Figuring the real cost
of the NBA lockout
So much depends on when players and owners reach a deal
By Diego Vasquez
Nov 15, 2011
An end to the National Basketball Association lockout seems more in doubt than ever. Yesterday the players rejected the owners' latest offer and initiated the process of dissolving the players' union, a move that owners are vehemently opposed to. Already the first few weeks of the season have been canceled, and now it seems unlikely an agreement will be reached by month's end, much less by year's end. This has put NBA carriers and advertisers in a tough spot. ESPN has filled its usual NBA slots with other live sports programming, like college basketball, but TNT has filled its basketball slots mostly with reruns. Some NBA advertisers are sticking to that programming, but others are seeking out other replacement options, like pro hockey. But for every day that passes without an agreement, the NBA, which is coming off a record year for ratings, faces a much harder task in winning back fans. Bryce Townsend, chief executive officer at GroupM Entertainment & Sports Partnerships, talks to Media Life about the prospects for an end to the lockout, what special hurdles NBA advertisers face, and how ESPN and TNT are filling their basketball void.
How close are the players and owners to resolving this lockout?
It's tough for someone not intimately involved in the negotiations to say what's going on. I think they're all feeling a sense of urgency to move forward.
You keep hearing about the potential for decertification, and then you'd get the courts involved, and it wouldn't be a smooth process. We keep hearing they're getting closer on the revenue split element but there are some other systemic issues. Each hour goes by and there's a little bit different stance.
Do you think we'll have an NBA season?
There's a significant downside to not having a season. I think the longest it could be is a 72-game season [the season is usually 82 games].
Following the last lockout there was a 50-game season, so you have a bit of room before it's a total loss. In this day in age it'd be hard to imagine these parties wouldn’t be able to find a way to play basketball.
What has been the impact of the NBA lockout on ESPN and TNT, the networks that usually carry early-season NBA action, in terms of advertising?
I think with any loss of live game action there will be some impact.
ESPN, given the breadth of their live sports programming, has more opportunities to put their advertisers into, based on the way their programming stands and the options they have.
From Turner's standpoint, they don’t have the same level of sports programming. They've been putting on more reruns of scripted dramas, which can fill some of the demo needs you may have, but it's not a complete matchup.
As a general premise, going through fourth quarter, both ESPN and TNT are in fairly good shape. That is, they haven't lost that much from an inventory standpoint. But as you get into December and January it becomes a much more difficult situation, particularly for Turner.
Where are NBA advertisers putting their money instead? Are there any other sports that are benefitting?
I think ESPN is holding on to a good level [of investment] and reallocating it in other high-valued programming. College football has been on an uptick, with or without the NBA situation, and this has added more pressure on that inventory.
I think they've been able to reallocate people into it, and with college basketball now kicking in, it's not an exact replica of the NBA, but it's close.
Hockey is different demos, but it's still live sports programming, and so I think you're seeing a bit of traction there on NBC's front. So I think college sports and the NHL, if people are moving dollars, could be benefitting.
What is happening to the money that should have been paid for rights deals this season? Is it being held in escrow like it was proposed in the NFL lockout?
They'll have varying provisions, whether it's a refund back depending on games lost, or a delay in terms of when payments are due.
The league is mindful that partners are receiving value for whatever the investments might be. If that means delays on payments or otherwise, I think it's on a brand-by-brand basis on how they deal with that.
Has the rhetoric in this lockout been any stronger/weaker than in other recent lockouts? How does it compare with the 1998-'99 lockout?
I think it's interesting that when you had the last lockout the league was doing well and Michael Jordan had just retired. There are a lot of similarities--ratings were at a high and casual fans were getting into it.
The big difference now is the economic environment. You have an economy that's not in the same place, and it's creating a lot more systematic tension with how they try to craft this new deal.
During the last go-round Michael Jordan made a point to Abe Pollin, who was the owner of the Washington Wizards, to the effect of if you can't make smart deals, don't own a team.
Over the past decade you’ve seen a lot of large player deals, and not just for top-level guys. There's so much more committed money into the players, yet the economy is nowhere near in the place where it once was.
So everything is going up from a cost perspective but not for the revenue streams. I think it's a reality that there are fewer teams making money now than there used to be.
It's not too dissimilar from the NFL, where owners are investing much more but their portion of the revenue isn't equal. That's just the economic facts. And the players are wanting to set themselves up properly for the next 10 years.
If you compare it with the NFL, the question there was how do we split up all of the money we're making? That's simplifying it, but this is more how do we get to a place where we're all making money? You don't have the same broadcast rights deals; the NFL gets significantly more.
And now we live in a very social world, people can have much more say through Twitter and other social media. And I think it's adding a lot to the fire out there.
Do you think this lockout has damaged the league's image among fans? If so, how will the NBA try to repair that damage?
The league and the players are together on this and the average fan is looking at it as a collective. I don't know if the fans are separating it between the league and the players, which means when they do finalize their agreement, it's going to be the responsibility of both the players and league/teams to get back into the community, get back with their fans and show them how important basketball is in their lives and repay them for their loyalty.
That's where the opportunity from a brand perspective can come in. I think this is a business. When you invest and partner with a league or team, I don’t think you have brands that will hold grudges, but you may have brands that might step aside because of the challenges of the loss of fan activity for a certain amount of time. If the ratings or fan interest isn't quite there, there is some concern of a potential negative perception of being associated with that.
But to me the brands that have some foresight can come back even stronger. If they can help, in a relevant way, bring back to the fans something they enjoy, it's a really relevant way to be seen as helping bringing back what's been taken away. But it has to be authentic.
The NBA has had some ratings momentum the past few years with big-name players and teams making playoff runs. How will the lockout affect that momentum?
I think it's going to depend on when they can come to terms. Where the NBA stands out, if they can come to terms and get a decent length schedule in, by the time the playoffs roll around I think the momentum would be consistent. If it drags significantly further, you could have some serious implications.
It will take some time for the casual fans to come back. But from a broadcast perspective, if they get things together by the time the playoffs roll around they should be in pretty good shape. But the question will be if the on-court product as good as it was. That drives fan engagement. Both sides stand to lose a lot by not getting this to a resolved state.
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