services and content. It sells advertising around them both. Their strategy should be to acquire every and any company that makes their traffic, services, content or monetization stronger.
Yahoo should be the most aggressive acquirer on the planet right now. In case you haven’t noticed, everything and anything owned by private equity firms in the media and technology spaces are on sale at a huge discount. VC’s are freaking out that their companies not only have no exit strategies, but might also have to close down. No PE or VC in the world wants to make a capital call. Which has created an amazing opportunity. The same on the public company front. Any company that has any level of dependency on advertising has seen their stock tank. The opportunities for a company with a strong balance sheet won’t ever be any better than they are today.
Yahoo should be on the warpath, vetting each and every media (yes media) and technology company it can sit down with looking for bargains.
It should be taking Yahoo stock and finding every and any accretive investment in the internet and media space that it possibly can. Some may argue that Yahoo stock is too cheap to use for acquisitions. I beg to differ. The speculation around a potential MicroSoft acquisition, along with a very strong balance sheet has propped up its stock. Compared to private and public would be targets, Yahoo stock is amazingly strong currency.
Yahoo should be taking a page from Larry Ellison’s Oracle strategy of “if you can’t beat em, eat em” . Ellison has done a masterful job of learning how to make both large and incremental acquisitions and integrate them into Oracle to make it a bigger, more competitive company. Exactly what Yahoo should be doing.Yahoo should set a goal of making 20 or more accretive acquisitions in the next 18 months and then re evaluating where it stands.
If you look at it objectively, this economic crisis and Yahoo’s incredibly strong balance sheet have put it in a position to become a much stronger company via acquisitions. Rather than viewing itself as a straggler trying to push up its stock price. Yahoo needs to set a strategy of strength and acqusition. Yahoo has the opportunity to be the ultimate next generation media company. It is an aggregator of content and services that is the number one world wide digital media destination. Google has a profound ability of not having any idea how to monetize content. Google does one thing well, search. Yahoo is and should be the best at everything else. It just has to stop being afraid of its own shadow
You probably have never heard of XBRL. If you havent, and you are the least bit interested in how regulatory agencies can avoid future Madoff like events, and in government transparency for our bailout tax dollars, you should take a minute to get up to speed on what XBRL can do.
XBRL is a version of XML for financial reporting. To the SEC’s credit, they have become a big proponent, requiring $5 Billion Market Cap companies to start reporting using XBRL as of this past June, with the next 1800 in market size required in 2009, and everyone else in 2010. The value of XBRL is that by creating standardized tags for data elements (ie, net income , cash, interest, etc), companies will not only have to conform their financial statement line items to the defined tags, but in doing so it will make it much easier for investors and regulators alike to analyze and compare the financials of various companies. All good so far.
Here comes the but..
XBRL is here and ready, but our government isnt using it for anything it does. Tracking the bailout would be a perfect application for XBRL. There is absolutely no reason why we couldnt or shouldnt use it since all technical systems and reporting requirements would be new and could easily be built around XBRL.
IN addition, there is no reason why every entity that has to report to the SEC, and even those that don’t shouldn’t be required to use XBRL. From investment advisors like Madoff, to hedge funds, to mutual funds, to ETFs, brokers, dealers, market makers,to banks and each and every loan that is made, you name it, all should be required to format their financial data in XBRL.  In fact, the smart thing for the SEC to do is to demand that any new financial instrument, regulated or not, needs to have an XBRL taxonomy assigned to it for future reporting pursposes before it could be sold. This would simplify any future reporting requirements and allow the SEC to review and analyze before its regulates, having the advantage of a body of data to guide it. For the filing companies, It certainly would not be a hardship. It is no worse than requiring websites to use HTML before they can publish to the web. Its that easy.
By acquiring data in XBRL format, it becomes easy to import into databases that can be monitored and analyzed. Think of it as turning the government into a quant shop for data they receive. Like a quant shop, the data could be monitored and analyzed in realtime looking for everything and anything it believes are indicative of problems, including the Madoff test for no variability in reported returns.
The beauty of this system is that while it wont catch everything, it will automate much of what had been a manual process of review by regulatory staff. It wont take a painstaking audit of suspects chosen on a best efforts basis. Outliers and exceptions will quickly become apparent as will trends and repetitive problems.
Not only will XBRL be a tool for government, but it could be a tool for government watchdogs as well. We as taxpayers should demand that every penny spent and committed be defined in XBRL and presented on a .gov site in realtime. We can start with the bailout money and how its being spent. In fact, President Obama’s use or lack of use of XBRL for government will be a beacon as to just how much transparency we can expect from his administration.
We are about to enter a period where the most recommended solution for avoiding future crisis like the one we are experiencing now, is increased regulation. I happen to agree with the SEC Commisioner when he said “Transparency is a powerful antidote for what ails our capital markets“  We can never come up with perfect regulations to solve the problems we have yet to see. WE will never anticipate the results of unintended consequences. We can require that all those that participate in the capital markets contribute their data and hope that the data guides us to avoid those problems.
Far from perfect I know, but its far better than what happens today
Why Owning The Mavs Can Be Amazing.
20,000 people standing and clapping and cheering non stop, showing our appreciation. It rarely gets any better than this
To find out more about this great night. Click Here
You Know Chrysler is Toast Because...
The CEO takes out a fullpage ad in the Wall Street Journal today to thank the American Public for “investing” in Chrysler.
Lets see, is there anything more idiotic than spending more than 100k dollars on a full page ad “thanks for letting me waste your money ” ad ? Does it make it worse that its a business publication where the readers might just recognize the stupidity of wasting money on ad dollars that doesn’t even try to sell the product ? How does it make the next unemployed Chrysler worker feel that their entire year’s salary just went for a single, ridiculous ad ?
Just one more example of how poorly run the car companies are. Note to the Big 3, spend money to make money. These types of ads have as much value as a Bernie Madoff account statement.
And while I am on the subject again, one last suggestion for the Big 3. Instead of determining the right cost structure for your company by working backwards from the salaries of hourly employees and how they compare to foreign owned competitors, how about doing what every successful business does ? Figure out what cars consumers want, and how much they need to sell for.  Once you can establish the right selling point that will actually encourage people to buy cars, THEN work backwards to the cost structure you need in order to sell cars at that price point.
For those in Detroit who have never operated a lemonade stand, or any other business, the way profits are generated is by making products at a price people want to buy them for, and then producing them, with all costs allocated, for less than you are selling them for. It’s not apparent that this is a principle that Detroit understands.
And while you are at it, when you spend marketing money, spend it to sell cars, not on Bullshit ads that accomplish nothing
You’ve got my tax money. When it comes time to pay back the cash, since it’s not apparent that anyone in government can be trusted to do the right thing, Im sending these guys after you:
Update:Here is an image of the ad from the Chrysler website
THank You America
What About the Bank BailOut Money ?.
Lots of articles in the past few days wondering what the banks are going to do with the bailout money. Its of course a legitimate question.
The response of the banks has been that the cash goes into a pool of capital and you cant segregate the new capital from the bailout capital. Fair point. You cant look at the cash in your wallet or bank account and know what the source of each dollar was. On the other hand, if someone offers you say 10pct of your networth in the form of a loan, don’t you immediately consider all you could do with the money ? Of course you do.
But you also try to figure out if it’s worth taking the money, and more importantly, how you are going to pay it back. The key to understanding how banks will use the money is understanding and having complete transparency about each bank’s capital structure and its impact on owners of the bank, its shareholders.
If you look at the actual TARP document for the loans to banks, it has a lot of detail about what will happen to banks capital structure. It also creates a ton of issues, that if not handled properly by the Treasury, SEC and the banks receiving funds, will lead to confusion, lawsuits and loss of investor confidence in the banks.
Here are the issues that I think will be raised over the next 24 months that are going to get people upset:
1. There are going to be questions about the timing and accuracy of traditional SEC Filings in banks. The Treasury, through its ownership of warrants attached to the TARP, effectively owns a material amount of stock in each bank that has taken the funds. WHERE are the 13D filings ? For bigger banks in particular, stock prices have been devastated. I haven’t done the calculations for the banks, but warrant coverage is at 15pct of the loan amount. Given that the more the bank needed the cash, the further its stock price was depressed, there is possibly a better than good chance that the Treasury effectively owns more than 5pct of more than a couple of the banks it has loaned money to. Where are the 13D filings ? Where are the banks taking the conservative approach and disclosing the exact details of the warrants and their impact on the current equity structure of the bank ?
2. There are going to be questions on how the warrants granted to the Treasury are priced. The TARP says that the warrants will be priced at the “market price”, which it defines as previous 20 days average price. It doesn’t define the average price. Is it the closing price ? The bid or ask price ? Given the volatility of share prices and the widening spreads during this financial crisis, we are talking about enough money that shareholders could be up in arms about that definition.
3. There is the impact of the timing of the funding on shareholder dilution. There has been a significant amount of volatility in bank share prices since the first payouts. If you happened to own shares in a bank that got TARP money while the market was down, you are going to be diluted further than the investor in a bank who got funded while the market was higher. At some point, someone will make an issue of this and sue someone for not acting quickly enough or timing the loan to be more beneficial to one bank over another. If the market sees a big sell off from current levels, the accusations will get stronger and louder. Regulatory agencies should get ahead of this curve and acknowledge this issue and possibly make the pricing mechanism longer than 20 days.
4. Where are the shelf registrations ? The Treasury was smart. They told the banks that they wanted to be able to sell the shares pretty much anytime they wanted after dec 31, 2009, to anyone they choose. In order to do so, the banks are required to file shelf registrations for the shares that could be created by exercising the warrants. Where are the shelf registrations ? Maybe they are all there and have flown under the radar. Maybe the banks and regulatory agencies interpretation of “The QFI will file a shelf registration statement covering the warrants and the common stock underlying the warrants as promptly as practicable after the date of this investment and, if necessary, shall take all action required to cause such shelf registration statement to be declared effective as soon as possible” are something I don’t fully understand.
Regulatory agencies should set standards on how much time banks have to get these filed and take care to make sure that these are filed so shareholders can better understand the details and impact of the warrants.
5. Where the shit will reallly hit the fan is when the Treasury decides to start exercising the warrants they own and selling the shares. No matter what, its going to upset people. No one knows what the future of stock prices will be. But starting in 2010 when the selling can start, everyone who owns shares in the same companies the Treasury owns, will be freaking out wondering when the Treasury will sell. Shareholders will be screaming that they shouldn’t sell. Everyone else will want the Treasury to take what will hopefully be profits and cash out, using the money to pay down our zillion dollar budget deficit. Of course, if the warrants are in the money, our politicians will be saying the same thing. No politician will pass the chance to look like a smart investor of taxpayer money.
Once again, it all comes down to transparency. If our regulators are smart, they will proactively deal with these issues. Hopefully, at worst, they will require the Treasury to file the same forms that any other shareholder would be required to file. If this doesn’t happen, it will call into question whether or not full information about the banks capital structure is available and accurate. This will create a serious lack of investor confidence in the banking sector. A loss of confidence will hinder or worse banks ability to raise private capital. If they cant raise capital, they cant buy out the preferred they sold the treasury and they can’t expand their loan portfolios, which was the entire point of the TARP.
Why Pro Sports Need Newspapers.
Pro sports, every single league, from the NFL to NBA to MLB to MLS to NHL need newspapers. This need exists because of what internet sports reporting has become, and how LOCAL team fans have evolved to use the net.
There is no shortage of coverage of professional sports on the webs. There is a long list of sites, large and small that provide the same “sports site essentials”. Scores, news, columnists/blogs, rumors, stats, video interviews and highlights, standings and discussion forums, with a focus on the “outrage of the day”. Then of course there are the league websites that provide much of the same in a sanctioned and sanitized version. In essence, the home pages of these  network sites have become exactly what the 6pm CBS Network News was. A compendium of what the editors think are the major stories of the day. Just as reporters were assigned by CBS to cover “whats important”, the sites assign columnists to cover “whats important”. Unfortunately ‘whats important’ means we are condemned to T.O., Sean Avery and Stephan Marbury’s contract status all the time.  Of course the net has the advantage of unlimited shelf space for each team, but the reality is that individual team or player coverage is nothing more than aggregation of other sources and stats unless something they consider newsworthy happens.
Bottom line is that despite the huge volume of sports coverage, the local coverage of teams for the most part sucks. There is little depth and certainly not the consistent coverage of a newspaper with a team beatwriter or 2. Thats a bad scenario for sports leagues. Teams in every league need as much local coverage as we can get. The more stories that are written by sportswriters and columnists, the more opportunities for fans to connect and stay connected to our teams.
The natural response of course is to write more on the team website and to create and support local bloggers who write about your team. Which is exactly what most teams do. The mavs have mavs.com, mavswiki.com, friends.mavs.com and we support a variety of different blogs. We have internet and mobile editions and are expanding all the above. The reality however, is that if you count the entire universe of LOCAL Mavs fans that go to these sites, they are a fraction of people who read about the Mavs in the Dallas Morning News and the Ft Worth Star Telegram print editions.
More importantly, those fans that go to the national sports sites, the local team website and blogs are our customers and hard core fans. While we will do everything possible to keep them happy, they are easy to reach. The newspapers reach our hardest to connect to customers, the casual fan.
I’m a fan of the Dallas Stars, the Cowboys, Rangers and the Burn. I have never been to the website of any of them. I get my scores and AP summary for my favorite teams on My Yahoo page. Any timely or topical information I get from the Newspaper. Its just easier for me to pick up the sports page and see at least something about each team.
The Dallas papers have about 500k unique print readers every day. Figure about 70pct read the sports page on any given day. Those 350k users are more than the daily unique local users of most if not all teams in our market. More importantly, from a business perspective, because their customer base skews older, they dont use the net as a primary source of data, they have more disposable income to buy tickets and merchandise for themselves, their businesses and their families. In other words, their customers pay our bills.
The problem of course is that newspapers are pushing themselves to the point of irrelevancy. They have cost structures that dont support they business they think they are in. They don’t have a vision on what a profitable future might look like. They are getting crushed by disappearing advertising revenues . They are doing what anyone in their position would do, they are cutting every penny they can and praying for divine intervention. Professional Sports Leagues and teams, if we want to continue to connect to our local casual sports fan, needs to work with our local papers to try to keep them alive as long as possible.
The question is how ?
In the technology business, when a company wants its retail products to get visibility and sales among shoppers, its not unusual for the vendor to pay for a salesrep to be on the retailers salesfloor exclusively selling and promoting their products. When a vendor wants to get shelf space in other retail environments, it buys endcaps. Often through softmoney which are in the form of rebates to the retailer. Its time for the pro sports leagues to take a page from that playbook and expand our newspaper shelfspace.
My suggestion to the powers that be in the leagues I have spoken to is to have the leagues work together and create a “beatwriter co-operative” . We need to create a company that funds, depending on the size of the market and number of teams, 2 or more writers per market, to cover our teams in depth. The writers would cover multiple teams and multiple sports. They will report to the newspapers where the articles will be placed, who will have complete editorial control. In exchange, the newspapers will provide a minimum of a full page on a daily basis in season, and some lesser amount out of season. That the coverage will include game reporting that is of far more depth than is currently in place, along with a minimum number of feature articles each week in and out of season. And most importantly, these articles will be exclusive to print subscribers. They can do all the ad supported short summaries online and minute by minute blog posts and tweets they would like. To make this work, print editions and subscriber only online sites have to become the defacto destinations for in depth and unique coverage . They have to become the local version of ESPN.com’s for pay “ESPN Insider”
Buying anything more than small ads in papers to promote price promotions for the Mavs has not worked for us. I would far rather subsidize in depth coverage of the Mavs, even without any editorial control then spend more money on advertising. Im a firm believer that there is a foundation of readers who use the sports pages as their primary source of local team information. That number may not be as big as it used to be, nor will it be as big in the future. Thats ok. The numbers may not make the newspaper shareholders happy, but they are of sufficient numbers to have an impact on the local sports market.
Taking a cooperative approach could create a win win for leagues, teams and newspapers. Letting the newspapers go belly up and depending on our own websites, blogs, newspaper websites and national sports websites to communicate with our fans, in particular our casual fans, IMHO, is a recipe for disaster. The cost to reach those fans in a newspaperless world over the next 5to 7 years will cost us far more than working with newspapers today to try to help them.
The math is pretty simple and straight forward. If there are 32 top markets, with an average of 3 teams, thats 96 teams. If you need an average of 3 writers per market, thats about 100 writers. Pay them 65k per year, plus 10k in benefits, and thats 75k per team per year. Index that by market size and team revenues, and that means the biggest market teams probably pay 150k per year, and the smallest markets pay 50k per team per year. Thats not far out of line with what you would pay to get an experienced sportswriter for your website, with a lot more payoff. For the newspapers, its a way to get employees off the books, retain good writers that have a history with the papers and teams, and actually improve their publications. For the price of 2 pages of newsprint a day.
I know this is in violation of all previous principles of editorial church and state, but then again, watching papers going out of business and not even being able to give themselves away means its time to start a new branch of that church. Having the world of professional sports realize the value of locally created content, available in an offline format, might just be a proactive step that saves us a lot of money in the long run
At worst, its a starting point for discussion
Let me also add, that with the recession and the downturn in advertising for the online marketplace, while not nearly as bad as the newspaper business, the online sports marketplace is starting to have its challenges as well. Traffic, particularly domestic traffic is not really growing for traditional sports sites. Advertising for all but the biggest sites are falling. The same problems that are trashing newspaper profitability are creeping up on websites. To have any dependency on independent websites for coverage of our leagues and teams, could turn into a big problem for us if the blogs and websites we think help us, disappear.
The leagues and teams depend on quantity and quality of coverage. We need to recognize the weaknesses of those we depend on and start addressing them today
Update: If you are interested in the newspaper publishing business, this is the most interesting article I have found so far.
With all the support and encouragement I got to buy the team, I think its appropriate to share the decision making process behind what happened and why. Buying the Cubs was a unique opportunity to own one of the most storied franchises in sports. Its a team that represents so much to so many, with such a unique legacy, that when the opportunity arose, I decided to go for it.
I’m not going to get into the numbers, or the people, or much of the process other than to say that the person I worked with at the Trib was great. The person I worked with at the Cubs did a great job as well. Nothing about the process was anything but positive when it came to the people assigned to work with me.
During the entire process I thought I had a very strong chance of being able to buy the team. I thought I could offer a competitive price. I thought I had the experience to come in and improve the business so that I could continue to invest in the product on the field without having to squeeze every nickel from Cubs fans. I also thought I could win over Major League Baseball. All told, I thought my experience in owning a team and most importantly, my commitment to always trying to win, would give me an important advantage.
From my perspective, the Cubs being a winning team was important to the seller, the Tribune company, even after they sold. When the Cubs won, the newspaper sold more copies, more people watched the games on WGN and listened on the radio, which in turn meant those mediums could sell more advertising at a higher rate. On the flipside, if the new owner was purely about making money at the expense of a winning team, it could cause the value of the seller’s other assets to decline faster than they otherwise would. Not that this would compensate for significant delta in ds;rd price, but it could break ties.
On the flipside, my dedication to winning could also make my job of getting approval with MLB baseball much harder. Some people thought it meant that I would spend on players like I did in my early days with the Mavericks. Back before I learned that sometimes GMs put keeping their jobs ahead of trying to win championships. But thats another story for another time. I had no intentions of trying to outspend the Yankees or Red Sox. There was no reason to. I didnt have to beat either of those teams unless I made it to the World Series. The only teams I had to be better than were those in the National League, and more importantly, those in my division. There were no big spending rivals close to home, so the AL East could spend themselves silly. My plans were to spend to win, not to spend for spending’s sake. IMHO, the money I could save being in the 2nd tier of payroll could be invested in scouting and development. I made this clear to any and all of the owners that I spoke to across the league. Of course that didnt stop some from trying to convince some owners otherwise.
In particular, a lot of the “intelligence” that I would be a big time spender seemed to come out of Chicago. The “conventional wisdom” of people that I talked to around the league suggested that Jerry Reinsdorf, the owner of the White Sox was going to be my primary obstacle to getting approval from MLB should I buy the Cubs. Contrary to popular belief, I think I have a good relationship with Jerry. I know I have a good relationship with all the people I deal with at the Bulls. We are probably on the same side of NBA issues 99pct of the time. I honestly don’t know what if any information was coming from Jerry, or his position on my owning a team. He was very cordial to me and made it clear that he would be happy to talk to me about anything at any time, although we never did get the chance to chat.
My sense of the entire situation was that whoever the new owner of the Cubs would be, it was in the Sox best interest for things to stay business as usual. Published TV ratings and other published measures showed that the Cubs were more popular than the Sox, yet before I even started looking at the Cubs, I knew from my discussions with people in the NBA that the Cubs and Sox were treated as equals in their business dealings. That was great for the Sox, not so good for the Cubs. Im guessing the people in the Sox organization knew, that if I bought the team, particularly at the price point that was being suggested in the papers, there was no way I would just accept parity in future business dealings. I was going to have to try to negotiate the very best deals possible for the Cubs, even if it was at the expense of the White Sox.
In my conversations with owners around the league, they seemed to understand this point. But what was most interesting to me, was that a recurring theme was that they thought I would be good for baseball. Many had talked to NBA owners who explained that I did my homework and was a good partner. That in my areas of strength, in particular technology, I would make sure I tried to contribute and help the league how and where I could. It was pretty obvious that more than a few of the owners hoped I would come in and stir things up and stand up and speak for the owners when it came to digital rights and the future of technology and how it would impact the teams and leagues profitability. They were hoping I would be the new guy to come in and take the commissioners’ arrows. Which of course I would be fine with and happy to do if it got me their confirmation vote.
The obstacles seemed to be minor, the opportunity with the Cubs significant. It really was an opportunity that I thought I could be successful with on the field, and financially. More importantly, its something I could have a blast with. The Cubs had a strong organization, with strong management, so if I could do a deal, it wouldnt require changing the entire organization or culture like I had to with the Mavs. I felt I would have to tweak some things, but it was all manageable, which made me feel good that I could stay commited to the Mavs and lock in with the Cubs .
The hardest part was going to be the financial deal. I never thought it conceivable that it would be hard to spend a billion dollars on a sports team. In this case it was. Add me to the list of people who never want to participate in this type of sales process again. I tried every trick I knew to try to get them to commit to me. It reminded me of when I was 16 and selling magazines door to door “Do you mean to tell me Mrs Doe, that when you tell your husband that you spent 75 cents per day on the education and enjoyment of your family, he is going to get mad ? Of course not, he will be proud and excited for you and your family”.  You name the trial close, I went for it. But I couldnt close them.
Then the credit crisis hit and hit hard.
All of the sudden, what seemed like a sane business decision, didnt seem so sane any longer. In particular, the financial participations I had been discussing with my bankers were for shorter term loans. Just refinance at the end of the term. Its what everyone is doing. Except that it no longer seemed like a safe bet that I could refinance in a few years. I didnt want to be caught with a Sumner Redstone margin call, and for better or worse, the banks were getting worried about staying in business and the idea of matching the asset to the term wasnt something they were ready to do, unless of course they could convince 30 other banks to do the same thing. I thought about writing to Congress to get a bailout…just kidding.
With the credit market on the fritz, the other option was to add investors and just pay cash. However, if we were going to pay cash, I was not going to bid anywhere near 1 Billion dollars for the assets. Once the credit crisis hit, the value of cash went through the roof. It was not just a matter of how much the Cubs were worth, it was also a matter of how much more money I could earn with that cash. Cash was and is king. Distressed investment opportunities were rolling in the door that could make me multiples of what any sports team could. I could not see any scenario where the Cubs were worth anywhere near the numbers that had been discussed in the media. There is one publicly owned team, the Atlanta Braves, that are owned by Liberty Capital. The market cap of ALL of Liberty Capital net of cash and debt got as low as $250mm dollars, and today trades for about $500mm dollars, and they own far more than just the Braves.
So there was the issue of valuation. There was also the issue of the economy. It was impossible to predict the full impact of these tough times on any sports team. That uncertainty created two issues. The first of course was valuation. How much would I be willing to pay for the team ? I wasn’t sure. More important to me was the cash flow. If the economy had a significant impact on future revenues, it would also impact how much I could invest in players. The absolute last position i wanted to be in was paying so much for the team, that if revenues fell off, I couldnt play to win.
So when it came down to it, I did what I thought was the only smart thing to do. I asked for an extension. I knew that if they got the money they wanted for the team, well my bid was not going to be high enough anyway. If they didnt, or the other bidders couldnt come up with their money, they would come back to me.
I’m still waiting
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