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By Jason Simpkins
The National Football League (NFL) has built an empire on American soil, one so profound that for a single Sunday each year – Super Bowl Sunday – the entire nation holds its collective breath.
The NFL can well revel in its domestic dominance. But while it enjoys a decided home field advantage, Major League Baseball (MLB), the National Basketball Association (NBA), and even the National Association of Stock Car Racing (NASCAR) circuit are crafting strategies for overseas expansion in the interest of eventual global growth.
Since 2002, revenue from the franchise sports industry – in essence, pro sports – has advanced at an average annual rate of 3.3%, and last year reached $26.52 billion. Industry revenue is projected to reach $30.06 billion by 2012, according to IBISWorld Inc, an independent publisher of business intelligence research.
And it's a much bigger business than most folks realize. The pro sports industry employs nearly 150,000, a figure that likely includes team representatives in promising markets abroad. And those positions generally pay well: The average wage is a hefty $84,100.
The NFL's Home Field Advantage
Over the past 12 years, the NFL's average team value has gone from $160 million to approximately $960 million, according to IBISWorld. Franchised football teams reap about 25% of franchise sport revenue, or $6.54 billion. A full 90% of NFL games are sellouts, and U.S. networks pay more than $3 billion a year to broadcast the games.
Never is the dominant aura of the NFL more evident than on Super Bowl Sunday, which happens to be this weekend. The Super Bowl's niche in hallowed halls of American pop culture speaks volumes about the NFL's status on its home turf here in the U.S. market.
More than 150 million people worldwide tune in to the Super Bowl each year. And viewer ratings could be even higher this year, as a Hollywood writers strike has eviscerated primetime TV schedules. Even during the earliest stages of that work stoppage, network ratings for primetime shows were down an estimated 10% during the fall – a reality made all the more painful by the fact that this is normally when the lucrative new hit TV shows emerge from the lineup of new offerings.
And since true hit shows can be part of a network's lineup for five, seven or even 10 years, it's a painful reality.
But the network's loss could be the Super Bowl's gain, since the strike has taken away anything that could compete with the championship game with all the efficiency of a vicious chop-block.
"It could be the highest-rated Super Bowl in history," Brad Adgate, director of research at Horizon Media, told Reuters. "The competing networks usually back down anyway. But with an audience starved for TV entertainment, it could be huge."
When you factor in the possibility that quarterback Tom Brady and the New England Patriots could complete the NFL's first undefeated season since the 1972 Miami Dolphins, the odds of a potential record year for Super Bowl advertising surges from possibility to near-certainty.
Even before the strike, the Fox Broadcasting unit of Rupert Murdoch's News Corp. (NWS) had sold more than 90% of its commercial time. Prices for a 30-second advertising spot climbed as high as $3 million, a source familiar with the deals told Reuters.
The average price for an advertising slot was $2.7 million, the source said, up from $2.6 million last year. Last year's Super Bowl – which pitted smooth-operating-quarterback Peyton Manning and his Indianapolis Colts against the resurgent Chicago Bears – was the second-most-watched of all time, averaging 93.15 million viewers.
Clearly, the NFL is the dominant force in terms of ticket and merchandise sales, TV viewership, and advertising dollars. So rather than trying to go head-to-head with the football behemoth on its home turf, other pro leagues are taking their game on the road overseas, where the NFL is markedly weaker.
Asian Markets in the On Deck Circle
Baseball accounts for roughly 20% of the franchise sports industry, according to IBISWorld, generating $5.11 billion in revenue.
Once considered the American pastime – back in the days of Babe Ruth, Lou "The Iron Horse" Gehrig, Joe "The Yankee Clipper" DiMaggio., Ted "The Splendid Splinter" Williams [though he sometimes referred to himself as "Teddy Ballgame," derisively….] – baseball was unseated by football and is now seeking respite in markets abroad.
Over the past several years, the game has garnered a substantial following overseas, particularly in China. And a market of 1.3 billion potential fans – and an emerging middle class that's almost as large as the entire population of the United States – is certainly appealing to a league that's losing ground in its home market.
The Los Angeles Dodgers and San Diego Padres will meet in the first-ever regular-season MLB games to be played in China on March 15-16. MLB China Series 2008 will be held at the Wukesong Baseball Field in Beijing. The field will also play host to the Olympic baseball tournament.
"Whether you're a sport, consumer product, or any other business, everyone is now interested in China to grow," Paul Archey, MLB's international senior vice president, told Reuters.
The New York Yankees signed the first Chinese players last season. The league hopes to gain in popularity in the China market as Chinese athletes become more and more prominent. MLB has already had success in Japan, with players like outfielder Hideki Matsui of the Yankees and pitcher Daisuke Matsuzaka of the Boston Red Sox.
Japan is already worth hundreds of millions of dollars in advertising and marketing to MLB, but there are high hopes for China's potential.
"If things continue to progress according to our plan, [China] will be a significant market for us as a business," Archey said. "Could it be [No. 1]? Maybe, but Japan is our largest market now and China's a long-term strategy."
The NBA Boxes Out Competition in China
Meanwhile the National Basketball Association is already reaping rewards from inroads it made into China 20 years ago. The NBA hosted the Chinese National team in 1985, and has since provided training to Chinese players through U.S. coaching clinics and exhibition matches against NBA Development League teams.
The NBA opened its Hong Kong office in 1992, and employs 100 people in four offices throughout Greater China. In 2004, it became the first U.S. sports league to stage games in mainland China.
The NBA currently has relationships with 51 Chinese telecasters, including a partnership of more than 20 years with national broadcaster CCTV. It has organized hundreds of touring basketball events for China's basketball fans, and currently maintains 16 marketing partnerships with Chinese-based corporations and U.S.-based multinationals.
But when China-born Yao Ming became an NBA star, basketball took another step towards superstardom with China's growing fan base.
The NBA took its involvement with China a step further just two weeks ago, when it announced the formation of NBA China. NBA China will have the right to create league teams in China and will own all broadcasting and merchandising rights. It will be headed by Timothy Chen, the former chief executive officer of Microsoft Corp.'s (MSFT) Greater China Operations.
"China is becoming the most important market in NBA's strategy," Chen told China Daily. "Based on NBA China, we will also strengthen cooperation with local leagues such as the Chinese Basketball Association, to help support the further development of China's basketball industry."
Five outside partners, four Chinese companies and Walt Disney Co. (DIS), bought an 11% stake in NBA China for $253 million, giving the subsidiary an initial valuation of $2.3 billion.
The four Chinese companies – Bank of China Group Investment, Legend Holdings International Ltd. (OTC: LGDI), Li Ka-shing Foundation, and China Merchants Investments – will jointly hold a 6% stake in the venture and Disney a 5% stake. The NBA will control the remaining 89%.
"It's the first time the NBA has taken outside investors," Chen said. "The outside partners will contribute capital, resources, expertise, and shared vision to develop our new body, and they will help NBA China to achieve its potential in the region."
The NBA has – by far and away – the most tangible presence in China, with an estimated fan base of 300 million, roughly equivalent to the population of the United States. NBA.com/China is the most popular sports site in China, and NBA is one of the most searched sports terms on Baidu.com (BIDU), that nation's top search engine – often referred to as "the Google (GOOG) of China."
More than 500 unique NBA products are available for purchase in China.
NASCAR Races Around the World
NASCAR isn't a pro-franchise sport like the NBA or MLB. But it is as dominant with racing fans in the United States as Formula 1 (F1) is in Europe and Latin America. In terms of U.S. TV ratings, NASCAR has grown to become the second-most-popular professional sport – trailing only the NFL. It hosts 17 of the top 20 best-attended sporting events in the U.S. market each year, and has 75 million fans.
NASCAR's real attraction is the brand loyalty fans feel toward products made by the companies that sponsor the racing teams. And fans purchase more than $3 billion of NASCAR-licensed products annually.
NASCAR, too, has ambitions that transcend U.S. borders. Its races are already broadcast in 150 countries worldwide. But its actual racing forays have been a bit too sporadic. It held an exhibition race in Australia in 1988, and from 1996 to 1998, NASCAR held exhibition races in Japan.
But now it's gearing up for another international push: It's been holding Busch Series races – essentially, it's minor-league racing series – in Mexico. And the independently owned teams have started recruiting international drivers.
But it has a ways to go to become a victor abroad.
It's the NFL that's called some of the most curious global plays of all.
For all its U.S. dominance, the NFL has struggled to establish itself as a global brand. NFL Europe enjoys limited success, and a regular season NFL game played in England wasn't much of a draw. Outside of its fruitless foray into Europe, the NFL has done little in the way of the Asian markets.
The Super Bowl may be the talk of the town this weekend – and around the coffee machine Monday – but it may take a decade or more for the NFL, NBA, MLB and NASCAR to really win big overseas.
[The historic Super Bowl Indicator has correctly predicted the direction of the Dow Jones Industrial Average in 33 of the 41 years the game has been played. Click here for more information.]
*Money Morning Associate Editor Jason Simpkins – the author of this article – is a die-hard Philadelphia Eagles fan, and annually wishes for more to cheer for. Executive Editor William Patalon III, who edited this piece, is an ardent Pittsburgh Pirates, Pittsburgh Steelers, and Baltimore Orioles fan. He's also an avid NASCAR fan, and laments that two-time Daytona 500 winner Sterling Marlin may soon retire.
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