Editor: Please describe your practice in the sports law area.
Oram : I represent a number of leagues, teams and financial institutions in a variety of corporate transactions throughout the sports industry - everything from buying and selling teams, building stadiums and arenas, negotiating television and radio contracts and selling naming rights, concessions and suites. For most of our clients, we serve as their primary outside counsel; as a result, we field the first phone call on any problem or legal issue that comes up. Often we - meaning either myself, Joe Leccese or Wayne Katz, the two partners I work with in the Corporate Department - can answer the question ourselves, but if we need help (and we often do), we will turn to our colleagues with specialized expertise. When necessary, we can turn to an array of brilliant attorneys, whether they be tax lawyers, labor lawyers, litigators, IP lawyers, bankruptcy lawyers, ERISA lawyers or real estate lawyers.
We have quite a diverse practice these days. We continue to serve a number of our long-time clients, such as the National Basketball Association, the National Hockey League, and the ATP Tour. More recently, we have begun representing new owners, such as the owners of the Washington Nationals and the New Jersey Devils, as well as financial institutions including JPMorgan Chase and Socit Gnrale. We also are engaged from time to time by prospective owners to advise them on their attempts to purchase teams, either through negotiations or auctions. There are always plenty of people looking to get into the business.
Editor: Please tell our readers more about the members of the Sports Practice Group.
Oram: We have an incredibly talented group of lawyers at the firm, ranging from Howard Ganz - the chairman of our Labor Department and one of the co-chairs of the Sports Practice Group, who has been representing the NBA for decades. Howard also represents Major League Baseball in connection with a number of its labor matters. Up until recently he was assisted by Dan Halem, who just left the Firm to become the chief labor counsel at Major League Baseball. We also have many new superstars to whom I turn for help on almost a daily basis, including Amanda Nussbaum, a young partner in our tax department, who in addition to her many other talents has developed a tremendous amount of expertise in sports over the past nine years or so. Bill Hart is a copyright lawyer by trade but knows all aspects of intellectual property law. Brad Ruskin is litigator and one of the co-chairs of the Sports Practice Group. He is currently involved in major antitrust litigation involving the ATP Tour and has had a number of recent successes, including victories for the Florida Marlins, the National Hockey League and Major League Soccer.
Editor: As counsel to the NBA, I understand you were recently involved in the formation of the league's new NBA China venture. Could you tell our readers something about this transaction?
Oram: The NBA formed a new entity to hold all of the NBA's businesses and opportunities in Greater China, which includes not only mainland China, but also Hong Kong, Taiwan and Macau. NBA China raised approximately $250 million from five outside investors in exchange for an 11% equity interest in the new company. The investors include ESPN (which is owned by Disney), major Chinese financial institutions and the Li Ka Shing Foundation.
China is an enormous market that offers the NBA a great opportunity to capture the hearts and minds of Chinese consumers. During this transaction, I learned that there are over 250 million people in China who play basketball - that's almost as many people as we have in the entire United States. The NBA is already seeing the results of its foray into China. For example, earlier this year, when the Rockets and their All-Star center, Yao Ming, played the Milwaukee Bucks and their first-round draft pick, Yi Jianlian, the TV ratings in China were absolutely spectacular. It was estimated that somewhere between 100 and 200 million people - more than the number of people in the U.S. who watch the Super Bowl - watched that regular season game, which was played at breakfast time in China!
Editor: How does one go about buying an existing sports team or an expansion team?
Oram : With respect to the four major sports leagues, there are limited opportunities for expansion in the future. For the most part, those cities that are capable of having a team already have at least one - if not two, three or four. If an investor wants to buy a team, we would typically advise him to buy an existing team rather than wait for one of the leagues to expand. Of course, there are other leagues, such as Major League Soccer, that are actively expanding. In those leagues, a prospective owner would have ample opportunities to build a team from the ground up.
Obviously, anyone who wants to own a sports team will need the ability to write a pretty big check. Franchise values have been increasing at double digit rates for roughly the past ten years or so. Depending on the league, the cost of a team will be hundreds of million of dollars - perhaps up to a billion dollars or more for certain NFL teams. In addition, the turbulence in the credit markets may make it harder for prospective purchaser to finance their acquisitions with debt.
Moreover, in addition to trying to find owners with a great deal of money, leagues are increasingly looking for owners who have a long term commitment to the sport, who have stability, impeccable reputations and good partners. Given that the teams are so expensive, it has become increasingly difficult for one person to buy a team alone, and so the leagues are taking a closer look at who each principal owner's limited partners are.
Editor: The form of ownership is a partnership?
Oram : Either partnerships or limited liability companies. Ownership of a sports team has some significant tax benefits, so we typically use pass-through entities. However, the leagues typically require that there be one principal owner who exerts control over the entity and who is responsible for making all of the league-related decisions. There may, however, be a number of other owners who invest a few million dollars for a smaller percentage interest of the team.
Editor: What percentage of a team's income comes from the sale of media rights ?
Oram : The answer depends on the league. Television represents a much larger portion of a team's revenue in the National Football League. The NFL now has multi-billion dollar contracts with all four of the major networks and recently created the NFL Network, a venture owned by the NFL teams, which now broadcasts a handful of late-season NFL games. An NFL team only has ten home games a year, so the lion's share of the NFL's revenue comes from television rights. By contrast, with hockey, the primary source of a club's revenue is ticket sales. An NHL team can sell up to 20,000 tickets to 41 regular season home games, plus pre-season games and playoff games. Those ticket sales can add up quickly.
There is also greater disparity among the television revenues received by teams in the NHL, MLB and NBA, at least as compared with the NFL. This is due to the fact that the NFL clubs sell all of their regular season games to the networks on a national basis, and then the 32 clubs split the television revenues equally. In the other three major sports leagues, the teams can enter into local media contracts for a significant number of their regular season games. As a result, teams in larger markets such as New York and Los Angeles are able to generate greater television revenues than teams in smaller markets like Memphis and New Orleans.
Editor: Have you worked with any major team that has become a public company?
Oram: The trend has been that public companies are getting out of the ownership of sports teams. In recent years, Disney sold its NHL and MLB teams. TimeWarner has sold its teams, and teams like the Celtics and the Indians that used to be public companies have now gone private. I think there are a number of reasons for that. First, over the past ten years, sports owners have not needed to turn to the public markets for capital as they occasionally did in the 1990s, thanks in part to the enormous creation in private wealth in the last decade. Second, being a public company creates many additional and unique headaches that team owners don't need - everything from annual and quarterly reporting requirements, to having to answer to public shareholders and independent directors, to having to potentially disclose sensitive financial information and contracts. Editor: Have you also been involved in financing of stadiums?
Oram : We have. Most recently, we represented the New Jersey Devils, who opened the Prudential Center in October. This has been a tremendously successful project in Newark, New Jersey, which promises to revitalize the city. We have also represented the Philadelphia Eagles in connection with the development of Lincoln Financial Field and the NBA in its negotiations with the City of Charlotte that produced the Charlotte arena. We are currently representing the New York Jets in their joint venture with the New York Giants for a new stadium in the Meadowlands, as well as a few other teams that are trying to build new facilities.
These deals are incredibly complicated. Typically they require negotiating on several fronts with public entities, community groups, landowners, banks that are providing financing, and often the leagues themselves, all of which can be politically sensitive. As the availability of public funds has diminished in recent years, these deals are becoming increasingly difficult as the teams are being asked to contribute significantly more money to the project. As a result, the teams are insisting on more control over the construction and design process and access to more sources of revenues, so we really do have more of a public/private partnership in most sports facility ventures than we did in the 1990s.
Editor: Do you think the number of leagues and teams are at a finite number and will not be increased?
Oram : There is some room for expansion in the United States. There are obviously a number of cities that are experiencing rapid growth, and as those cities become capable of supporting professional sports teams, the leagues will consider expanding. Chief among those cities is Las Vegas. I would expect that within the next few years certainly one, if not more, of the major sports leagues will put a team in Las Vegas.
More likely, however, is international expansion. For many years, there has been talk that leagues would consider adding teams in foreign cities - so for example, there might be NBA teams in London, Paris or Mexico City that played against the Celtics, Lakers and Knicks. Or the existing sports leagues may opt to create brand new leagues in Europe, Asia and South America that are branded with the existing names and logos of the leagues but are comprised entirely of teams within that geographic area. Of course, NFL Europe recently ceased operations, but it's certainly possible that the NBA could launch such a league in China, branded in the same way that the NBA has historically been branded in the U.S. For example, you might someday see highlights on SportsCenter of the Beijing Bandits playing the Shanghai Sharks in the NBA China league championship. That game might be indistinguishable from an NBA game here in the States, from the rules, to the look and feel of the arena, to the 18 to 20 thousand screaming fans in the stands. That's what we may see instead of international expansion of the existing U.S. leagues.
Published February 1, 2008.
