NBA to Expand, Sale of Tampa Bay Rays

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1:56Bloomberg Business of Sports from Bloomberg Radio. Hello, this is the Bloomberg Business of Sports, where we explore the big money issues in the world of sports. I'm Michael Barr, along with my colleagues Damian Tassauer and Vanessa Perdomo. Coming up on the show, we take stock of the MLB season at its midway point with MLB Network Insider John Marossi. The idea of this is entertainment. And I would challenge anyone who even remotely likes baseball that if they spent their evening on Tuesday watching the game and turned it off, that anybody would have said, ah, nothing entertaining about that.

2:36Plus, the NBA is looking to expand for the first time in more than two decades. We get the latest and find out which cities are the early favorites to land a new NBA franchise. All that is on the way on the Bloomberg Business of Sports. But first, Apple is diving into F1 racing beyond the new movie with Brad Pitt. The iPhone maker is set to win the rights to stream Formula One in the U.S. for$150 million a year, a figure up almost two times from the currently F1 deal with ESPN. For more on this and some of her other recent reporting, we welcome back Bloomberg Intelligence Senior Media Analyst Geetha Ragunoffin.

3:20Geetha, welcome back to the Bloomberg Business of Sports. Thank you so much for having me. The movie that came out with Brad Pitt, F1 the movie, has it kind of supercharged the TV rights here in the U.S. for F1 racing? I definitely think so. I think the success of that movie has been kind of instrumental for really kind of jolting this whole bidding process, because we know that the F1 rights have now been on the market for quite a while. Everybody was kind of kicking the tires, right? The rights are currently held by ESPN, Disney's ESPN, which is paying about$85 million a year. These are only for U.S.

4:02telecast rights. We know Netflix was interested. They probably looked at it. Amazon probably looked at it. Warner Brothers said that they were probably interested. And, you know, we had some rumors or some inkling about Apple also being interested. But I think after the F1 movie came out and performed as well as it did, by the way, it's grossed about 400 million dollars globally. So it's, you know, by is that all any account? Yeah, it's done really, really well. And this is considering that the movie was produced by Apple, which, by the way, has had a pretty disastrous track record at the box office.

4:40So, you know, this movie really kind of surpassing expectations, doing really well. And kind of speaking to, you know, the popularity of the sport, it's a global sport. I think that's what kind of really emboldened Apple to kind of make that commitment and bid what we've heard right now about$150 million per year just for the U.S. rights for Formula One. So that's a pretty healthy step up from what ESPN was paying. Well, Geetha, we know that Formula One was looking for something on the order of$180 million a year. Do we have any color as to what Apple has offered them, what they've settled on?

5:16The range has been anywhere from about$150 million to$200 million. That's what Apple is said to have offered. The final reports that have come in, and again, nothing is official so far from either Formula One or from Apple, but Business Insider and some of the other news sources were reporting that they have offered$150 million, which is, again, a pretty good step up. That's almost an 80 % increase from what ESPN is currently paying, which again is really healthy. Because when you kind of look at the Formula One bidding process, yeah, initially there was a lot of excitement. I mean, this is, you know, a global racing circuit.

5:54People are interested. It's a younger audience. There's a lot of female interest that has been growing. So obviously it would be a coveted property. But then, you know, Disney's ESPN, which is the incumbent right now and holds the rights, has been taking a very, very measured approach. So they have, you know, they kind of let the exclusive period, negotiating period, expire with Formula One. They did the same thing with UFC. They dropped out of the MLB. So they are taking a very hard look when it comes to renewing sports rights. And then you had, you know, obviously Netflix and Amazon and everybody.

6:27But I think what happened with those streamers is they really wanted global rights. I mean, this is a global racing circuit. Obviously, it makes sense to have global rights. And because this is only a domestic rights package, I think the bidding process kind of cooled down quite a bit. So what happened is investors were resetting their expectations. They were thinking that maybe, you know, Formula One is not going to be able to get the increase that it was looking for. Maybe the increase would be more in like the 30 to 40 to 50 percent range. But the fact that Apple went out and got this, you know, basically bid 80 percent over, it just shows that, again, sports market is healthy.

7:04Formula One is in a good place. And for Apple, of course, this is just a drop in the bucket. I mean,$150 million a year really isn't that much when you take a look at a lot of the other properties. Even in motorsport, NASCAR's deals,$7 billion for seven years. So why is Formula One so much further behind there? Do you think is it just newer in the U.S.? Or why is it seen as a big deal just for$150 million? Yeah, it's definitely a much smaller kind of circuit when it comes to the U.S. I mean, this is much bigger popularity in Europe. So, you know, we've been actually kind of tracking the rise in popularity of Formula One and how Liberty Formula One has really been kind of cashing in.

7:49Actually, the launch of the Netflix series, Drive to Survive, that really kind of broadened the appeal of the sport. So I think in many ways that was kind of instrumental. So if you just kind of, Vanessa, if you just kind of track viewership just a few years ago for Formula One races in the US, you know, we're looking at about a half a million. So today, with all of that increased awareness, it's closer to about almost one and a half million. So they've managed to almost double to triple their audience base. But again, this is small potatoes when you compare it with some of the viewership numbers in the European markets.

8:23Well, you know, Geetha, I mean, the implications looking ahead here for the UFC, right, because they're up next. I mean, and UFC is a bit of a different animal, right? I mean, that's year round programming and they don't have, you know, their European media rights aren't spoken for already. You know, what can we look through? What can we expect the UFC to get for its service? Yeah, so right away, you know, when we kind of saw these numbers, our first knee-jerk reaction was, this is really good news for the UFC. So we know that currently, again, ESPN is the incumbent, Damien, for the UFC as well.

8:54They're paying roughly about$500 million for two separate packages. One is broadcast, one is on, you know, ESPN+. us. What we think is going to happen since they've kind of walked away from the exclusive negotiating period, we think UFC has, by the way, demanded at least a billion dollars. So they're looking to double their fees. We think the UFC can easily get that. And again, you spoke to all of these, you know, plus points with the UFC, right? Again, you have a year round programming, you have a global audience base, you have this whole rise in this super fan base, if you will. And all of that there's so much engagement that we're seeing right now in terms of you know fans for combat sports and so UFC kind of ticks all of those boxes we've we see you know week after week we see WWE Raw doing really well on Netflix you know anytime you open up Netflix top 10 you see that doing really well but what we think is going to happen with the UFC rights process is we think that this is really going to be split up into multiple packages.

9:58We saw that happen with the NBA. You know, the NBA creating more packages and basically scoring almost a tripling in their rights fees just by kind of introducing Amazon and NBC into the mix. And so we think something very similar is going to happen with the UFC as well. You know, you probably will have a streamer like a Netflix or an Amazon kind of get into the bidding process here. And you'll have ESPN also kind of hold on to at least one of the packages. Well, what Apple is banking on from people like old man, gearhead bar, and many others like me, is that you got to get the Apple service to get the streaming and pay for it.

10:40And likely, yes, I'm now going to pay for Apple. And that's what I think Apple is banking on, Geeta. You're absolutely right. I mean, live sports is, you know, some of the most important program for streaming services. I mean, time and time again, we've seen that premier sporting events can drive subscriptions like nothing else. So, you know, you think about Peacock during the Paris Olympics, you think about Peacock having that one NFL wildcard game, getting almost three to four million subscribers just in a few hours. Or you even think about Netflix with WWE Raw, Paramount Plus with UEFA Champions League.

11:16So all of these sporting events really drive subscriptions. Amazon has seen the same thing with the NFL and now hopefully with the NBA. So yes, absolutely. Apple is banking on the exact same thing too. The only thing that I would add here, Michael, is that Apple has dabbled a little bit in sports. So they did take the MLB, the Friday night games. They did take the MLS. We don't think that any of those have been a game changer, if you will. And a lot of that is just because Apple TV Plus still is kind of a laggard just when you compare all of the other streamers. So they have an estimated 45 million subscribers.

11:57But you compare that to the big dogs out there, you think of a Netflix over 300 million subscribers, you think of, you know, an Amazon Prime about 275 million, Disney well over 150 million. So Apple, I think the problem for them is going to be reached. But you're absolutely right. Yes, they are going to use this property to basically boost subscriptions, to basically, not just boost subscriptions, also retain subscribers as well. F1's a great product. There were concerns, though, that the bidding process wasn't very competitive. Why is that? Yeah, so there's just a whole different set of reasons for, you know, why it wasn't competitive.

12:37One is that the incumbent, which is, you know, Disney's ESPN, is really on this cost-cutting drive. So just a few years ago, Michael, their content budget was$33 billion. After Bob Iger came back, they basically, you know, said that they're all about riding the ship. They're all about kind of really cutting down the fat, cutting down the bloat. And so they are actually, they committed to a content budget of about$23 billion. This means that any sports rights, anything that comes up for renewal, they are taking a very, very hard look at it, which is why they didn't go jumping, you know, to renew the UFC.

13:14They didn't go jumping to renew the Formula One. They've opted out of MLB. So they're, you know, they are really on this cost cutting drive. And then in terms of the other streamers like, you know, Netflix or Amazon, I think what they really wanted was global rights. And with the F1, what we're seeing is this is only the U.S. rights package. So it's just a small sliver of the, you know, the entire property. And we don't think Netflix was necessarily interested in that because, you know, this is a global racing circuit. You do want to have global rights to kind of be able to get that reach, to get that engagement.

13:49And so that's why we think that the bidding process kind of lost a little bit of momentum. But I think, again, the movie came and really kind of jolted that whole process. Our thanks to Geetha Ragganoff, and she is Senior Media Analyst for Bloomberg Intelligence. Up next, we turn to the NBA and its plans to expand for the first time in decades. For Damian Sassauer and Vanessa Perdomo, I'm Michael Barr. You're listening to the Bloomberg Business of Sports from Bloomberg Radio Around the World.

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15:36I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today, wherever you get your podcasts. This is Bloomberg Business of Sports from Bloomberg Radio. This is the Bloomberg Business of Sports, where we explore the big money issues in the world of sports. I'm Michael Barr, along with Damian Sassauer and Vanessa Burnomo. The NBA is eyeing expansion for the first time since 2004. And here to take us through what we know and which cities might get a new NBA team soon is Bloomberg U.S. sports business reporter Randall Williams. Randall, welcome back to the Bloomberg Business of Sports.

16:18I appreciate you all for having me as always. We got to talk about, first of all, the NBA and your story. It looks like the league is going to have its first expansion in 20 years unless, you know, unless something changes. But there's been a lot of heavy chatter about it, Randall. Look, I spent a couple of days in Vegas and that was the biggest topic of the week was would the NBA officially announce expansion? And they did. It just didn't happen in the way that I think a lot of people expected it to. When you announce expansion, people think like, oh, well, I can put my bid in tomorrow. I want to be in Nashville.

16:53I want to be in Seattle. I want to be in Las Vegas. And that's not what the league did. The league said, look, we're starting the expansion process. We have to analyze things, both economic and non-economic. So you had people excited, but not the level of excitement that you think. Well, here's the thing. Let's just say, for example, it's Las Vegas against Seattle, right? And it had to go to one of the two. or Nash, whatever. But here's my question. You've got the money behind the Las Vegas team. I'm talking LeBron James, Fenway Sports, Redbird, the full smash. And then I don't know what's going on in Seattle, but wouldn't it be awesome to see Sean Kemp and Gary Payton in those old supersonic jerseys back?

17:29I mean, how do you compete against Las Vegas? Well, I think that those are two completely different situations. In Seattle, you have Samantha Holloway, who's the daughter of David Bonderman, And she owns the Seattle Kraken and also has the stadium ready to go. And then in Las Vegas, as you said, there's the Fenway, Redbird and LeBron group. There is Bill Foley. And then Mark Lazzari is also in the hat as well. But I'm told that they are not the only people who are interested. There's plenty more people involved. And what it becomes is, you know, what is the expansion fee going to be? Last summer, people told me they expected it to be between four and five billion.

18:10But that was before the Celtics sold. That was before the Lakers sold. And so now it's a thing of like, if the floor and reminder that the Lakers and Celtics sold without owning their arena, meaning they don't make money from these concerts and things like that, the same way. Yeah. Let's say, you know, Madison Square Garden would. With that in mind, what in the world would is this expansion fee going to be and who's going to be priced out of it? So the question there that is interesting to me is if there's this bidding war going on in Vegas, does that mean the expansion fee for Vegas or whatever is going on there can be different than if Seattle gets a team and it's just given to Samantha Holloway or whatever?

18:47It's still to be determined. That's the best answer I can give. I would imagine that if Seattle was chosen, that Seattle would go for less than Vegas. Just because I think competition is going to drive that Vegas price way, way up. I wrote like last summer that that team could sell for$7 billion. And people looked at me like I was crazy in large part because, you know, there is T-Mobile arena there, but there's no guarantee that someone doesn't want to build their own arena and doesn't want to strike a deal with Bill Foley and the people who operate T-Mobile Arena. And so, you know, you look at what stadiums and arenas are going for today.

19:25They're$2 to$3 billion. And, you know, it could be a$5 billion expansion fee. It could be a$4 billion expansion fee. And that cash is just very, very steep. And something we also haven't mentioned is what do the Trailblazers sell for? That could be the floor of this. And keep in mind, too, and as you guys have mentioned, that Samantha Holloway is co-owner of the NHL Seattle Kraken. And she is probably a very pivotal part in getting the team or at least bringing a team back to Seattle. And I think they should just use the Supersonics team name. Just bring it back. Yeah, I think that's likely to happen.

20:05But it just begs the question again of what's the price going to be? because the reality is that there can be people priced out of this. There are some, look, all billionaires are very rich, but you're talking about if it's$6 billion or$5.5 billion, that's a lot of cash. And, I mean, you think about what the Commanders sold for is$6.05 and Celtics is$6.1, but this expansion fee is huge. It's huge. And the longer that this process goes on, the NBA's process of evaluating things and doing this analysis that Adam Silver has spoken of, I think the price is going to continue to gradually rise. Well, you know, Randall, I mean, when you just look at the average NBA team's full year 23, 24 revenue, you're talking something on order of what, $388 million per year, you know?

20:54So there's still a lot of untapped inherent value in there. Yet, you know, where I get a little bit confused is, you know, there's no guarantees, as you rightly point out, there's no guarantees there's a stadium. There's no guarantees that they're going to do their job, creative, you know, franchise values, create a brand, get people to reach into their pockets and pay for those tickets. There's no guarantees of anything. So there is some modicum of risk here, right? And I would imagine that risk is a little bit greater in smaller markets like Seattle or Nashville. I'm just comparing to Las Vegas.

21:22Or am I mistaken there? No, I think that the risk really for the league is that you have some owners who are interested in that expansion fee because you have to remember that this expansion fee is split between all of the owners, of course. So if it's, you know, let's say it's$6 billion, it'll be split between the 30 owners. But Adam Silver has pointed out some really good points in, you know, the RSN issue, which is, you know, the regional sports networks. And then, of course, like, does it dilute the talent? When can they start playing? All of these things that the NBA is going to have to analyze and figure out, is this the best economic driver or do we have some other issues that we need to solve first?

22:04So if you're an investor who's been waiting for this since Adam Silver, I believe he first mentioned it maybe in 2020 or 2021. This was the moment that you thought he was going to be like, yes, we are expanding. This is it. And that's not exactly it. Yes, they are expanding. But he's also said that there is no guarantee that after the analysis that they come back and say, you know, maybe we don't want to expand just yet. There's no guarantees with anything. And the interesting thing, too, about you saying there's no guarantees, and we're almost talking about if they do expand, it feels like Vegas and Seattle are on lock and they're already there.

22:39But before there, you know, there was mention of expanding into Mexico internationally and all of that. Is that kind of closed off or is there still potential there? I think that Las Vegas and Seattle are the overwhelming favorites. Seattle, because they have a stadium set up, they owned a team, there was a team there previously. And in Las Vegas, that team is just going to go for such a price that you're going to have everyone, both domestic and internationally, interested in that team. I do think that if there was a city that could potentially rival these, it is Mexico City. It's the largest city in North America.

23:20But who's going to raise their hand from that? Who's going to want to compete against Seattle and Las Vegas, who are these favorites? And of course, there's political issues. You got it. There's a lot of things to figure out there. But other cities like Nashville, Kansas City come to mind. And maybe Vancouver, but it's a steep hill to climb to get over Seattle and Las Vegas. Well, you know, Randall, I mean, just to your point, you know, again, if you look at just regular old Sportico data, you know, the average NBA franchise value was something on the order of$4.6 billion. And that was a while ago.

23:53They ran these numbers last year. You know this. And I think you're spot on here because, you know, if you just look at the Lakers, in that analysis, they were at like$8 billion. They just went for$10. You know, you look at the Celtics, they were like$5.5. They just went for$6.1. So, I mean, you know,$7 billion is, dare I say, and that may just be like a median estimate, you know? It could be even higher. I mean, it's pretty unbelievable, these numbers. It's just, it's kind of mind-numbing. I mean, if you look at, one of the things that's interesting to look at is if you look across sports in the bigger leagues, the NFL, NBA, and MLB, and you compare the valuations of the professional franchises there.

24:30So, you compare the Knicks to the Yankees to the Giants to the Jets. all of those franchises, the Mets of course, you compare those franchises and they're all in the same ballpark. In Las Vegas, there's a little bit less of that just because the Raiders are there, you have the Aces there, the Athletics aren't playing there yet. And so then you have the NBA coming in and whoever owns that franchise is not going to have any trouble selling luxury suites, not going to have any trouble selling courtside tickets. Pretty much the exact same thing in Seattle because they have the tech presence there.

25:03But with that in mind, that's going to bring in the big investor pool. It's like everybody is going to want that last golden goose, which is Las Vegas, because I don't know if any of you have been to a Raiders game, but Allegiant Stadium is very nice and they have crazy fans. And Las Vegas is a basketball town. I mean, if you go into the March Madness history and their event hosting there, it's going to be crazy. Well, that brings me to goofy question number 245A and about Las Vegas. And hear me out. Why can't Las Vegas have two NBA teams? We got two NBA teams here in the New York area, two NBA teams in the Los Angeles area.