Can Washington Actually Fix College Sports?

0:04Congratulations! You made the varsity podcast. My name is John Aranda and I am Puck's sports correspondent and the host of this pod. Today, I'm joined by Marc Ganis. Marc is an industry consultant who has his finger in so many parts of the sports business. He's a close advisor to Roger Goodell and several team owners. And earlier this year, President Trump appointed him to the College Sports Council. That's a group that's looking to fix college sports, and he sits alongside notables like Jonathan Kraft, Adam Silver, Jerry Cardinal, Nick Saban. This is a really good conversation as we head into the starts of the college football and NFL seasons.

0:41But before we get to Mark Gannis, today is Wednesday, September 2nd, and we're now a week away from the start of the NFL season. And for my money, I don't think I've spent nearly enough time talking about DAZN. That's the international streaming service that has spent the past decade trying to get into the U.S. market in a meaningful way. Well, DAZN bought Everpass last week, which means that it now controls the B2B rights to the NFL Sunday ticket. This wasn't a blockbuster deal by any means, even if it does involve the NFL, but it does show that DAZN is still interested in the U.S. market. Now, this is not a prediction that DAZN is going to end up with NFL rights or MLB playoff games or anything like that, but it could be a player for some tier two packages.

1:28Think about the NHL's second or third package or one of the smaller PGA Tour ones. As one sports media executive said to me, it feels like someone's going to end up without a chair and DAZN will be in an interesting spot to pick up something. Oh, and one more thing. We are now a month away from that in the arena conference that I've been talking about so much. That's the one that Puck is putting on with Moffitt Nathanson on October 1st in New York. Lots of big names, Bella Bejeria, Greg Sankey, Charlie Baker, Casey Wasserman, Matt Strauss. Go to puck.news for more info. As for now, let's get to Mark Gannis.

2:04Mark Gannis, you were one of the first people that I met in the business when I came over to Sports Business Journal two decades ago. And so there are a billion topics that I want to hit with you. But, you know, we just came out of what college football calls week zero. I hate the name week zero, but that's another pod for another time. But earlier this year, you were put on the presidential council to try to fix college sports. First of all, where is that council now? Is that still, is it still something? I know there was one big meeting with the council. Is it still meeting? Is it still something?

2:52Yes, it still exists. It's still vital. We had the one big meeting at the White House, but we've had many meetings via Zoom with people all around the country. And it's a very good committee. I mean, we have people on it from most of the conference leaders, coaches, former coaches. We have student athletes that are on there. We have people who are very relevant to our industry. You know, Jimmy Pitaro from ESPN, Eric Shanks from Fox, you know, people like Jerry Cardinal from Redbird. So it's a, you know, we have a person from Nike on there. It's a very good group that the president put together.

3:37And the focus right now, Now, that all culminated in legislation that the Senate has before it that has been endorsed by Democrats and Republicans alike. It is truly bipartisan. It passed the committee 19 to 9. Its four main co-sponsors, two are Republicans, two are Democrats. This desperately needs to get approved. Because if it does not, college sports may very well implode because of its own inabilities to be able to operate in a consistent manner with all of the great inconsistencies of court decisions being made in different jurisdictions around the country. It is vitally necessary for college sports to not just serve the student athletes, but also to be able to serve the public and to be able to have a set of rules that apply across the entire country so that individual judges with individual lawyers in front of them don't change the rules for either their jurisdiction or for the country.

4:50I can't tell you how important this is as somebody in the industry for many years. I cannot tell you how important it is that this legislation be passed. And if it doesn't get passed now, we're likely to see some major explosions in the very near future. Okay. The idea of fixing college sports, I dine on the chaos of college sports. It fills my newsletter up each week talking about this. So if I was going to ask you what needs fixing, I know you would come to me with 50 different things. What are the top two or three issues that you think really are it's pivotal to fix right now? The first thing is that the student athletes can change schools at any time, including middle of a season.

5:41they can they're they're basically operating as professionals within the student athlete environment and now most recently we saw I don't know what can only be considered lunacy where athletes student athletes who left school signed with professional teams trained with professional teams got paid by professional teams and because they may not make the squad or may not be in a position where they're going to maximize their revenue, they can go back to college and play there and get paid to play there. So that is the constraints on movement, very important, because without it, it's the wild, wild west.

6:27The second is the health care for the student athletes, not just while they're in school, but continuing for any injuries they suffered for basically the rest of their lives that have to be paid for by the schools. The third is making sure that the slots that are available for incoming freshmen and sophomores don't get taken by 24, 25-year-olds who decide to come back from professional ball when their professional careers may have not gone the way they had hoped. And then you've got the ultra important matter, which is the incredible amount of money that is being spent on college football and college basketball that is squeezing out all of the other sports, women's sports, non-revenue sports, Olympic sports.

7:21Those are all being squeezed out. And you're finding that many Many of the universities, the athletic departments, which used to make money for the academic and student affairs at parts of universities, are now actually draining. And they have to increase student fees and take money from academics in order to be able to pay for the athletic departments. This is an untenable situation and cannot continue. And the only people seriously getting rich on this are the antitrust lawyers who made more than a half a billion dollars on the house settlement and the agents who are currently unregulated and can charge whatever they want to charge.

8:07so let me let me play devil's advocate here because because i think the idea of these kids coming back to lsu and lane lane kiffin sort of doing this they never played an nfl game then it never even played an nfl preseason game they signed an nfl contract but what's the difference between the the these kids at ohio state are making making millions of dollars to play a game It seems like you're drawing an arbitrary line that needs to be drawn, but it's almost an arbitrary line to try to protect amateurism when it's not amateurism at all, because they're being paid as though they're professionals.

8:46Yeah, it's not an arbitrary line. The line is when the decision is made by the young person to sign a professional contract, to be subject to a union, in this case, the NFL Players Association, the moment they sign a contract, the moment they get benefits, health benefits, financial benefits, whatever they may be for being a professional athlete. That's not an arbitrary line. That's a very hard line. And it's not one that many of these players had to cross over. If they had eligibility remaining, they could just stay where they were. So they did not have to make that decision. Interestingly enough, even many of the antitrust lawyers who are doing quite well off of this Wild West and all the money there, even they say that's a line that they don't think should be able to go and cross back again.

9:45Before we get into the state of the bill and where the bill is, when I first saw that you were on that committee, it surprised me because the committee to fix college sports, I only know you as an NFL guy. I know you as a professional guy. What is it that the administration thought that you would be able to bring as somebody steeped in professional sports to a committee that's designed to fix a college game? So we broke up, I think the best way for me to answer that is to tell you that we broke up into four or five subcommittees, five subcommittees. One of the subcommittees is media and revenue, and I'm on that subcommittee.

10:30So to the extent that we can find ways, and we have already found ways to be able to increase the revenues for college sports, whether that deals with scheduling, that deals with potential sponsorship arrangements, things of that nature. The more money we can bring into college sports as it is formed as college sports, the more money there is for the players, for the universities, and the less money that has to come from student fees or out of academics, and the more non-revenue sports can be allowed to continue and flourish. So I am on that specific committee in order to be able to help increase revenues.

11:15So this organization was put together by President Trump, not just to impose rules and restrictions. It was to enhance college sports and the benefits to the 525 ,000 student athletes that are in the colleges and universities now. So there are certain areas that those of us that have been more involved in professional sports can be a benefit to that kind of effort. My sources in D.C. say that it's very likely to pass the Senate. They feel that there are enough votes in the Senate for it to pass in September at some point, whenever they come back. They describe the House as much more of a wild card.

12:03How do you see the bill right now vis-a-vis the midterms coming up and the change of Congress coming by January? You know, there are very few pieces of broad legislation in Washington these days that have bipartisan support. This one has bipartisan support. Now, you've had different parties and groups that have their own issues that are not related to the fixing of college sports, that have brought up objections or try and withhold votes to maybe put some pressure on unrelated issues. But the situation is so dire and it's so evident to anybody who looks at it that, you know, and the most recent examples of some players signing pro contracts and now being allowed by local courts to come back and play back in college, that chaos, I think, has only enhanced the prospects because that's only going to get worse.

13:08That's not going to self-correct. That's only going to get worse as time goes on. And so I believe that Washington will get this one right. This has been a very, the legislation itself that I hope you're right, that looks like it will pass the Senate, has had a lot of discussion, a lot of compromises in it, but it achieves the key points and it does not restrict other points that maybe are less, you know, there's less unanimity on. And it does the two most important things. It allows college sports to continue and grow and not be a drain on student fees and not be a drain on academics or even fundraising that the universities may be able to do.

13:57And it provides tremendous protections and revenue and income to the student athletes themselves. Those are the two most important aspects to this. We have to get it right. And the only place that this can be done is in the federal government, because it needs to be federal legislation that applies evenly across the country without local judges creating their own set of rules. Mark, I love your passion on this. But it is it is like I'm thinking about all the times we've talked and your viewpoint of we need to keep the federal government out of the business. But this is one that has convinced the big decision makers in the college space that, as you said, instead of going from one federal judge to another, and sometimes you get a win and sometimes you get – usually it seems you get a loss, that there does need to be one sort of federal rule and law that needs to get put into place.

15:02drink up baby fantasy football happy hour is here to get you wins and have some laughs Matthew Berry here and my podcast fantasy football happy hour has the sleepers bust and start sit advice you need to win your league we're diving into the tape we're crunching the numbers to bring you sleepers bust weekly start sit advice whether you're defending a title or desperately avoiding last place, I've got you covered every single weekday. The bar is open. It's Fantasy Football Happy Hour with Matthew Barry, wherever you get your podcasts. A topic that I've been writing about a ton on recently, the Lakers sale.

15:40When you saw that Joshua Kushner and Bob Iger were buying the Lakers at a valuation of$12.5 billion, What was your first thought? My first thought was that Mark Walter needs to sell because he just bought it a year ago. And he's not known as a person who flips assets or sports assets. He's known as somebody who buys, pays top dollar, buys and holds on and enhances. So when I first saw that, there are other things going on here outside of the sports world that are causing Mark Walter to want to sell the team. The second is the inflation in NBA team sales and valuations in particular has been very significant.

16:36And it was a year and a half ago that the Celtics went for$6 billion, and people thought that was a lot back then. And it wasn't that long ago. So there needed to be other reasons that were very specific to this set of buyers and this team, why it would command such a high price. And the reality is that is the case. You had Kushner and Iger focused on an expansion team in Las Vegas. The belief is that's going to cost$9 billion to start. And so they were out, and you don't even know if you're going to get it at that number. And you're starting from scratch. A team with no players, a team with no ticket sales, a team in the 40-something largest TV market in Las Vegas, and not even having an arena set up yet.

17:29So there are a lot of uncertainties there to pay, say, a$9 billion number. Are they better off pivoting and paying$12 billion,$12.5 billion for the Lakers? And in the context of that comparison, that's the right choice because the Lakers have a great arena. They're in the second largest market in the country. They have a phenomenal local television deal that goes for many more years. So this is a unique situation. I think this is a one of one where you had a buyer who paid top dollar but needed to get out quickly and seller rather to get out quickly and a buyer that was comparing it to what their other alternative was.

18:16And so in the context of this one deal, then this started making sense. But I will also say that this is an indication of how valuable the marquee properties, the trophy properties in sports are becoming. And that's raising the tide for all the other franchises. I know we all know them. Go through some of these marquee properties. In the NBA, you referenced the Celtics, which set a record that has since been broken, the Lakers, probably the Knicks. Anybody else involved in that sort of upper tier? Actually, would you even put Boston in that upper tier? I actually wouldn't put Boston in that category, interestingly enough.

19:02Now, the Celtics do have some other assets. They have a piece of local broadcasting network, but they don't own their building. they you know they're a tenant there and it's very hard to to play another one and their local tv deal is nowhere near as lucrative as the Laker deal you know there was a time years ago I would have put the Celtics in the same category but I would not anymore this is really you know just two the the Lakers and the Knicks are in their own their own grouping you know you could count the Warriors in there they don't have the history but they have the new arena they have an incredible market.

19:43So, you know, I would put the Knicks and Lakers in their own with the Warriors just a notch below. And then you have the Bulls and the Celtics below that. But the Knicks and Lakers are really in their own league. You know what number really made my jaw drop is up in the Pacific Northwest, the Seahawks getting, what was the final number? It was over$9 billion for the Seahawks, which nobody would describe as a crown jewel of the NFL. It's not at the bottom end, but it certainly is not one of the crown jewels. Did that surprise you, that number? Not in the least. When they first were up for sale, I said it would be a number approaching 10.

20:31I didn't know if it would make 10, but what I said publicly was it would be a number approaching 10, and 9.612 is certainly a number approaching 10. There are many reasons for this. Virtually every team in the NFL has to be considered a trophy asset. They don't trade very often, unlike, say, NBA teams who have lots of trades and ownership going on and doesn't seem to be slowing down. You have teams that are held in families 30 and 40 years. That's on average. I'm not talking about the exception. It is a league where every team makes significant operating profit, every single team. And that number is only going to keep growing.

21:16The NFL is, I don't think it's arguable. The NFL is the best run, best business sports organization on the planet. You add to that their exceptional governance and what everyone knows is the incredible integrity of the NFL, which is built into their DNA. And you realize that it's only scratched the surface for international expansion. And you see that this is a league that still has a lot of runway left for every team in the league. And that's one of the great distinctions here. You have roughly 75 % of all revenue shared equally among all the teams. So it's not that the Rams or the Chargers or the Jets or the Giants get more money than the Seahawks do from all the national revenue.

22:07And all television, all broadcasting, and all international is all pooled together, as well as all of something that doesn't get a lot of attention. All of the visiting team share from every game that's played from ticket sales. That's all aggregated. And merchandise is aggregated and divided equally as well, except for the one exception being the Dallas Cowboys. And that's a voluntary thing that they wanted to do on their own. When you have that much money being shared that equally, you're going to find that it raises the value of all of the teams in the NFL. And when you have that much of a profitability for all the teams and concurrently, you see that the players are making much more money than they ever did.

22:57And that number keeps growing dramatically. So they're doing incredibly well. So all the stakeholders in the industry are doing wonderfully. When you have that occur, when you have that confluence going on and you're the most popular sport in the country, and you've got a lot of growth ahead of you, that leads to people paying$10 billion roughly for a team that's in a mid-sized market. Mark, I'm going to try to get you to identify red flags that would suggest maybe$9.6 billion is at the top of the market and that it's going to be hard to make that up, or$12.5 billion. When I talk to media executives, they're not quite crying poor, but they're saying these increases that we've seen from the cable business are not being delivered over in the streaming business.

23:51And so the idea that these 20 % increases per year on media rights revenue or whatever, I think it was more realistically in the high single digits, they're going to go away. And they say these valuations, as good as they may be, I hope they're not based on a media number, on future media revenue. Do you see what when you talk to team owners, when you specifically in the NFL, what do you tell them is a potential red flag for the future in terms of valuations? Well, it's certainly not media revenue that I can tell you. If the NFL could redo their media contracts right now and they do have that right in a few years, the numbers they would get would be substantially greater than they are right now.

24:40And that's from even the legacy media companies. without taking the streamers into account or the big tech companies into account. So it certainly is not media revenue. Media revenue is going to continue to grow. It's going to continue to be the largest revenue source for the league. The things you always have to be concerned about, first thing is player relations. You've got to have great player relations. You've got to make the players effectively your partners. That was one of the things the NBA did before the other leagues did, and I believe was one of the most important factors that led to their meteoric rise.

25:20When the NFL followed that same pattern and made the players basically, you know, plus or minus a few percentage points, 50-50 partners on all revenue, that's when the NFL started its meteoric rise. Can I interrupt you for a second? So that's what you're talking about is making them partners in a financial sense. Like when you say making them partners, it's cutting them into the pie. of sorts, right? Absolutely. I just wanted to clarify. Yeah. Yes, absolutely. And the NBA was the first one to do that under David Stern. And look what happened since they did. It's been a straight upward trajectory for all aspects of the NBA.

25:57The NFL did the same thing. Once again, straight upward trajectory. So that relationship is vital. It needs to be, and it needs to be nurtured and they all need to be working together. And look, look, what just the NFL is in the middle of its 10 year deal with the Players Association. And look what they just announced last week, a new mental health program for all the players and for their dependents as well. Of course, mental health is very important and it's unique in sports. Players and their families have different kinds of pressures than perhaps others might. So they created this venture together.

26:37They also, to make the sport safer, agreed together, Players Association and the league, on having players who have multiple penalties that are potentially injurious to opposing players to sit out games if there are too many of them in a season. These are the kinds of things that a healthy relationship between the Players Association, the players, and the league, these are the kinds of things they do while the contract is before there's any termination to the contract. So having that kind of healthy relationship where it's very symbiotic and everybody benefits from it, that is critical. On that point also, in the NFL in particular, a continuing focus on player health and safety.

27:24That is very important in the NFL. The third is the balance of how you broadcast. You know, one of the things that's in the NFL's DNA is maximizing exposure. And so all of the networks now that have the NFL have their own streaming outlets. The fans are going to streaming outlets. That's where you have to know that where the fans are going, where your audience is going, is where you need to be. That was what happened with cable a generation ago. You'll remember that, John. You and I were both around. And so there was a move to cable and there was a hue and cry. Oh my God, games are going to pay TV.

28:09Imagine that. But that's where the fans were going. So you've got to go where the fans are. And so you still are going to always have the legacy media with the games. You know, in the NFL, 87 % of the games are on free TV. And for the home teams, the two teams playing in games, even if they're on streamers, those also have to be on over-the-air television. So it's 100 % for them. So, but there's going to be additional movement to streamers. There are multiple reasons for that. And, but you have to balance it. The multiple reasons are not just money, it's exposure. You put a game on YouTube TV and you now have global exposure to your games and And you can increase the fan base.

28:59The same thing with Netflix. You can increase the fan base. So there needs to be that balance between increasing exposure on streamers that can get you global audiences and making sure that the domestic audience is incredibly well taken care of as well. So that's another balancing issue, another issue that I know the league takes very, very seriously and continues to work on it. you've uh you've brought up the nfl media deals a couple of times uh uh another story that i've been following very closely lachlan murdoch telling the earnings call it yeah we're gonna wait fox is gonna wait until the end of the decade to uh it's not gonna open up its deal early uh comments that surprised me seemed to catch the nfl uh off guard a little bit that only in so that uh He went public with it.

29:53What do you make of that, Mark? Well, first thing is, I think Fox is taking a risk. Now, it's a risk they have to know they're taking. So they've factored it into their equation. But Fox is taking a risk that now they're exclusive on that package they've got. They will be for a number of years. If the NFL is going to terminate it and look for what may be there, Is Fox better off with that risk of a termination or better off with the certainty of keeping their primary programming on the air that keeps not just their network going, but all their affiliates and their owned and operated stations going?

30:36That's a risk they're taking. They've taken that risk, at least for the moment. And they may feel their position will be very strong in a year or two or three or four, as the case may be. But make no mistake, it's a risk. I'm not sure that the other broadcasters are going to take that risk. You know, there are, you know, the CBS package has got another issue in it, which has been made public, which is a change of control right that the NFL has. And there was a change of control at Paramount. And that they have some time to exercise that. You know, right now, Skydance and Paramount are locked in trying to buy Warner Brothers Discovery.

31:19That's got to be their priority. The NFL understands and appreciates that. So, you know, they've got time to come back to the table. But they've said very publicly that their priority is to keep NFL programming. NBC is also going through a structural change, you know, with Comcast spitting off the broadcast properties into a separate entity. So they're also going through a structural change. And so they have they have a reason to delay a little bit while they get that that in order. So this seemed to be an opportunity for Fox to do something the others aren't able to do. But, you know, they've chosen to to take some time and and we'll see how that plays out for them.