2020 in Review, 2021 Preview: M&A

Having (finally) turned the page to 2021, today let’s take a look back at some of the biggest stories in sports law from the past year. 2020 was set to be a consequential year in sports even before the arrival of COVID-19. However, the pandemic only heightened the importance of a year that witnessed both blockbuster mergers and widespread layoffs in sports business, overdue support for athletes’ expression in social justice movements, and on-the-fly adjustments of how sports are watched and played.

Much of 2020’s chaos that rearranged the sports world will continue to have significant commercial impacts on the industry. Below are some of the fascinating stories that last year provided, and what we might expect 2021 to bring.

What happened:
Penn-Barstool Partnership
Perhaps the most surprising deal transpired at the beginning of the year with Penn National Gaming turning heads during Super Bowl week. The company announced that it had purchased a 36% stake in Barstool Sports for $163 million, valuing the Boston-based sports media group at $450 million. The deal was widely-regarded as a win-win as the oft-in-controversy Barstool gained the legitimacy and platform of a media superpower, while Penn acquired easy access to an ideal market audience for the rollout of a much-anticipated sports betting division. The agreement came at a time with sports betting experiencing skyrocketing growth, and in the court of public opinion, gambling has gone from taboo to tantalizing as more and more legislators rush to legalize the industry in their own states. However, the Penn/Barstool combo faces an uphill battle getting their share of the market as sports betting is already dominated by established operators in FanDuel, Draftkings, William Hill, and others.

Cohen Gets the Green Light
Steve Cohen, a hedge fund manager worth roughly $14 billion, gave Mets fans everywhere something to be excited about when he purchased the team for a MLB-record $2.475 billion this past fall. However, the acquisition did not come without significant hurdles. Back in February, he and the longtime Wilpon family ownership had reportedly agreed to a deal that would have transferred 80% of the Mets to Cohen, however talks suddenly fell through and the agreement was pronounced dead. The team went back on the market and Cohen – in his second effort – faced a competitive bid from longtime Yankees superstar Alex Rodriguez and entertainer-fianceé Jennifer Lopez. Then, when it became clear that Cohen was willing to far-outspend the competition, rumors swirled that New York Mayor Bill de Blasio was “trying to kill” any sale of the Mets to Cohen, reportedly stemming from the fact that Cohen’s former company, SAC Capital Partners, pleaded guilty in a 2014 insider trading case, which cost the firm $1.8 billion in fines. Despite these obstacles, Cohen’s purchase of a 95% stake in the Mets was approved in October. So, after years of being run like a mid-market team, the New York Mets are already seeing dividends now that Cohen, a longtime Mets fan himself, is at the helm. Following promises to spend big on the Mets, Cohen has quite literally put his money where his mouth is, already adding more than $100 million to the team’s payroll through various key moves. Since 2010 (and excluding last year’s pandemic-adjusted season), the Mets have had an average payroll of roughly $124 million. With the start of the MLB season still more than two months away and potentially more moves to be made, the Mets’ payroll already exceeds $160 million and only figures to increase. According to Forbes, the Mets are the 5th most valuable MLB team and the 41st most valuable team globally.

Spotify Snags Simmons
Spotify continued its run of podcast acquisitions with another big name buy. Having already shelled out $400 million for Gimlet Media, Anchor FM, and Parcast, Spotify reportedly spent more than $196 million to land Bill Simmons’ The Ringer in an effort to grow its sports vertical. In Spotify’s words, The Ringer, launched by Simmons in 2016, is a “website, podcast network, and video production house creating an innovative blend of sports, pop culture, politics, and tech content.” According to Statista, The Bill Simmons Podcast, part of The Ringer’s robust podcasting lineup, was the 5th highest earning podcast in 2019 bringing in over $7 million. While the growth of podcasting is hard to pinpoint, the following statistics paint a picture of its vast potential: in 2020, 55% of Americans had ever listened to a podcast, 37% of Americans twelve or older listen to one monthly, and podcasts accounted for 19% of all spoken-word audio listening in the U.S., compared to 2017 when these numbers were 40%, 24% and 15% respectively.

What to look for:
NFL to hit $100 billion?
With most NFL broadcasting rights agreements set to expire in 2022, the league will sign a new contract this year with many expecting that it will be a 10 year deal that could “far exceed” $100 billion in total value – and it’s easy to see why. Out of the 50 most-viewed TV Broadcasts of 2020, the NFL dominated claiming 33 of the largest audiences, including Super Bowl LIV, which reeled in one-hundred million viewers, unsurprisingly making it the most-watched broadcast last year – for the 28th year in a row. While core aspects of the NFL’s current agreement figure to remain intact, a few key games are expected to change hands, even including America’s most popular program. Nothing is set in stone, but rumors are that ABC and ESPN will be added to the Super Bowl rotation and ESPN will receive more flexibility in its Monday Night Football (MNF) slate to ensure the best-possible matchups. Perhaps more intriguing, the NFL is reportedly considering offering ABC, ESPN, CBS, and Fox two Super Bowl broadcasts each, and auctioning off the final two at a later date. The new broadcasting agreement will likely witness one of Amazon, ESPN+, Peacock or Apple take over the Sunday Ticket package given that DirecTV seems poorly-positioned to continue the deal. Also, Amazon may become the exclusive provider of Thursday Night Football with Fox reportedly looking to move on from the package. NBCUniversal is focusing on retaining the most-watched prime-time TV show for the last nine years in Sunday Night Football. Finally, a few notes on current pricing and revenue: rates for Sunday afternoon games have been $1 billion annually, but may jump to $2 billion; ESPN has paid $2 billion for MNF, but may need $3 billion to retain the package; Sunday Ticket is priced at roughly $1.5 billion annually, but will likely be subject to a bidding war which will drive up the cost; the NFL’s annual revenue from its media rights is currently around $7.5 billion and could double to almost $15 billion. In any event, the NFL’s much-anticipated TV deal will be something to look out for as it will undoubtedly shape the broadcasting market for the next decade.

XFL game-planning for 2022
Among all the losses experienced due to the pandemic, it’s hard to argue that any sports entity suffered more than the XFL, whose debut began with a very promising start in February, only to be stopped short the next month and later, subjected to bankruptcy. Thanks to careful planning, significant funding, and an impressive marketing effort, the XFL seemed well-positioned to erase the doubts stemming from its 2001 failure and establish itself as a legitimate and profitable “minor league” to the NFL. Early returns on the XFL proved as much: the league averaged 1.9 million viewers and was projected to hit $46 million in gross revenue for the unfinished 10-game season, exceeding internal expectations. Of course – consistent with the theme – the pandemic plunged the XFL and its investors into financial ruin, forcing CEO of WWE, Vince McMahon, to sell the team to actor and businessman Dwayne “The Rock” Johnson for just $15 million. Citing the needs to restructure the organization and have fans back in seats, the XFL has no plans for a 2021 season, however expects to return in spring 2022. Accordingly, many expect Johnson, alongside business partners Dany Garcia and Gerry Cardinale, to be active in securing investments to position the XFL for a strong – and permanent – revival next year.

Sportradar on the move
In a year that witnessed the continued growth and popularity of sports betting, Sportradar, unbeknownst to most, finds itself poised for a major move. Sportradar is an international, Switzerland-based company that collects and analyzes sports data, providing it to bookmakers, sports federations, and media companies, including the MLB, NBA, NFL, NHL, William Hill, Bet365, and many more. The company employs more than 2,000 people over 30 locations across the globe and boasts Michael Jordan and Mark Cuban among its list of investors. So, why is Sportradar making the news now? Well, after receiving a B+ credit rating from Fitch Ratings, it was revealed that the sports betting powerhouse has been raising $505 million to finance a potential acquisition, reportedly with a specific M&A entity in mind. Though the identity of this target remains unknown, some have speculated that it could pursue another sports betting platform, while others predict Sportradar may look for a casino platform. In any event, most seem to agree that at some point this year Sportradar will look to go public, however disagree whether it will do so through a traditional IPO or a SPAC, the latter of which would allow the company to reach the public roughly two-to-four months faster than using the former. Regardless, it is clear that Sportradar has big ambitions for 2021. The company just appointed a former CEO of Fiserv Inc., Jeff Yabuki, to chairman of the firm’s board of directors and while its plans are still in the dark, many expect Sportradar to make lots of noise early on in 2021.

Kawhi Leonard Loses “The Klaw” Logo Lawsuit v. Nike

Klaw-pyright Infringement

Despite his wild success over the last year, Kawhi Leonard took a tough “L” recently when he ran into a pick set by Nike last month. Oregon District Court Judge Michael W. Mosman granted Nike’s motion to dismiss the NBA star’s claim that he rightfully owned the “The Klaw” logo. In fact, in the complaint, Leonard’s legal team referred to the popularly-known logo as the “Leonard Logo” instead, in an attempt to establish even more of a link between the design and player. Yet, despite the undeniable connection the “KL” outstretched hand has with Leonard’s likeness, the judge’s ruling indicates that the logo and all adjoining rights to its use indeed belong to Nike. 

Size Matters

The concept of “The Klaw” was allegedly birthed when Leonard was still a second or third year player on the San Antonio Spurs. Coming out of college, Leonard boasted hands measuring 9.8 inches long and 11.3 inches wide. While those figures alone may not mean much, it should be noted that Leonard not only had the longest hands in the 2011 NBA draft, but slides in at no. 9 all-time in biggest “NBA hands” (sandwiched between Michael Jordan and Wilt Chamberlain ⁠— if you’ve ever heard of them). Thus, from his remarkably large hands, “The Klaw” stuck to Leonard as a nickname and a potentially lucrative branding opportunity.

Interestingly,  the nickname’s origin story has been called “a myth amongst the Spurs [2014] roster” as to who first conceived it or when the trend even caught fire. Leonard insists that he invented the logo while still at San Diego State University, though it could not have been created in connection to “The Klaw” moniker. In any event, Leonard’s credit for the initial sketch has not been disputed, but his protection over the foundational design was, for which he is now paying the price.

“Board Man Gets Played”

What makes this case so important is that this issue of intellectual property protection is only becoming more crucial for young athletes, as collegiate stars will be able to brand and profit off their likeness through endorsement agreements starting as soon as next year.

To Leonard’s credit, he had the foresight to begin building his brand in college, and conceptualized the following illustration. However, as a rookie with the San Antonio Spurs, the two-time champion recalls sharing a preliminary sketch of his logo idea with Nike, with whom he signed an endorsement deal. Below is a picture of Leonard’s version against Nike’s official design.

Captura de pantalla 2020-05-19 a las 9.27.16 a. m.

It is here where a few disagreements arise. The first is a matter of uniqueness and though the designs are generally similar in concept, the judge stated that he found Nike’s rendition of the logo to be “new and significantly different from [Leonard’s] design.”

Second, Leonard himself did not deny that the logo was created in connection with the endorsement contract, however argued that Nike’s design was a derivative of his work, disqualifying it from copyright protection. Again, the judge supported Nike’s claim that its version was “obviously distinct.”

However, what may be most telling is Leonard’s admission in a 2014 interview in which he speaks on the logo and his excitement in partnering with Nike. He states, “I came up with the idea of incorporating my initials in this logo. I drew up the rough draft, sent it over and they [Jordan Brand] made it perfect. I give the Jordan Brand team all the credit because I’m no artist at all. They refined it and made it look better than I thought it would ever be, and I’m extremely happy with the final version.”

Love & Basketball…and Intellectual Property

Much like the ugly breakup with the San Antonio Spurs and eventual marriage with the Los Angeles Clippers, the NBA star’s relationship with Nike unfolded similarly, with New Balance serving as Leonard’s “rebound,” if you will. Though given an opportunity to resign with Nike, once the contract between the sports apparel giant and the literal giant in Leonard expired in 2018, Leonard opted to take his talents to New Balance, signing an endorsement deal.

Though Nike, as mentioned, retains all rights to “The Klaw” logo, it is theoretically possible that New Balance could buy or license its utility in the future. Given the unlikelihood that Nike would agree to this (barring an absurdly Nike-friendly deal), there are few other options—if any—available to Leonard and New Balance to use the design other than appealing the judgment and receiving a remand.

Of course, because neither New Balance nor Leonard are able to utilize the logo, the pair has had to pivot in their endorsement efforts. While New Balance’s site is still bare bones as far as Kawhi-specific apparel, the Boston-based company unveiled a design earlier this year for Leonard’s first signature shoe. If you check out the logo on the shoe’s tongue, you’ll notice that it’s remarkably different, and more…ordinary than the disputed design owned by Nike, which honestly may align better with Leonard’s well-known, even-keeled personality.

However, if Leonard truly seeks to reclaim his logo through an appeal for his branding, the shot clock is ticking. The shoe will not officially be made available for purchase until the fall, but the odds that the case against Nike is appealed, remanded, and reversed—all before the shoe is released? Well, let’s just say Leonard would have a better chance of hitting “The Shot” again.