_ Did the Jazz and small market teams get any “wins” in the deal?

  Yes.  The new deal includes an increasingly painful luxury tax for teams that habitually stray into taxpayer territory, which should keep the Lakers and Celtics of the world from going significantly over the luxury tax line (as the Lakers, Dallas, Celtics, Bulls and several others do nearly every season).   This should – at some point in the future – begin to level the salary playing field between the big-market, high revenue teams and the smaller market teams.  However, the new luxury tax doesn’t begin to kick in until the 2013-14 season, so until then, it’s business as usual. It will be five years before the real effects of the new, steeper taxes manifest themselves.

An immediate win the Jazz have available to them is the new “amnesty” clause, which allows each team to waive one player prior to any season and have 100% of that players salary removed from their team salary for Cap and Tax purposes.  This new clause will allow teams to dump players that they signed to big contracts and then had buyer’s remorse – as would have been the case with Andrei Kirilenko and his $17 million dollar annual contract the past couple of seasons.   The team still has to pay anyone they dump (unless he’s picked up by another team, in which case they have to pay a portion of the contract instead of all of it).  On the Jazz radar for using the amnesty clause this season is Mehmut Okur and his $11 million salary.  If somebody shows up to camp way-out-of-shape, they also could be on the radar. 

  Will the new deal allow small market teams to compete for the NBA championship more effectively?

No.  The big market teams will continue to be the only ones you’ll see hoisting trophies at the end of the year.  The new deal does nothing to address the “Miami Effect”, with players leveraging their way to the big markets to play with their All-Star buddies.    Before this year is out, you will see Dwight Howard, Kobe Bryant, and Pau Gasol as the “big three” in LA; Amare Stoudamire, Carmelo Anthony and Chris Paul headlining the Knicks; Derrick Rose, Carlos Boozer and Tim Duncan on the Bulls; Dirk Nowitzki, Deron Williams, and Brook Lopez headlining the Mavericks; and of course, LeBron, D-Wade and Bosh in Miami.  Nothing has changed.  The have’s will continue to have.  The smaller market teams will continue to be have-not’s and be in continual rebuilding mode.

Will the Jazz have an easier time signing big-name free agents under the new deal?

  No.  Utah is not a destination where players want to come and form their “big-three’s”.   Once players get to Utah they like it, but it is not a preferred destination, and any free agent player that’s top-tier has multiple options from which to choose.  Major markets, with big opportunities for incremental cash from personal sponsorships and endorsements -- along with nice weather and beaches -- win every time.

Will the Jazz be able to make a profit under the new deal?

Only if they keep their player salaries at or near the salary cap – in the $50 - $55 million dollar range.  As it stands today, the 2011-12 roster is at about $59 million, and they have to sign at least two more players.   

 Will the new CBA keep owners from handing out outrageous contracts?

No.  In fact, they can give out MORE outrageous deals.  The maximum that any single player can make under the old CBA was 25% of the salary cap.  Under the new deal, a max contract can be up to 30% of the cap. 

  The free agent signing period starts next Wednesday, and it will be interesting to see the feeding frenzy.   The New Orleans Hornets only have five players under contract.  Most teams need to add two-to-four players.  It will be a crazy week next week!

Eric D. Schulz is the Co-Director of Strategic Marketing and Brand Management at the Jon M Huntsman School of Business at Utah State University. Prior to joining the University, he spent five years as Vice-President of Marketing for the Utah Jazz (NBA); he previously was VP of Marketing with the XFL Football League, and served as a General Manager in minor league baseball. He can be reached at eric.schulz@usu.edu.

Memo to:  All NBA Players (Past & Present)

From:  Eric Schulz

Subject:  Game Plan for Starting Your OWN League

Congratulations on turning down the latest proposal from the owners.  Bold move.  Now, here’s something to think about.  How about thumbing your nose at the NBA and its owners, and start up your own league – the UBL (Unified Basketball League)?

When the NBA was formed decades ago, it needed rich people to make it work.  But it doesn’t anymore.  YOU are all rich people.  Screw them.  They locked YOU out.  You don’t need “owners” anyway.  It feels so aristocratic.  You aren’t slaves.  They want a nuclear option?  Well here it is.  Blow up their entire system and put them all out of business.  You want to strike fear in their eyes – this is it.  Starting a players-owned league isn’t that hard, and in fact, you can do it much cheaper and streamlined than they can.  And if YOU own the league, YOU keep ALL the revenues, not just half.  So, here’s your game plan.

1)   Form A League Where All Teams Are 100% League Owned.   This gets rid of “the man” (David Stern, league lawyers, and all the “owners) and you are in complete control.  Make your own TV / media deals.  Sell your own sponsorships.  Sell your own tickets. Instead of having 30 different teams operated by 30 different groups all doing 30 different things, you’ll have ONE centralized system for everything managed at the league level.  Each city would need a small staff, but nowhere near the size they are now.  And the economies of scale you’d have from one ticketing system, one licensing / sponsorship group, one building leasing group, and one media division would slice out a lot of the costs of doing business that currently exist, and give you great negotiating leverage.

2)   Pay Each Of Yourselves A Base Salary + Incentives + Cash Shares That Are Divvied Up At The End Of Each Season.  There would be three pay components for every player:

a.      Set up your league so that everyone on every team makes the same amount of base salary during the regular season. 

b.     But here’s the twist --everyone on each team earns a $50,000 bonus for each regular season victory, and a $250,000 bonus for each post-season victory.  So, you get paid to play, but you get paid more to win! 

c.      At the end of the season, you divide the remaining league revenues amongst yourselves, based on a statistical model with the players who performed the best and put butts in the seats (Kobe, Dirk, Kevin, Dwight, LeBron, et al) getting more. 

So how would this play out?  Assume every player in the league is paid a base salary of $2 million.   A team that wins 50 regular season games (earning an additional $50,000 per win) would earn bonuses of another $2.5 million each. 

Then, for every playoff win, each player on winning teams makes a $250,000 bonus.  With 16 post-season victories needed to win the championship, that’s another $4 million for each player on the championship team.  Add it all up, and every player on the championship team would earn a total of $8.5 million as their salary, plus a share of the remaining league revenue splits at the end of the season based on the statistical model.  Oh, and by the way, with this system, you can all stop paying your agents 3-5% of your salaries.  No agents needed!

3)  Level The Playing Field Every Season For Every Team.   We all know that none of you like living in places like Utah or Minnesota during the winter.  Miami and LA are the places to be.  We get that.  So here’s another twist.  Let’s make our league work like fantasy sports.  Every year, we redraft new teams, done by random draw (to keep teams from trying to tank it at the end of the season).  So, the NBA Draft becomes a draft of EVERY PLAYER, not just rookies.  Twelve rounds.  Pick your your 12 players for this season. So, if the first ping-pong ball goes to Memphis – you want LeBron, OK he’s yours.  Second pick to Dallas – you want Kevin Durant, he’s yours.  Third pick to Phoenix – Kobe it is.  And so on.  This would eliminate the current systems problem of having all the top talent purchased by over-cap spending large-market teams, and spread the best players all over the league, making it more competitive, and giving every team the chance to compete for a championship every year.    It also gives every team a chance to have LeBron, or Dirk, or Kobe, Kevin, Dwight, D-Wade, D-Will and others play in their city for at least one season of their career.  What would this do to league licensing revenues?  Think about it.  Now I need to buy a new jersey for my team’s favorite player EVERY year, at $125 retail!  And for you players, if you are drafted by Minnesota or Utah, it’s not a death sentence – you’re only stuck there for one season, then can get redrafted by somebody else! 

That’s it – a pretty simple operating model that would raise the boat for all of you and stick it to the man.  So let me know when you want me to get going on this for you.  We should be able to have the UBL up and running by next season.  I’ll be your first league commissioner – and we’ll put headquarters here in Logan, Utah to keep down costs!

Eric D. Schulz is the Co-Director of Strategic Marketing and Brand Management at the Jon M Huntsman School of Business at Utah State University. Prior to joining the University, he spent five years as Vice-President of Marketing for the Utah Jazz (NBA); he previously was VP of Marketing with the XFL Football League, and served as a General Manager in minor league baseball. He can be reached at eric.schulz@usu.edu.

 A brand is a living, breathing thing – built over time.  Brands, like people, have good days and bad days.  Unfortunately, as the stunning revelations coming out of Penn State this week demonstrate, the power of a brand that took years and even decades to build can be destroyed in a matter of days.

Penn State and Joe Paterno are the definition of big-time college football.  The image of Paterno – a football professor with a tie, thick glasses and Nike coaching shoes - has stalked the sidelines in Happy Valley since 1950.  The success of the football program has driven the reputation of the university for decades.   The Nittany Lions won national championships in 1982 and 1986. 

Just how powerful is Joe Paterno?  In 2004 the university president demanded his resignation.  Paterno ignored him and kept on coaching.  He and his wife Sue have donated over $4 million to the university.  The school library bears his name, as does an ice cream flavor at the campus creamery.

In the past three days the reputation and brand of both the school and Paterno have been destroyed as quickly and completely as New York’s Twin Towers.   In case you haven’t followed the news, a former defensive coordinator under Paterno, Jerry Sandusky, has been accused of sexually assaulting young boys over a 15-year period.  In 2002, a graduate assistant witnessed a sexual assault by Sandusky on a 10-year old boy inside the football locker room showers and reported it to Paterno.  Paterno in turn told his superior, school athletic director Tim Curley, who took it to the school’s senior vice president for finance and business, Gary Schultz (no relation to me, thank heaven). 

All three decided that protecting the power and prestige of the brands of Penn State and Joe Paterno were more important than doing the right thing.  They swept the information under the table and never reported it to police.   Curley and Schultz have been charged with perjury and failure to report to authorities what they knew in a Grand Jury investigation, but Paterno has not been charged (yet).

Regardless, the brand reputations of Penn State and Joe Paterno have lost their luster.  The school will need to do some serious damage control.  Their plight is similar to that which the Miss America pageant faced back in 1984 when nude photos – pics that had been taken back in 1982 -- surfaced of then Miss America Vanessa Williams (yes, THAT Vanessa Williams – the singer and actress, most recently seen on “Ugly Betty”.)  The pageant had brushed with scandal before, and responded in 1985 by crowning the most squeaky – clean contestant they could find, Utah’s Sharlene Hawkes. 

Penn State will need to sweep out their entire athletic department leadership, as well as their football coaching staff, and start over with a coach and new athletic director above reproach, never tainted or even hinted at by scandal or NCAA violation.   If they do – and if the football team excels – they will be able to regain their luster quickly.  Winning fixes everything in sports (unfortunately sometimes – as in Kobe Bryant / Ben Rothlesberger  / Michael Vick cases).  For Joe Pa however, there will be no redemption.  The man who spent over 60 years building his reputation will need to slink off into retirement and stay away from Penn State forever.  It's a shame, but when he walks away from his resignation press conference, that will be the last we will ever see of the winningest coach in football history. 

The moral of this story is something all brands should take note of.  No matter how big or powerful a brand you have stewardship over, morality trumps all.  Do not try to “protect the brand” by actively doing, or ignoring, immoral acts.  Don’t hide negative test results from the FDA or other government agencies in place to protect the public.  Don’t – as auto companies are famous for doing – have “statistical” acceptability of product failures.  A death due to your product is not acceptable under any circumstance. 

When I was at Coke, I was standing alongside the Chief Marketing Officer, Sergio Zyman one day, when an international Coke brand manager approached him and started explaining the idea she had for a Coke brand consumer promotion in her country.  His reply was the height of brand arrogance.  He said “Let me ask you this.  Do you think you have within your power the ability to destroy brand Coca-Cola?” “Of course not”, she replies.  “Then do whatever you want”, he said. 

Unfortunately, as was the case at Penn State, too many leaders think that way.

 - Eric D. Schulz

Following last week's blog on the NBA Lockout, several folks emailed me asking what is the best-case and worst-case scenario as far as the Utah Jazz are concerned with the new CBA in terms of luxury tax, salary cap, etc.?

The best case for the Jazz will be three-fold:

1) A hard salary cap, which will force the "have's" (the big market teams like the Lakers, Knicks, Bulls, Heat, Mavericks) to compete on a level playing field with the have-nots.  The big-market teams have such a financial advantage that they ignore the salary cap / luxury tax and consider them a cost of doing business.  For example, the Lakers last season paid total salaries of $110.4 million, including $20 million in luxury taxes.  If you look at the teams with the highest payrolls, they consistently are the teams in the Conference Finals / NBA Finals.

The National Hockey League (NHL) has a hard salary cap, and it appears to have restored competitive balance.  Since their lockout season in 2005-06, of the twelve Stanley Cup Finalists, 10 different teams have appeared.  In the same period in the NBA, the Western Conference champions have been only San Antonio (05-06), Dallas (07-11), and the Lakers (08-09-10).  In the East, Miami (07-11), Boston (09), Orlando (10), Cleveland (06), and Detroit (05).

2) Increased Revenue Sharing:  The NBA has two revenue sharing mechanisms currently.  First, all the monies collected from Luxury Taxes are distributed equally among those teams that do not go over the luxury tax limit.  There is also a pool of money that small-market teams can earn based on a complicated formula that uses "performance & effort" criteria based on the teams sales and marketing efforts.  If the team is deemed to have done all they can do in these areas based on their market size, they receive a portion of the pool -- but its a relatively small amount, one to two million dollars per team on average. And only a handful of small teams get these dollars every year.

The small market teams like the Jazz want to move to an NFL revenue sharing model, where teams get to keep their "premium" seating revenues (luxury boxes, Hollywood "Courtside" seats) and local sponsorship dollars, but the rest of the ticket revenues are pooled together as a league and shared equally. Small market teams also want local TV / Radio rights monies included in the shared pool of as well, since there is such a wide disparity among the values of those in cities like Los Angeles vs. Salt Lake City.

3)  Franchise Player Designations:  The NBA is on a slippery slope, with players now colluding to form their own All-Star teams.  Boston started the trend with the trade for Kevin Garnett, followed by the Lakers acquisition of Pau Gasol.  2010 was the tipping point, when LeBron James, Chris Bosh and DeWayne Wade decided to join forces in Miami, and Carmelo Anthony forced a trade to the Knicks to join Amare Stoudamire, and together they are lobbying hard to get Chris Paul to the Knicks. 

The NFL has Franchise Players, and it has worked well in keeping "stars" put.  Had Cleveland been able to designate LeBron as their franchise player, Denver designated Anthony, and Utah designated Deron Williams, most of what has happened this past season in terms of "star" movement would not have.  But under the current system, the good ol' days of Karl and John playing for a Utah team their entire career is never going to happen again.  The Jazz will be able to do what they did with Deron - re-sign him to his first max contract, then be forced to trade him or watch him walk in year 6 or 7 (just when he is reaching All-Star status).  Small market teams will constantly be in rebuilding mode, unable to compete.

So what is the worst-case scenario for the Jazz?

No salary cap.  In other words, keeping some form or variation of the Luxury Tax, and not reducing the BRI down to at least 50%.  The big market teams have such a huge advantage financially, its akin to Zions Bank trying to compete with Citibank.  As long as the big market teams can "buy" their advantage and have owners like Jerry Buss, Mark Cuban, and other rich fools, the Utah's of the world will never be able to compete.  Sure, they may have a one-year blip like the Jazz run to the Western Conference Finals in 2008, but nothing sustainable.   Money always wins in the NBA.

The other thing that needs to get fixed are the outlandish salaries paid to mid-level players…guys who fill up the roster, but aren't putting butts in seats.  Guys like Al Jefferson ($14 million), Mehmut Okur ($12 million), Andrei Kirilenko ($17 million), and Paul Millsap ($8 million). Sure, these guys are good, but people don't say "Gee, lets go drop a hundred bucks to see Andrei Kirilenko tonight",  they DO say that however for guys like Kobe, Kevin Durant, LeBron, and Dirk. 

To fix it right, a hard salary cap, where the total team salary can't exceed X no matter what, would by default drag down these mid-range guys salaries.  Teams would end up doing what Miami did last year - pay the three "stars" good money, and everybody else makes minimum wage.  That's how it should work – and THAT would restore competitive balance to a league of have's and have nots.