SHIN SPLINTS 2014 – Future Shock

Doug Logan is an Adjunct Professor of Sports Management, at New York University.

He was the CEO for USATF from 2008 until September 2010.

He was also the CEO, President and Commissioner for Major League Soccer from 1995 to 1999.  To read more about his background and involvement in Track, Soccer, Rugby and the Music industry, read my Freelap Friday Five Interview

This is his 46th article. Click here for his entire series.

SHIN SPLINTS 2014

Future Shock

usatf-nike-logo

About a week ago I started to get telephone calls from sports writers who still have my phone number in their data bases. Their salutations included, “Whaddaya think?”, “Are they crazy?”, and “What are we missing?”. Their incredulity had to do with the announcement that the USA Track&Field Federation [my former employers] and Nike had extended their sponsorship/licensing agreement until the year 2040.

Let’s ignore for a moment that the current agreement, that I negotiated, was not due for renewal for another two years [2016]. Or that the USATF Board roundly criticized me for not getting a competing bid after the last contract was announced [the current agreement is also exclusive and the parties were bound from discussions with other suppliers]. This is a 24 year extension to the agreement that monetizes the most valuable asset of the Federation. This agreement covers a full six Olympic Games after the games in Brasil. Wow!

In fairness, there are a couple of attractive elements of this new agreement. If you are in the business of track there is no better sponsorship partner than Nike. They are a stable and growing innovator in the shoes and apparel category. Their senior leadership, including Phil Knight and Mark Parker, are knowledgeable and passionate about the sport. An additional advantage of a long-term deal is that it gives you future “revenue certainty”. This allows you to plan your operations into the future knowing the necessary funds will be there.

But, twenty-six years?

Dick Ebersol, the former canny NBC executive, made headlines when he pre-emptively negotiated advance television rights contracts with the International Olympic Committee [IOC] several years ago. He was second-guessed for binding his company to a firm price three Olympics in advance [12 years]. But, the principals at USATF felt they know enough to commit to a fixed price to a horizon that is double that term. With all the respect I can muster I can say, with knowledge, that none of the USATF negotiators can hold a candle to Ebersol’s mind, strategic savvy or his negotiating acumen.

Agreements of this type reek with confidentiality clauses. This allows the parties to “leak” the monetary value of the deal without ever having to document it. The revenue information dribbles out a little at a time when the Federation is obliged to report it on their Federal Tax returns on the Form 990. The first time any of us will see the first verifiable numbers in this deal is when USATF reports its finances for FY2017, which will occur sometime in 2018. So, if you ask me how much is this deal worth my simple answer is “I don’t know’. And, other than maybe thirty people on both sides of the deal, nobody knows and won’t know.

The “spin” from the Federation is that the total value of the deal is something short of “half a Billion Dollars”. Put that way, it sure sounds impressive and worthy of the “game-changer” hyperbole they have been using in their releases. But, as a well-known ESPN college football analyst frequently says, “Not so fast!”.

I know of no other sponsorship deal, not tied to naming rights of real estate [stadiums, arenas, etc.], which is for a term of that length. The risk is just too great. Just think about this. Nike is a huge public company with an army of smart guys and access to the best economists on the planet. The Federation is headed up by a lawyer who made a name for himself as a producer of a reality television show for NASCAR. Its self-perpetuating Board of Directors is composed of part-time policy makers. Who do you think was better informed as to what the economic future looks like in 2040? Who do you think got the better of the deal?

While “nearly a half a Billion Dollars” sounds impressive, maybe not so much. The key is a term of art known as Net Present Value. And the reality is that this deal is worth nowhere near that amount in today’s dollars. That is why the winner of a $400M Lottery jackpot is only paid about $220M if he elects a cash payout.

David Greifinger is one of the smartest and most ethical guys I know. He is an LA based agent and attorney who partners with Joe Douglas and has been involved in advancing the career of Carl Lewis. For many years he contributed his professional advice to the USATF Board, pro bono, as the unpaid counsel to the Board [the same spirit of generosity cannot be ascribed to the incumbent counsel to the Board, who is constantly “on the meter” and who is a hometown crony of the current Board chair]. Whenever there is a question of law related to the sport, the first call is usually to Greifinger.

David has written a well thought-out article for the current issue of Track & Field News and the essay is currently posted in the “The Day’s Best Reading” section of their website. He has analyzed the Nike deal and his conclusions are incredibly damning. He meticulously shows what a bad deal this is for the Federation. The organization has mortgaged a good bit of its future for the sake of near term headlines. I encourage anyone who loves the sport and is interested in its long-term well- being to read David’s article.

Twenty six years ago I still had dark hair and scheduled my business appointments manually in a Day-Timer Agenda. I dictated letters to a secretary who typed them on her IBM Selectric typewriter. My company had just purchased their first Fax machines.

In 2040 I hope to be alive and driving everyone around me crazy. I will be 97 years old, hopefully continent, and still a passionate fan of this sport. In 2040 the Federation will still be paying for the lack of judgment of its current leadership.