All That and a Bag of Mail

Good morning, rejoice, it’s Friday.

I’m out in Los Angeles for the end of this week and will be hopping on Jason Whitlock and Marcellus Wiley’s “Speak For Yourself” show at 3 et. So I have to hammer out the mailbag in a hurry this morning.

In the meantime, if you’re ready for college football season to finally return, Joel Klatt is going to be the guest next week for Wins and Losses. That podcast will drop Sunday. And if you haven’t already listened to Jeff Fisher this week, honestly, you’re wasting your life. Go listen and subscribe to the new podcast exclusive here. It’s one great long form conversation a week with someone interesting.

Okay, with that in mind, here we go:

“Lots of you asked this question: what do you think about Jay-Z and the NFL partnership?”

I think it’s incredibly smart for the NFL to do it and I also think it’s smart for Jay-Z to be involved.

That’s primarily because I see Jay-Z as a great conduit between the players and the owners. He can speak to the players because he’s the foremost black capitalist in the country in the eyes of most of the players and he can speak to the owners because he’s a business, man. Deep down both the owners and Jay-Z know that one color matters more than any other — green.

Regardless of your politics from a business perspective the fight between the players and the owners over political protests has always been a bad business move.

Why?

Because the owners and players are business partners. The owners get 53% of all revenue and the players get 47% of all revenue.

If you are sharing revenue what’s your goal from a business perspective? To maximize revenue!

You aren’t on the opposite side here, you’re on the same side. (The only exception to this rule is when players and owners hammer out a collective bargaining agreement.)

Everything you do — as either players or owners — that serves to challenge or retard the revenue growth of your league is a bad business decision for both players and owners. And whether you agree or disagree with Colin Kaepernick’s protest, the decision to take a knee was bad for revenue. It cost the league’s TV partners hundreds of millions of dollars in missed budgets and tanked ratings.

Now the players don’t really see that impact because the league’s TV deals are multi-year in nature, but the owners do. And the owners know that if they lose audience then eventually their product is worth less. In order to grow your revenue you need to grow your audience, either via total audience or time spent viewing.

So I always thought the owners and the players were on the same side here and they behaved in a far too contentious manner.

Put it this way, many of you reading this right now have strong political opinions. But if one of your co-workers decided his political opinions were so important that he needed to make them in uniform at work and your resulting audience declined by nearly 20% for your business, would you support his right to protest even if it meant you’d eventually make 20% less?

No way!

I’ve said this before, if something I — or one of my co-workers — did on my radio show cost me 20% of my audience, I’d fire that person in a heartbeat. (Or I’d stop doing it if I was the reason our audience was declining). That’s because I’m a capitalist and I work to make money. I want to make as much money off my labor as I possibly can.

Jay-Z, as the ultimate black capitalist in the eyes of most NFL players, can make that case better to the players than an old white capitalistic owner could. Players are more likely to trust Jay-Z because they identify with his climb from poverty to riches. In him, they see their own struggle.

Finally, I loved the quotes from Jay-Z about how as a businessman he worked all the time with people who had different political opinions than him. And that if he didn’t, he’d be far less successful. I can’t believe that’s considered controversial to say now. All of us work every day — and most of us have family too — with different political beliefs than us.

But, guess what, that’s fine!

If we all thought the same way about everything, we’d be living in a totalitarian state and unable to share our real opinions.

That’s why I’m very troubled by the cancel culture that exists in our country today — the idea that if someone has a different political viewpoint than you you should refuse to interact with them at all. This was recently epitomized in sports by the U.S. Women’s Soccer team. They refused to meet with Donald Trump because they oppose some of his decisions as president. That’s despite the fact that Trump was willing to meet with them.

I just think that’s awful and sets a terrible precedent.

That behavior is the exact opposite of what American protest used to represent. The reason the Civil Rights protesters protested in the first place was to be able to meet with American leaders to change the system. They protested seeking tangible results and understood they needed to sit down at the negotiation table to reach those results.

Meeting with someone who disagrees with you today is seen as a sign of weakness. But that’s because modern day protesters don’t actually have tangible goals. The goal isn’t to change anything, it’s just to protest and get attention for the protest. People got mad at me for pointing it out, but Colin Kaepernick was protesting and demanding an action that was already taking place. He wanted to ensure that black people weren’t being killed by police without any penalty. Well, that was already happening. Barack Obama and Eric Holder — later Loretta Lynch — all black leaders were doing this. That’s how we came to learn that hands up don’t shoot was a lie in Ferguson.

Jay-Z’s position is, “Okay, we protested and we got the attention of the league. Now they want to do things to effectuate positive change. I think I can help that happen.” (And, by the way, he’s also going to make quite a bit of money, probably, to do so. Good for him, that’s how capitalism works).

Chad writes:

“The SEC Network is five years old. What grade would you give them through five years and where do you see the network going in a cord cutting era?”

I think you have to give the SEC Network an A+.

The network is now tossing off over $15 million a year in revenue to each school — which means every SEC school is making more off the SEC Network than Texas is making off the much ballyhooed Longhorn Network — and the programming has been a total success.

They launched the SEC Network at the absolute perfect time — just before cord-cutting became a massive threat — and had a flawless roll out of the channel, such that nine of the nation’s ten largest cable networks were carrying it by launch. That’s a more successful launch than any network ever. And I think it appears even more successful today as the Pac 12 Network continues to struggle with distribution and as I believe you will see the ACC Network struggle with distribution in a big way with its network which launches next week.

SEC commissioner Mike Slive initially (and Greg Sankey since) deserve a tremendous amount of credit for piloting a network that has featured someone like Paul Finebaum since the launch. His hiring sent a big message that the network wasn’t just going to be 100% positive all the time. The SEC, learning from how the Big Ten Network covered Joe Paterno, also hasn’t shied away from difficult stories involving its own teams. For instance, they covered Hugh Freeze’s press conference when things blew up in an embarrassing fashion for him at Ole Miss.

The SEC Network has also been a tremendous boon for the conference’s overall brand and it has vastly expanded the audience for sports beyond football and men’s basketball.

Now the challenges for the network going forward come from cord-cutting. How rapid will cord-cutting be and how much could that cut into future profits? We don’t know the answer there, but that’s the biggest challenge I see on the horizon.

It could end up being an incredibly tough headwind that causes revenue and profit to decline.

But the first five years?

They honestly couldn’t have gone any better.

Chris writes:

“I read a lot of your articles and you have a great business sense. I have my MBA and work in finance and had a question for you. I saw a few weeks ago that the Athletic writers tweet out how they have 500,000 subscribers and how great that is and how great the company is doing. Not sure if you checked but you can subscribe for a yearly rate for as little as $3 a month. (Not that great at all considering the expenses far exceed the revenue). I also noticed they don’t do much advertising other than on twitter (which is fine, saves money) but if you aren’t on twitter how would you even hear of the athletic? Do you think they will be profitable long term? I understand most businesses are in the red first few years but the hype def doesn’t seem warranted. Yes, they have tons of great writers and seem like they snatch up new ones daily as well as new markets, but just seems to me they are expanding way to quickly to ever turn a profit. What is the end game?”

I have no idea if they will be profitable long term, but they recently said their average revenue is around $60 a year for those 500,000 subscribers.

Rough math would get you to $30 million a year at those numbers.

They employ something like 400 people now so assuming those employees cost an average of $150k a year each when it comes to salary, benefits, travel, and whatnot, which is probably still too low, that gets you to $60 million a year in employee costs.

That, mind you, is just employee costs.

I’m sure they also have significant costs for the technology side of the business as well.

So my bet would be they are still losing tens of millions of dollars a year. The big question that remains there is, what’s the subscriber number where things turn profitable? They clearly have that modeled out, but what is it? I’d bet they need to get to three or four million subscribers to be profitable on a cash flow basis. (Right now they are forecasting a million subscribers by the end of the year).

As for where they go from here, I think they could be really attractive as an acquisition candidate if their subscriber growth rate continues. (When you take as much venture capital money as they have then your ultimate goal is probably to get a big payday via acquisition.) Who could buy them? I could see ESPN deciding their subscription base is a great asset for ESPN+ and I could also see a sports gambling company wanting to reach all their subscribers because of the gold rush coming in sports gambling and deciding to acquire them.

At this point the goal of the company isn’t to make a profit, it’s to get as many subscribers as possible to prove how big their revenue can become. The profit is secondary. Now the risk they run is that the venture capital money they are raising is fueling all their growth. So what happens if that venture capital spigot suddenly runs dry? Well, that’s why they need to add as many subscribers as they can.

Subscription businesses, especially when they are young, are way more about the subscription growth rate than they are the profit potential.

That’s the game “The Athletic” is playing now.

I hope they win, honestly, because I’d love the precedent to be set that there’s a big market and value for written content on the Internet.

Because while I’ve pivoted into more video and audio with Outkick because both of those niches are more profitable, I still love to write more than anything.

Okay, now I’m hopping in to some of your Twitter questions.

Josh asks:

“Is Rachel Bonnetta single?”

I get this question so damn often.

No, she has a boyfriend.

Plus, she doesn’t shower enough and she’s Canadian. So you can probably do better.

(Lock It In, by the way, returns on Monday. And if you think I put this question about Bonnetta into the mailbag just to advertise that our TV show comes back on Monday, well, you guys all know me too well.)

James:

“If you were setting the Vegas odds what are the chances we buy Greenland?”

A million to one might not be high enough.

While I love this story because it’s vintage “Veep,” which is also often vintage Trump, you can’t buy countries anymore.

You can buy uninhabited land, but you can’t just buy a nation filled with people without them agreeing to be part of your country.

Having said that, would people in Greenland like to be Americans?

I’d think so. It seems like everyone would like to be Americans.

My favorite thing about this story, and there are many favorite things, is would Greenland become a state or remain a territory? Do they get senators? Can you imagine if Greenland ended up deciding the presidential election one year?

Also, how in the world does the acquisition take place? Who is allowed to sign over Greenland to the United States?

This is just such a ridiculously funny vintage Trump story.

Victor writes:

“You haven’t commented much (at all) on the union news in the blog world. Thoughts on Ringer acknowledgment and Barstools combative nature towards it?”

I don’t think most Internet writers are helped very much, if at all, by unions.

I would imagine Bill Simmons felt blindsided by Ringer employees unionizing and I’d also imagine that Barstool wouldn’t want its employees to unionize either. If I employed a bunch of people at Outkick, I wouldn’t want them to unionize either.

My general position on unions, at least in the modern day, is that they spend the vast majority of the time protecting their worst employees.

Years and years ago I think unions made a great deal of sense because they set basic safety and work standards, but now I just don’t think they are anywhere near as useful.

Now I don’t know what The Ringer’s books look like, but I’d bet that written content doesn’t come close to paying for itself. That is, I bet the entire Ringer business is funded by a few very successful podcasts. (I believe Barstool would be the same way). It seems like the height of absurdity for writers, who don’t produce profits, to unionize to demand more than they are already receiving.

Without Bill Simmons creating a business, none of these people would be employed at the pay structure they enjoy now.

In other words, I think it’s probably likely that he’s overpaying them already based on the value of the content they produce.

But I doubt they understand that because most people don’t want to be owners, they want to be employees. And most employees, honestly, have no idea what their value is from a business perspective.

It’s why I always drive home the fact that you should think like an owner, not like an employee.

If you do that then you’ll succeed in a big way.

Larry writes:

“Is Megan Rapinoe just trying to capitalize on her 15 minutes of fame by continually complaining about equal pay? They get paid a higher percentage of total revenue than the men. Does she really not understand that or just trying to stay “famous?”

I think Megan Rapinoe is already trying to focus on her career beyond soccer. She’s 34 years old now. If she’s in the news for protesting and demanding equal pay — even if she and the American women are already paid more than the US men despite producing only a third of the US soccer revenue — then it maintains her profile and sets her up for a career after soccer.

I’m less troubled by Megan Rapinoe’s unwillingness to acknowledge basic economics, however, and more troubled by the number of American media who refuse to share the factual data — if anything the US women aren’t underpaid, they are overpaid. The US men are the ones who should be suing.

From my Outkick column last month:

“In particular, the US women received $34.1 million compared to the $26.4 million in pay received by the US men over the past decade. This mean’s women received 56.4% of all pay, compared to the men receiving 43.6% of the money. (This also doesn’t count all the employment benefits like health insurance, sick leave, and the ability to have 401ks that the women negotiated to receive that the men don’t receive at all. Both the men and women collectively bargained for their salaries.)

As if that weren’t enough the US men produced $185.7 million in total revenue over the past decade compared to the US women producing $101.3 million in total revenue. (While the women played a few more games, the men produced an average of $972k per game while the women produced an average of $425k per game.)

This means the men’s soccer team produced 64.7% of the revenue, compared to the women producing 35.3% of the revenue.

This also means the men produced nearly two-thirds of the revenue and received just 43.6% of the overall revenue.

It gets even wilder from here — the US women actually lost $27.5 million over the past decade on their games, while the men made money.”

The number of media members and media organizations who refuse to share basic facts if it contradicts with their victimization narrative is terrifying and unhealthy for our national discourse.

But, sadly, that doesn’t appear to be changing much.

Thanks for reading and hope you guys have fantastic weekends.

Remember, it’s the last weekend of the year without college football!

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