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.

Jacoby Ellsbury & MLBPA vs. New York Yankees

This week the MLB Players’ Association filed a grievance against the New York Yankees on behalf of the team’s former center fielder Jacoby Ellsbury in an attempt to recoup the remaining $26 million that he argues is owed to him. After winning the World Series with the Red Sox in 2013, Ellsbury signed a seven year, $153 million contract with the Yankees, however went on to miss a staggering 452 games between 2014-2019. For reference, in that same time frame the Yankees played 972 games (excluding playoffs), meaning the speedy outfielder appeared in just over 53% of those contests. If that wasn’t already hard enough to stomach, according to Fangraphs, Ellsbury registered a wRC+ (explanation below)* of 96 as a New York Yankee, so he was roughly 4% worse than league average.

While it is impossible to understate how disappointing Ellsbury’s tenure in the Big Apple was, his contract, like the vast majority of MLB contracts, was fully guaranteed therefore the $153 million was never contingent upon performance or even playing for that matter. However, the Yankees allege that the former silver slugger violated his contract by receiving unauthorized medical treatment which allowed them to convert his contract to “non-guaranteed” and then subsequently release him.

According to the Yankees, the 36-year-old was treated for an injury by Dr. Viktor Bouquette in Atlanta without the team’s consent, yet Ellsbury argues that the treatment was for a non-baseball-related injury, which does not require permission. The CBA essentially states that as long as the “Non-Work-Related Injury does not affect the Player’s ability to provide services,” then the player is exempt from disclosing treatment procedures. However, seeing as Ellsbury had not played a game since the end of 2017, which coincidentally is around the same time it is alleged that he started seeing Dr. Bouquette, it will be tough for the MLBPA to prove that there is no link between the two.

Though Ellsbury’s medical records are protected under medical privacy, if there is truly no causal connection between his NWR injury and the right oblique strain that was the first of his slew of 2018 injuries, then he and the MLBPA could and should release those medicals to prove that they are wholly unrelated.

There is a lot at stake for both sides in this case that will be heard by arbitrator Mark Irvings, who will be making a significant ruling next month in another dispute between player and club. For the Yankees, after the historic Gerrit Cole signing, their 2020 payroll ballooned to $243 million, which carries a significant luxury tax. The tax threshold (number at which team’s must pay extra for every dollar over) for next season is $208 million. The Yankees will pay 30% on ever dollar between $208 million and $228 million, 42% between $228-$248 million, and 75% beyond $248 million. So, the Yankees would stand to gain substantially if they lower that figure from $243 million, which would represent $12.3 million in taxes, to $217 million, which would only tax them $2.7 million.

As for Ellsbury, he is still rehabbing but is looking more like a liability than an asset so this $26 million could represent the last paycheck of his player career. However, for the MLBPA it goes a bit deeper as this case could set a meaningful precedent. It brings to mind a 2010 dispute between Carlos Beltran and the New York Mets over a similar issue that never reached litigation. In any case, the verdict in this conflict between the MLBPA and the Yankees could either be the final insult for foolish free-agent spenders or a sign to those same regretful investors that there are in fact legal ways to wriggle their way out of those abominable contracts.

*wRC+ means weighted Runs Created adjusted. This statistic is meant take external factors (such as ballpark or era) into account to paint a picture of a player’s overall value to any given MLB team. 100 represents league average, so a player with a wRC+ of 150 means that player is 50% better than league average and vice versa. wRC+ is widely regarded as one of the best indicators of a player’s true value.