Podcast Alert: NBA Europe

Transcript

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Charles Rolston: [00:00:00] Welcome to another episode of Navigating Sports Business podcast. I’m Charles Rolston, VP of Consulting, joined once again by Navigate’s founder, AJ Maestas. And today, we’re talking about NBA Europe. And I just want to give people a little bit of a rundown who are not familiar of where we are in the stage of NBA Europe right now. 

The NBA, alongside FIBA, is formally evaluating bids. They’ve got about 100-plus different investors, including PE firms, sovereign wealth funds, and existing ownership groups, all clamoring for a piece of the pie. The proposed structure is a 14 to 16 team league. It’s likely anchored in major European markets, London, Paris, Madrid, and Berlin, and potentially even some relegation mechanics, which makes me a huge fan of that mechanic, very excited about watching the future of NBA Europe. 

And the early indications actually support that the valuations could be around $500 million to a billion dollars, which is no small s- chunk of change, but definitely a fraction of the price that the NBA has reportedly [00:01:00] tagged on Las Vegas and Seattle for their own expansion domestically. So AJ, we’re gonna talk a little bit about the NBA globally here, and I wanna ask you the question, where does NBA Europe actually fit in the global basketball ecosystem today? 

AJ Maestas: I can’t help but respond to that. Not a small chunk of change, but now that we have NWSL women’s soccer teams’, franchise fees in the 200 million range. Yeah. If, you have to, readjust to the reality of modern franchise valuations. But yeah. How’s it fit in? I would just say, once again, the NBA is creating value overseas, growing their pie, their influence, their brand, their reach. 

It’s so good, so smart, in my opinion, to attempt, even if it doesn’t succeed, which I do think it will. It’s a chance for ownership at a lower tier. It’s a chance for control of an international league, equity in that league. It’s a chance to have meteorites that you can test and play around with around the world to package with or separately than your league deal here in the US. 

You’re creating essentially a [00:02:00] super league where there’s a lot of fragmentation as far as Europe right now. There’s so much about it that matters, and there’s so much about it that I like. 

Charles Rolston: I like a lot about it too. The probably the most positive aspect for me is it creates like this new vetting system for 100 potential owners who one day may purchase a domestic team. 

We kinda live and breathe this element, but like $7 to $10 billion for an NBA team, go through, the Forbes, billionaire list and like how many of those could actually afford, this type of asset? And to have somebody who’s already psychologically invested as well as financially invested at a lower level, to one day be able to include them in a s- in a small pool of candidates who could then purchase a domestic team, I think is an absolutely great idea. 

You’re vetting these owners, seeing how they operate teams, in a very similar environment, just in a different part of the world. So you know you probably have owners from the NBA domestically dealing with the global side, [00:03:00] and who’s gonna fit in the club eventually, as long as they have the cash to be able to afford the fee. 

I think it’s a really sharp idea, and the fact that the NBA’s driving it, you’re deepening the relationships in these key markets. You’ve squeezed pretty much all you can out of the market within the US, but you look at where the opportunity is, it’s China, it’s Europe, it’s Africa. Think about sponsorship, think about marketing, think about TV deals. 

You have Amazon, you have Netflix on board. Would they love some European global inventory with different time zones and people to watch video on demand? Absolutely. So I think it’s not just an expansion play here. It’s not a vetting play. It’s really new inventory creation, and I think it’s so smart. 

So you’re creating this new value, but the next layer that you really have to think of is like who has to give up control to unlock that new value? And we know that there is an already existing basketball league within the European region, and it really only works if you get buy-in from some of these current legacy, teams and franchises who have already built [00:04:00] up, rapport and affinity within the fan bases out there. 

So let me ask you this, how do the existing clubs within the EuroLeague fit into the potential new league? 

AJ Maestas: Before I answer that, I have to comment because I agree with what you’re saying, this entry point. I don’t think you’re old enough to really remember the rollout of the BMW 3 Series, but it was debated, right? 

If they would be cannibalizing and eroding their brand and perception at a price point. But what they did was introduce a much more approachable price point, right? Where there was this prestige premium brand, et cetera, et cetera. Obviously wildly successful, great selling car. So I, to at the risk of belaboring the point on, entry point for owners, before some of these deca-billionaires got involved in the big US sports leagues here in the last six, seven years The average net worth of a team owner was around the valuation of the franchise. 

Now, they didn’t own 100% of the franchise, right? But that’s a pretty crazy place to be as far as liquidity. You’re really stretching yourself to own. [00:05:00] So it wasn’t the richest people in the world that owned these teams, it was people basically as soon as they could afford to, they did. There was that class of billionaire, and we could do a whole ‘nother podcast on the reasons and motivations, but what a great entry point for ownership. 

I just wanted to like, double-click on that cause I agree. And there’s so much capital being thrown at sports and sports assets right now that what a smart move if for no other reason than to create this sort of tier of ownership, and it’s the same pathway for talent and players, you could argue. 

But as far as what this signals, to get back to your question, the NBA’s pressing their global advantage. They’re investing ahead of the competition again. They’re having, they’re operating with this generational-type view, which I so appreciate. They’re skating to where the puck is going. 

It’s so smart and I think we’re gonna get into more details on that. But yeah, it might also signal the death of NBA China. It, it was difficult to get there anyway. A friend of the podcast, a friend of Navigate, David Chipulo, spent a lot of time working in China when his, agency was purchased, by a Chinese billionaire, and, this is back when he was at [00:06:00] Infront. 

And as I understand it was very difficult to make that league happen, and then everything soured, with the US and China and the league, and we don’t have to rehash that. But you have to assume an NBA China league is something that approaches, 0% probability right now. So where does that leave? 

This is the result, yeah, right? What we’re looking at here, plus India, I’d say is the, potential, the future. 

Charles Rolston: And you have the NBA Euro club, I mean, or sorry, the NBA Euro League, and not all clubs are necessarily on board. You have Real Madrid, you have Barcelona, Paris Saint-Germain is reportedly skeptical about what the assets that they’re actually receiving and if they’re worth the fair market value of what they’re actually going to be paying. 

But, it’s an interesting thing to apply because, just based off of the geographic size of the US, going from Texas to Florida essentially, if you applied that to distance-wise in Europe, you’re speaking three or four different languages along the way, going through these different countries. 

So people think that, okay, if we [00:07:00] have these leagues that are in Germany, play, playing somebody from London, playing somebody from Spain, that it’s this massive sprawling space, and it’s gonna be very hard to be able to schedule these things. But in reality, it’s very similar to the US geographically in how far that you actually have to move these teams in order to play. 

The thing is, where’s the pivotal point in combining all of these regional fan bases into one that is super supportive of the league and the mission? You have things within, European soccer right now where you have these fragmented, different big five sports, soccer leagues, and they all kinda come together within this Champions League environment that’s run by UEFA. 

And I guess that’s what the NBA sees as the opportunity here. But I think one of the most important things to, to report is that the NBA is probably gonna be taking around a 45 to 50% cut of league revenue, while UEFA only takes about 2.5% from the Champions League. Now, when I read that, I say, “well okay, who has the credibility within the Champions League?” 

It’s the [00:08:00] teams that take part in it. Who has the credibility in this situation? It’s what the NBA is lending because of the legacy that they’ve built over domestically and then obviously globally as well. And now they’re lending to these teams who have been playing for 30 or 40 years together but haven’t really found a way to be able to monetize and grab fan attention the same way that we do domestically in the US. 

So do you have any thoughts on that, on whether this is going to be super successful from a scale perspective or any challenges that you can foresee being, being issued trying to adopt a Champions League model to the NBA and basketball in Europe? 

AJ Maestas: Well, I mean, this is the big question. 

This is the challenging part, right? Pre-existing Pan-European competitions, pre-existing domestic leagues, pre-existing clubs, and now you’re asking for that cut. To your point, I had, maybe that’s a starting point in negotiations. We’ll see. But there’s so many things, so much stability and governance and a closed league structure that create value and create transparency and trust from an investor group.[00:09:00]  

And the NBA has just proven their ability to run a league well, to grow a brand globally, to that I think it ends up sorting itself out, but I don’t have the answer. It’s a really tough one. And if I can comment on your points about Europe, that doesn’t worry me, but no doubt. 

Think of all those different, legal structures. Think of all those different languages. But this works out now. A friend is a commissioner of the basketball league in Australia. They have similar to the continental US geography and some high-functioning leagues there with, what, 25, 30 million people less than a tenth of the US. 

Now, Europe is more than double the size of the US and roughly comparable education income type metrics. I know it’s a little lower, but it’s more than double the size of the US. So just big picture framing the potential. There’s a there. It’s not that hard to make this work. 

You have established leagues, popularity. You have players spread across the NBA that are from these countries. Yeah, I’m very impressed. If [00:10:00] anything, it makes me a little sad some other leagues haven’t beaten them to the punch. I can remember a decade ago, the NHL was talking about a European league, and the NHL has this long history. 

Basketball was born in NHL arenas and even to this day a disproportionate amount of arenas are owned by the NHL club, not the NBA club as the primary tenant and the building operator. And, that seemed like a pretty serious opportunity, right? With modern first-class arenas in Europe, at least Northern Europe for a hockey league. 

Baseball in Taiwan and Japan and Korea. It seems like just such a incredible opportunity and here’s the NBA, that has somehow beaten everyone to the punch. 

Charles Rolston: I think also forced by the situation. I mean, you were talking about the reach earlier, some of the stats that we have 270 million basketball fans across Europe right now. 

The market is certainly under-commercialized relative to its scale. And, when I talked about the timing of it, I mean- Arguably the three best players in the [00:11:00] National Basketball League right now. I’m Canadian, okay, Shai is in there. Three of the best players, you got Jokic, you got Doncic, and you got Wemby, and, they’re all European. 

And Illinois built a massive Final Four run off of essentially focusing on the European market. So there’s a lot of talent out there. It’s not just people who are coming and putting butts in seats and watching on TV. There’s a lot of participatory talent there. 

And that, that could be a vetting funnel as well. You’re creating a funnel for people to find their path towards, professional National Basketball Association league games, from European countries and supporting them with more accessibility, more opportunities, more high-level coaching. 

I think it’s a great thing for the sport. I think it’s fascinating that the NBA is taking this opportunity right now. I think it’s gonna be a perfect use case for some of these other leagues who have been, wishy-washy on the fence about actually establishing an ownership level, a league standup, rather than just saying, ” we’ll let KBO do its own [00:12:00] thing in Korea and the Japanese League do its own thing,” and actually trying to consolidate it. 

And I think you’ll see some of the other leagues, if this is successful, NBA Europe as its own venture following the same playbook. So I do wanna talk a little bit about the NBA global playbook, because there was a recent article that came out, it was talking about concerns from potential investors saying, “$500 million to a billion dollar price tag, we’re paying all this money, and we don’t know what we’re actually getting.” 

They said that they have 100 different investors. Do you think that type of pushback is that significant at this stage? Or do you just rely on the NBA’s credibility to say, “This is going to be successful. You buy in at this price, and this scarce asset is gonna continue to appreciate over time,” and just trust what the NBA is gonna be able to build and create over there? What do you think about that? 

AJ Maestas: I think there’s a difference between a bid and an offer and a closed deal, and those deals aren’t gonna close, till people have clarity you know, on that structure. But just this indication is really meaningful, right? It’s a heck of a [00:13:00] signal to the marketplace. 

Whatever you’re all doing and the way you’re running your clubs or what have you, this is how fast we can raise money. This is how serious, our trust is, and the, and our model or the promise of what our model could be. So pretty incredible. And also it could be a scary sign of what it says about the marketplace and how easy it is to raise money right now for sports assets. 

What a test and what a smart signal and there’s sort of power in that, in your ownership group and the capital that they can put behind it it also gives you negotiating strength with those existing clubs and leagues. They know that if you had to launch new franchises in their markets, you could. 

Right? You could. People would put money behind it. Yeah, and there are inefficiencies in what’s happening in Europe and Africa. I don’t wanna leave Africa out of this conversation. Yeah, I think we’ll see, but it’s not unusual. Picture like a private equity fund or a venture capital fund, you know, sort of raising commitments, but they’re not actually assets under management yet. 

Charles Rolston: I love the fact that you [00:14:00] brought up Africa. I know it’s a region of the world that you’re very passionate talking about. You mentioned, we’ve been talking about the no-brainer success that this is gonna find with 270 million, fans just waiting for something that’s a little bit more substantial, and sophisticated, from a product perspective to be able to come to Europe. 

But let’s talk about some of the test cases. You talked about the impact that this might have on NBA China. We do have a real test case with NBA, Basketball Africa League. That was launched in 2021. That was a partnership between NBA and FIBA. They operated like a Champions League system. 

Which obviously I’m a fan of, but might be moving towards more of a permanent closed league structure to protect some of the valuations of the people who have already invested and future expansion franchises. They’ve been relying a lot on early revenue being driven from some massive global partners, that are also coinciding partners of the NBA, like Nike and Pepsi, and obviously significantly subsidized by the NBA as well. 

But would love for you to talk a little bit big [00:15:00] picture about the lessons that could be taken from, NBA in Africa that could be applied to Europe, and you think Adam Silver and the commissioner’s office are gonna be saying, “Well, we know the playbook there, but this is how we’re going to change things and apply it to a market in a region like Europe.” 

AJ Maestas: The really big obvious one is that they tried an open model with promotion and relegation, and they’re moving to a closed model. And again, look at franchise valuations in Europe with, let’s say, some of the most popular football clubs in the world. We work with three of the Big Six in the EPL right now, as an example. 

Look at their incredible revenue, their global following, cross borders. But I think it’s Real Madrid and FC Barcelona are two of the top three most popular football clubs in every region of the world. Just incredible that you could do a local deal with a local club and have global reach, and yet their valuations are so weak, and it’s because they lose money like crazy. 

There, there’s no controls in place on costs. The promotion relegation threat/opportunity. So I think that’s the key signal to take [00:16:00] from it is they tried, they played around, they learned. It was a low-risk environment. There aren’t huge economics in Africa right now, right? Most of that money’s coming from, sponsorships and government subsidies and support. 

The other one I think, and I’m pretty sure this is, publicly discussed, stuff is the idea of an arena network in Africa. There, there just aren’t modern arenas that can handle concerts and global tours, and that is really valuable. That is the NHL, flipping the NHL model, being their first in arena ownership and operations. 

I think that’s meaningful. And then the really big one, which I’m sure gets talked about, but I don’t– Maybe it’s cause, to your point, my real passion for Africa and sub-Saharan Africa in particular. The population growth on Earth, just assume it’s coming from Africa. About 50% o- over the next 30 years of the population growth in our entire planet is gonna come from that one continent. 

The population of Africa alone will double in the next 25 years. Let’s point to, let’s call it one generation, 25 years, 2050. Something like 40% of births, 40% of kids [00:17:00] under 15, under 18, pick an age group, will all be just in Africa. In the world, 40% of kids in the world will be in Africa. If you believe demographics are destiny, if you believe that’s a good bet, and I think most people do, if you’re a smart product brand, you’d say, “Oh, where are the customers going to be? Where are they going? Where’s growth gonna come from?” You would wanna be in Africa. So before I go on too long gushing about Africa, make no mistake, there are infrastructure challenges, hence the opportunity that exists with arenas. There are political risks. There are so many challenges with the continent that it is far from riskless. 

But, but yeah, you just think about talent, development, eyeballs, fans. There’s a marketplace there, for media. It’s not gonna be as good as what you’d find in Europe or the US, but it’s there. Let me put it this way: I would love to invest. I’m over-invested in sports, but I would love to be a part of something in Africa. 

And I’m aware that comes with risk. Yeah. Yeah. Africa could end up being the one that actually ends up being [00:18:00] ridiculously lucrative in this equation. And I think it’s the afterthought right now in the public dialogue. 

Charles Rolston: Yeah, and, you know what? I think it just reinforces the fact that NBA Europe alongside NBA Africa, it’s a phased approach. It’s not plug and play. You can’t simply take the NBA domestic US, playbook and just apply it to these regions because they’re very different. And the timeline does become critical because you can’t think of investors who are willing to come in and potentially flip this asset in 10 or 15 years. 

You have to think about, what actually shapes this timeline and who can actually stay invested long enough to benefit. So I think that vetting process is super critical. I loved what you talked about early on in your answer about, the threat of promotion and relegation to valuations on sports franchises. 

That we’ve been spending a lot of time performing due diligence on potential expansion opportunities domestically here in the US, and if I had to [00:19:00] put in a sensitivit- sensitivity analysis on the impact of moving from the top-tier league to a secondary league, I would be very scared to be able to show that to a client because it’s super threatening. 

We have Miller Farley, a colleague of mine at Navigate, who is a huge fan of Leicester City, who has now been relegated twice recently and down to the third tier. We have President Jeff Nelson, who is on the chopping block with his Tottenham Hotspur, who could potentially be relegated down to the second tier. 

It says a lot about our allegiances here at Navigate to European soccer franchises. But moving from a demand that fills an 80,000-person stadium to a second tier where, you know, the, that question is very much up in the air, whether you’re able to fill it at a 20 or 25,000-person level, you know It breaks the system, and that’s why these closed systems have been so successful here in the US in terms of driving that massive appreciation of franchise values that you’ve seen across the board that have been [00:20:00] superior to the S&P 500 or any other indexes that you could passively invest in. 

So I, I think that’s a really important question is, there’s laws, there’s regulations in Europe which talk about fair play, that are going to interfere with the NBA’s, probably intentions to make this more of a closed system to begin with in Europe. And they’re going to have to navigate that very smart and sophisticated. 

But I think that’s going to have a massive impact on the valuations and the willingness for investors to just buy in off of the jump off of the NBA playbook. But, I think we probably belabored that point. I think it would be very interesting to follow along with where these expansion fees actually end up. 

What are the investor and ownership groups that are a part of it and the cities that ultimately do receive a team? But, AJ, I kinda wanted to wrap this up and talk more about the big picture. NBA Europe launching, let’s call it, twenty twenty-seven, a very ambitious timeline. 

But if this works, who is ultimately the biggest winner here and potentially who gets left [00:21:00] behind? 

AJ Maestas: I feel bad about the China thing, ’cause you just gotta think that’s not gonna happen. I’d be worried about low-tier and mid-tier clubs in those domestic leagues. There’s only so much time and attention. 

I think we’ve discussed on this podcast the blockbuster concept, but for those who may have never heard it before, people believed there would be this democratization of brands and content and with the internet and what have you, and basically you could discover the new music artist or your favorite team halfway around the world. 

But the opposite has happened. A disproportionate amount of attention has gone into the biggest and most valuable brands and the ones with the greatest reach. That accelerates that trend. If I’m a domestic league, that’s a little worrisome. This is gonna cannibalize your economics and your interest and your authority and your negotiating position. 

There’s plenty of concerns. This is probably inevitable. And the, you could argue winner/loser is possibly India. Cause the NBA’s been in India twenty-five plus years at this point, so they’ve been doing their grassroots, much like when they were in Hong Kong and China. 

They’re in Asia [00:22:00] long before other leagues are and before you hear about it, before it’s commonplace knowledge. But you can’t, be all things to all people, so does this leave the door open for someone else to charge forward in India? It’s hard to see exactly what sport and why, but flag football I think has real potential, and American football has real global potential. 

So you do have to ask yourself what is the opportunity cost of this investment, and especially if one of them doesn’t work, could it have in another market? And again, India is the one I would think about most. I guess you could ask yourselves questions about South America as well. 

But but yeah, there, there will be losers. But I think it’s a net gain for the sport and for global interest, for talent and development. The G League has way too much talent relative to how it’s treated as a commercial entity. There’s a lot of players that pass on a lot of money because there’s so much moving up and down to NBA rosters in the G League, and that’s the dream. 

The athlete wants to be in an NBA roster. But what if you’re now in a European or African league that has a closer tie to an NBA franchise or the league? The G League could be a loser. You could [00:23:00] say, “Ugh, I’ve always thought, gosh, that could be the most second or third most popular basketball league in the world,” right? 

If it was done right based on the talent on those rosters. But it’s gonna be hard to pull both these things off at that same time. So yeah, there are losers. Everything comes at a price or some kind of trade-off, right? 

Charles Rolston: Okay, quick rapid fire. Which of the big four non-NBA follows this playbook and establishes a large global league with their own three letters on top of it? 

AJ Maestas: Gosh, I think from my earlier comments, you know that I wish it was the NHL 10 years ago, and I wish it was baseball 40 years ago in Asia, especially with Ohtani and things like that. My God, the potential. I suspect that it will be the NFL because of their power, their brand, their money, and flag football leagues that they could run at a loss no problem ’cause they have so much financial success, and for just spreading the game from a television perspective. But I don’t really know. What do you think? I’d love to have your same prediction. 

Charles Rolston: Oh it actually hurts to agree with you. But, the [00:24:00] one that is non-endemic to, to, from a global perspective is football, American football. They’re doing more than any other league to build their global footprint, to build fan affinity in all these regions, to have the power and the leverage and the relationships with TV networks and things like that to be actually able to stand it up. 

I think it ultimately will be them. But I’m a baseball fan. I would love to see an APAC region with Korean teams playing against Japanese teams with a funnel of talent that could go straight to Major League Baseball without following these posting rules that they have to go through because you ha- you have some of these talented players who don’t come over before they’re 28 or 29 or 30 years old, and you’re like, “Wow, I would love to see them come over,” when they were significantly younger and spend 10 more years, playing Major League Baseball. 

So I would really love for it to be baseball. Yeah, I think it would be easy. You saw the attention that was on the World Baseball Classic, right? You could have separate leagues in [00:25:00] Latin America, the Caribbean, APAC, and probably all have successful business models with investors clamoring, to buy into that. 

I’ve kind of, again, belabored that point, but I really hope it’s baseball because I think it’s endemic to their sport. I think they have the talent spread across the geographies that’s already built in. They have am- amazing fan affinity, with people who are watching the World Series at seven o’clock in the morning and tuned to their TV set. 

It’s 50% of the population who are not going to work and actually tuning in to see Shohei Ohtani lead off for the Dodgers. It’s already built in. There’s not a lot that you have to do to actually build the fan base and the monetization model. So yeah. So that’s what I’m thinking. I don’t know if you have anything else to add t-towards that, but before we close out, anything on your end? 

AJ Maestas: No, I guess it’s not very interesting to someone, listening to this to hear me agree with you. But yeah, it’s just clear that Latin America has incredible potential, as you noted. And, it would be a dream come true for a league to have [00:26:00] decades-long, 50, 60, 70-year-long established leagues in Asia, where the majority of the planet’s population is in their sport with talent that’s so good it’s matriculating onto your league. 

The time it would take to build that, and baseball has that right now. Yeah. Maybe we should try to put our thumb on the scale and make, help make something like that happen. There, there’s such a concentration on the lockout, CBA labor agreement situation right now, but oof, yeah, baseball. And they possibly need it more than the other leagues, I would argue 

Charles Rolston: Yeah. And it benefits both the players and the owners here. It’s something that’s gonna satisfy both parties. But that maybe the CBA conversation is, is coming up over the next few months for us to be able to spend a little bit of time diagnosing. 

I think we’re gonna wrap up here. I think from an NBA Europe perspective, very exciting to be able to follow the developments here on who’s bidding what expansion franchise costs actually do cost and what the assets that they’re actually receiving and the structure of the league that they’re actually building. 

[00:27:00] We wish them all the success, which I’m sure it will be based off of the fact that the NBA has been doing such an amazing job here domestically in the US. But that’s it for today. Thank you again for watching. I’m Charles Ralston, joined by AJ Maestas. You can always reach out on LinkedIn or Charles@NVGT.com to talk about anything NBA Europe, anything sports, feel free to reach out, and we will see you on the next episode. Thanks for watching. 

AJ Maestas: Thank you.