BSE Global, the parent company of the Brooklyn Nets and Barclays Center, has hired a new CEO, with Sportico breaking the news that former IMG president Sam Zussman will take over the position later this summer.
Zussman will be BSE’s third CEO since Joe Tsai took control of the team and venue in 2019. So, it’s reasonable to wonder where the Alibaba co-founder feels the organization has fallen short and why he thinks Zussman is the right person to help change that. A telephone conversation with Tsai on Wednesday afternoon revealed he believes the business is capable of generating significantly more “profitable revenue,” and that the Endeavor executive has shown he is capable of both maximizing existing income streams and creating new ones.
JWS’ Take: Back in February, outgoing BSE chief executive John Abbamondi announced he would be stepping down at the end of the Nets season. The news was unexpected, since the franchise had posted high water marks for attendance, ticket revenue and sponsorship sales during his two-year tenure. For contextual purposes, the Nets averaged $2.1 million a game in gate receipts this past season (up from $1 million a game in ’18-’19) and doubled sponsorship revenues over the last full pre-pandemic season. Last September, Brooklyn signed the largest jersey patch partnership in North American sports history (see: $30 million/year deal with WeBull).
But Tsai views BSE as a growth business and believes revenues should be accelerating at an even faster pace. Sportico pegged the Nets revenues at $343 million this past season, and Tsai would like to see his franchise “get to $500 million over the next two or three years.” If it can achieve that lofty goal, “we can feel confident that we can get to a billion over let’s say a seven-year period,” he said. As a “baseline,” NBA teams that own an arena in a major market generate $250-$300 million.
The organization certainly faces hurdles in attempting to add $150 million in revenue over the next two to three seasons. For starters, the team’s broadcast contract with YES runs for several more years. So, there is no imminent media-rights boost coming. And the club finished ’21-’22 third in the league in sponsorship and fourth in ticket sales revenue (behind only the Warriors, Knicks and Lakers). There doesn’t appear to be much low-hanging fruit left.
But Tsai doesn’t see it that way. He says “a lot of potential” remains on the sponsorship front and that the organization needs to be more targeted in its sales approach. “We live in a world where there [is] a lot of disruption in the technology space, for example, or in E-commerce, music and streaming, where there are actually upstart players that want to be disruptive and maybe would have advertising or sponsorship budgets.”
It is hard to imagine Abbamondi failed to recognize the opportunity Tsai speaks of. But as an executive with a background in ticketing, suites and hospitality, managing and developing relationships with the 100 individuals who generate 80% of team revenues (think: top sponsors, suite holders, courtside seat holders) was likely the priority for him.
Maximizing sponsorship revenue is not just about selling, though. It is also about value creation and developing solutions that suit a partner’s specific needs. Tsai said Zussman is “fluent in sponsorship and media rights negotiations.”
The new CEO is also expected to bring a “scientific understanding of yield management and dynamic [ticket] pricing,” which in theory should help the club increase sell-through and ticketing revenue. But the Nets finished the ’21-’22 season with reported attendance at 98% of Barclays Center capacity, so there isn’t much room to grow ticket sales volume. And while increasing ticket prices is always an option, doing so again may alienate fans.
BSE could retrofit Barclays Center in an effort to generate more premium seat inventory, though that would require additional capital investment.
Tsai made the case that even a nominal increase in ticketing and sponsorship dollars would make a difference to the organization. “We are in a business where there is a lot of operating leverage. So if you pick up revenue by 10%, a lot of that additional money could just fall directly to the bottom line.”
The Nets P&L reflected more than $100 million in losses this past season, but the losses were to be expected; the team had one of the highest payrolls in the league and the second largest luxury-tax bill in NBA history (~$100 million).
Interestingly, the Nets actually lost less money than they had planned for because the franchise did not have to pay star guard Kyrie Irving for the home games he sat out because of NYC’s vaccine mandate.
Tsai does not believe it is possible to “cut costs in a growing kind of business.” So Zussman will have to generate nine figures of new revenue to fix the P&L. Tsai said the Endeavor executive’s track record of having turned IMG Academy—the company’s elite youth sports development center—into “a profitable business model” helped to convince the Nets owner Zussman was the right person for the job.
Zussman’s experience creating and running events around the globe was also a factor in the decision, as developing self-owned and operated properties is part of BSE’s strategy. But don’t expect the organization to become an active acquirer. Tsai made it clear the company would be “disciplined” in its approach and that are no plans to create a blank-check fund. He believes that kind of endeavor “actually encourages a lack of discipline.”
Of course, O&O is a long-term play requiring capital investment and patience. It is not going to affect the short-term P&L.
One industry insider familiar with Zussman said the hire makes sense if Tsai is intent on building out the broader enterprise. “He is really good at figuring out how to innovate businesses. He has built things from the ground up, expanded on them and figured out new business lines.”
But the insider said Zussman is likely going to need a “really great COO” to be successful, because innovating and bringing in new, diverse business lines will be difficult if he is simultaneously responsible for the day-to-day operations of the Nets and Barclays Center.