Comment Text:
From: Joel Litvin Comment No:
Organization: Calumet Consulting, LLC Date: June 19, 2024
Comment Text:
My name is Joel Litvin. I currently run Calumet Consulting, LLC, a sports consulting firm, and teach sports management at Columbia University. I am the former President, League Operations (2006-15) and General Counsel (2000-2006) of the National Basketball Association where I worked for 27 years.
My work has made me intimately familiar with the economics of the professional sports industry in the United States, including the commercial risks faced by businesses and individuals that operate in the professional sports ecosystem – teams and team owners, corporate sponsors, media companies, fans, stadium owners and operators, team and stadium lenders, product licensees, etc.
These sports industry participants face economic risks arising from the on-field performance of teams and athletes – the better the performance, the more popular the team or athlete, which generates revenues for teams and businesses connected to professional sports by raising attendance levels and television viewership. The opposite is true as well – underperformance of teams and players can drive down attendance and viewership, which, for example, has a knock-on effect on the revenues of team sponsors and telecasters.
These risks could be mitigated by futures contracts that the Commission’s proposed rules would prohibit. Contracts that are based on measures that comprise multiple performance inputs of a team or athlete over multiple games would provide significant hedging and risk management benefits to numerous industry participants who are exposed to economic consequences from team and athlete performance. These contracts would be based on continuously priced measures that reflect team and player performances in multiple contests as opposed to the kind of binary payoffs on individual contests that characterize “sports gaming” as commonly understood, and which the Commission seems most concerned with.
For example:
• Noncontrolling Team Owners -- Given the growing value of professional sports teams and league rules requiring that a single individual control all business and competitive decisions involving a team, minority team owners – including institutional investors such as private equity firms that leagues have recently permitted into their ownership ranks – own purely passive positions in professional sports teams worth billions of dollars in the aggregate. These minority owners face the same commercial risks as teams and controlling owners but have limited ability to manage these risks. For example, a team’s controlling owner might embark on a long-term rebuilding strategy that sacrifices winning (and revenues) in the short term as the team seeks to develop younger talent and accumulate high draft picks. Futures contracts based on continuously priced measures of team performance over time (not in a single game) would enable minority owners to hedge this risk, without raising the Commission’s concerns about sports gaming.
• Corporate Sponsors – Brands that pay significant sums to align with teams and athletes face myriad commercial risks that could be managed, in part, through the use of futures contracts based on continuously priced measures of team and player performance. For example, a team sponsor that spends on advertising and promotion based on assumptions about the team’s live and television audiences could hedge against those audiences falling short of projections because of, say, the team’s unexpected subpar performance on the field.
• Media Companies -- Telecasters that make large rights payments to teams run the risk of underperformance by the teams and/or their star players, which hurts ratings, reduces advertising revenue, and diminishes the leverage of regional sports networks in carriage negotiations with distributors. Futures contracts based on multi-game performance measures for players and teams could be used by telecasters to mitigate these risks.
• Fans – Individual consumers and companies invest in teams through the purchase of season tickets for various tiers of stadium seating and luxury suites. These tickets are either used by the season ticket holder, or resold through secondary ticketing markets such as Ticketmaster and StubHub. The season ticket holder faces the risk that the value of their tickets declines because of the poor performance of the team and/or injury or subpar performance of a star player. Ticket prices on secondary markets generally rise when a team is winning and can drop precipitously when a team underperforms or a star player is injured or traded. These risks could be mitigated through the use of futures contracts on a continuously priced measure of team or athlete performance.
As illustrated above, futures contracts based on team and athlete performance in multiple contests would have extensive economic utility in the $150 billion U.S. professional sports industry. Businesses and individuals of all kinds stake enormous sums on the performance of professional teams and athletes in sports contests over time. It would be manifestly in the public interest to allow these participants to hedge the risks they face through futures contracts based on continuously priced measures comprising multiple metrics over multiple contests. Further, these contracts would not implicate the sports gambling concerns expressed by the Commission because they would not be based on individual contests with binary payoffs.
