Last week we asked that the ATP acknowledge, accept, and respect the PTPA and to delay the vote on its 30-year (now 31-year) plan (the “Plan”).
We are very happy to report that the vote, for the time being, is delayed. Also, as you know, the ATP has responded to the detailed list of questions about the Plan with mostly thoughtful and helpful comments but with some remaining areas of concern.
You have likely read the letter the ATP sent to players on June 29, 2021 (the “Letter”) where the ATP made a number of statements about the 30-year plan and addressed a number of the questions posed by the PTPA.
The Letter notes external consulting groups have endorsed the Plan, but this is based on its ability to generate more revenue for tournaments.
The PTPA looks forward to working with the ATP on this initiative, however, our challenge will be creating a plan that will be fair to players and tournaments. There is nothing in the Plan to suggest that the consulting groups endorsed or even reviewed the Plan from the perspective of a fair deal to the players.
The same can be said for private equity groups. While it may signify the Plan looks to deliver growth, that does not mean the plan is fair for the players (might be the opposite).
In the Letter, the ATP uses terms such as “profit”, “growth of the businesses” and “revenue” almost interchangeably; however, these terms are different, and will have a significant effect on whether or not this is a fair deal for the players.
Below, the PTPA has provided its reaction to the ATP’s responses to our initial questions about the Plan. Generally, we view the ATP’s responses in one of four categories: 1. Helpful and clarifying; 2. Helpful but need more input; 3. Unsatisfactory; and 4. Outstanding questions yet to be answered.
HELPFUL AND CLARIFYING
How do the players continue to benefit from data exploitation in this new plan?
With respect to this question, we want to clarify that we are referring to data as ‘match data’. As a general rule there are no intellectual property rights afforded to match data as it merely denotes or records a fact.
In the EU, the sui generis database rights regulation provides an exclusive right that protects databases against the unauthorised extraction and re-use of their content. Such database rights are retained by the entity that collects and compiles the database and invests in the cost and technology required to build a structured database. This right can then be licensed and delivered via a feed to external companies.
Importantly, this right can be protected and enforced only by the database owner. The market has shown that the value of data comes through it being leveraged, aggregated, and marketed collectively – there is no significant value to be generated in marketing data individually (and it cannot be protected individually).
The ATP’s entire data collection process and the rules that were put in place around it were designed to ensure that ATP was able to exploit these rights to their fullest extent on behalf of both the tournament and player members for their benefit.
Under the Strategic Plan, Tennis Data Innovations has been set up as a new entity dedicated to maximising data exploitation, as well as streaming, so that ATP, players & tournaments, can maximise our opportunity in this rapidly evolving area.
The establishment of TDI in 2021 has already delivered a 38% increase in gross sales of data and streaming revenues YTD compared to 2019 – these increases will be felt directly by the ATP player and tournament members in equal measure. All singles and doubles players that are eligible for the ATP pension receive these payments equally. In parallel, the new ATP leadership has secured additional savings for members by securing a 40% reduction in commission with our existing sales agent, via a new three-year deal, as opposed to the ten-year deal that was previously on the table.
In summary, while TDI is a new entity, there are no changes being proposed that impact the distribution of data revenues to players. Revenues from Level 1, 2 and 3 data (i.e., ‘match data’) will continue to be split equally between players and tournaments.
Of course, there are other forms of data, such as biometric data, which is a separate matter. Player biometric data is entirely out of scope and not being contemplated within current plans around the exploitation of data under Tennis Data Innovations.
We thank the ATP for this clarification. Subject to getting a full definition of “match data” it appears this answer has provided certainty to the players that other aspects of their rights of publicity are not being considered for exploitation.
What are the general plans proposed through Tennis Data Innovations?
The investment in TDI is made for the medium and long-term and the products developed will be applicable across the entire Tour. The goal is that all members will benefit from the value generated. The benefits of this are being seen already in year 1, with a 38% increase in gross sales of data and streaming YTD compared to 2019.
Level 1 data (live scores, collected via umpire scoring) will continue to be a major focus for TDI in parallel with level 2 and 3 (performance data, collected by data loggers or data tracking service providers). The focus across the board will be on product development and innovation, pricing strategy, data collection and delivery, technological enhancements and more.
The team of experts within TDI will focus on the different areas that have the greatest potential for growth.
We need a fully dedicated team in this space in order to make the right decisions to maximise our value.
Again, we thank the ATP for this clarification. It is helpful for the players to better understand how TDI will operate and what rights of publicity they seek to obtain from the players.
Why is a vote required so soon if the Plan doesn’t come into effect until 2023?
Firstly, as referenced in the timeline, there has been 18 months of communication and opportunities for consultation on the Strategic Plan since the beginning of 2020.
In order for the Plan to come into effect in 2023, all four pillars need to be approved by the end of this year in order to give tournaments a full year ahead of 2023 to accommodate the changes required across Prize Money/50-50 Profit Sharing, Category Terms, Calendar, and Rights Aggregation. We are in a strong position on 2.5 of the pillars, yet there remains a lot of work to be done this year in order for us to be in a position to move forward on all four. There is a huge opportunity out there for our sport, yet every year that we lose is a year that we fall behind.
We appreciate that the ATP has confirmed that a vote on the Plan does not need to happen until the end of 2021. This provides enough time, if the parties are committed to engaging in dialogue, to work out a fair deal for all parties. The PTPA looks forward to these conversations.
What is the status of outside investors or equity groups getting involved in the sport?
The aggregation and centralisation of commercial rights in tennis has been an integral part of the ATP Strategic Plan to maximise growth and provide enhanced services to our worldwide fanbase.
The interest from outside groups, such as the recently publicized CVC proposal, validates the strategy we put forward in 2020 to our members. CVC is one of the leading and most credible investors in sports, with investment spanning the likes of Formula 1, Moto GP, Rugby and Football, for more than 20 years. Discussions with CVC are very much at exploratory stages and there is no commitment to proceed with CVC (or any third party) involvement at this stage. The Strategic Plan has attracted interest from many other potential investors, which only goes to support our belief that the Plan will deliver exponential growth for our sport and for our members – there would be no other reason for the interest from third parties.
We appreciate the response that all discussions are in the exploratory stage, and welcome further discussion with the ATP if/when these discussions go beyond exploratory to ensure that these investments will not hinder a fair deal to the players. Players do still have a concern that outside investors will only be interested in maximizing their ROI (return on investment) and therefore may push to limit expenses, which would include the players’ share of revenue.
HELPFUL BUT MORE INPUT IS REQUIRED
Why doesn’t ATP centrally own the media rights? And how do players share in the increased value to ATP Media?
Ownership of media rights in tennis is retained by tournaments. With that comes the significant financial liability for tournaments to deliver prize money, hospitality and all operational aspects of event delivery. This includes the risk of taking losses. Conversely, players have retained the ability to commercialise their personal brands through their own respective sponsorship deals and are assured of their prize money even if the tournaments make a loss. We must move forward on this basis.
In terms of ATP Media, its shareholders receive a license fee from their rights which form part of each tournament’s P&L. Beyond contributing to funding Base Prize Money, revenues from media rights will flow back to players in the form of 50-50 Profit Sharing, meaning players will benefit considerably if there is growth in the value of media rights at the Masters 1000s.
In summary, the Tour’s new commitment to auditing, transparency, and 50-50 Profit Sharing will ensure that the players have full sight of the revenues generated through media (as part of full P&L reporting), and that any upside flows back to players though 50-50 profit sharing. The move towards transparency, auditing and profit sharing, renders the ‘ownership’ of the media rights a technicality.
The players are not asking to retain broadcast rights in the tournaments. The ATP has said on a few occasions that the increase in value to ATP Media will be shared with the players. The players do not understand how players retaining their rights for sponsorship deals (as all other athletes do) has anything to do with this answer in any way.
However, we appreciate the ATP’s clarification but still want to confirm whether the license fee referenced is the entire portion of a tournament’s broadcast rights and furthermore, what portion of 500 and 250 media rights, that are or will become part of ATP Media, will flow to the tournaments P&L.
What happens to the Plan if the ATP cannot aggregate rights with the Grand Slams, WTA & ITF?
Phase 2 does require a full collaboration with the other governing bodies of tennis and, as such, it is not fully in our own hands.
However, that does not change the merits of executing Phase 1 by any means. The execution of Phase 1, on its own, will be a major step forward for the ATP Tour. By design, the elements of Phase 1 are fully under ATP’s jurisdiction and if we can get an agreement on Phase 1 this year, it will constitute a huge step forward for our business.
Beyond super-aggregation, Phase 2 also aims to create an enhanced collaboration with the WTA, Grand Slams and ITF via a more unified governance, providing a stronger voice for players with all parties. The new T-7 governing body working group, set up this year, is the vehicle through which these discussions are being advanced.
We thank the ATP for clarifying that Phase 1 is in its control, but Phase 2 is not. This is helpful. However, while we appreciate that Phase 2 is not fully within the control of the ATP, the PTPA still would like to know what happens to the Plan if the ATP cannot aggregate these rights with the other parties.
Furthermore, the PTPA would like to know why the players do not have independent representation with this new T-7 working group, given the value players bring to the tennis industry.
The Strategic Plan appears to focus on strengthening the top levels of the sport. But what about the lower-tier events, and lower-ranked players?
Firstly, it’s important to take a step back and assess where our sport stands and the amount of prize money our current structure is delivering to players. In 2019, our sport generated US $ 270m in total men’s prize money. The distribution of that prize money can be assessed in a number of ways. There are views as to whether the overall prize money could be spread more evenly among a larger player group, or whether those who bring the most market value to the sport and the top events should be better compensated. That is a separate question.
In order to make a meaningful difference to the sport, we first need to focus on how we grow the pie. Only then can questions related to distribution, subsidies, and how many players should be making a living from the sport be addressed.
So how do we grow the pie, to be in a better position to support all levels of tennis? The Strategic Plan provides a comprehensive roadmap of how we achieve that as we look to maximise our sport’s value across media and data, as well as growing our audiences through innovative content production and technology, by putting the fans front and centre of everything we do.
From a calendar standpoint, we must take the same approach and understand what it is that our fans want: to see the top players competing against each other at the world’s biggest events, more often. Any growth and incremental value to be generated in the sport must start at the top of the game – that is why the Strategic Plan focuses on enhancing the premium product.
And while the plan looks to generate increased revenues by leveraging the ‘top of the pyramid’, we recognise that we also need a thriving foundation for the health of the overall game, meaning Challenger, ITF World Tennis Tour, Junior and grassroots level. The key initiatives outlined in the Strategic Plan provide a roadmap for how we can grow the pie. As soon as we achieve that, we will be in a stronger position to distribute more resources down the pyramid into the lower tiers of professional tennis.
The answer here seems to be a similar refrain from the ATP. Let’s grow the pie, once the pie is grown then we can talk about a fair deal. As Mr. Gaudenzi said in an interview with the New York Times “We want to grow the pie. When you grow the pie, you can redistribute the money in a more equitable and fair way.”
The question at the core of the PTPA still remains: why do players need to wait for the pie to grow to create a system that is equitable and fair to the players? Why can’t we have a system that is equitable and fair now, and one that is equitable and fair as the pie grows?
Second, the ATP again seems to be saying ‘trust us’ once the pie grows we will be in a better position to “distribute more resources down the pyramid”. Why can’t the plan state how that will be done and when that will be done so all interested parties understand how everyone will benefit tomorrow since the ATP is asking everyone to buy into the plan today.
Why is long-term category protection needed for tournaments?
Long-term category protection (31 years) relates to the Masters 1000 events. This provides long-term stability and security to our top-tier premium product which in turn incentivises and facilitates investment in enhanced facilities and standards. The level of investment required of the Masters 1000s across this period is significant and requires some long-term security over their assets.
The 31-year term aligns with the existing agreement of Indian Wells – an example that has resulted in significant investment, state-of-the-art facilities, and one of the leading events on the Tour.
To clarify, Masters 1000 tournaments, aside from Indian Wells, do not benefit from Category Protection today. However, it does require a supermajority vote at the Board to recategorise a tournament – meaning two tournament votes, in addition to two player votes. The reality is this has only happened once at ATP’s top tier category since the year of 2000.
Moving forward, Category Protection will come at an annual financial cost to the Masters 1000 tournaments which contribute to funding an increased Bonus Pool for players. Category Protection also requires a commitment to tournament financial auditing, meaning players will benefit from a full transparency throughout this period.
Category Protection only means that a Masters 1000 will retain its categorisation as long as it complies with its financial obligations and with new standards required by ATP. Within the 31 years, certain checkpoints (TBD) on calendar/format, number of days/weeks will be implemented which will ensure accountability and the potential for changes should they be required. Tournament sales or relocations will also continue to be assessed by the ATP Board on a case-by-case basis. Finally, the proposed cap of 10 Masters 1000 and 16 ATP 500s leaves additional room for movement in the calendar.
A lot can change in 31 years. What happens if a new market emerges that would better serve the sport by having a Masters 1000 event in that location? If the current tournaments are meeting their checkpoints (checkpoints which the players are still anxiously waiting to review) would seem the ATP has locked itself into a schedule for 31 years that it could not adjust to these new market realities.
Shouldn’t the featured Masters 1000s be held to account for and meet a maximum set of standards each year, compared to the market, as opposed to a minimum set of standards that they can check off to maintain their business? If a player does not meet a standard compared to others, the market dictates that player does not get into a tournament; why should the same not hold true for a tournament? Would a tournament guarantee a spot for a player for 30 years? Why can’t the tournaments be held to the same standards as the players and let market forces and competition decide.
As mentioned above, understanding the specific checkpoints, and what could trigger a termination of a license or reclassification of a tournament is critical to the players to more fully assess this answer.
History has shown that 30-year licensees in business do not work. As an example, in North America, Sears and Kmart had 30-year plus leases, and over time that became the major component of value of their companies, and look at what happened to their businesses in the meantime. Think about all of the anchor space that is still leased to these bankrupt tenants. Do we want the Sears and Kmarts of the tournament world controlling the future of tennis? We respectfully ask again, why would the ATP grant a 30-year license to anyone?
Do players share in the increased value to the tournaments?
Under the Strategic Plan, Masters 1000s and 500s are required to pay incremental annual fees in order to receive Category Protection and expanded events, where applicable, as well as increased Base Prize Money. All this additional investment goes back to the players.
In terms of the value of a tournament license, if a tournament owner sells its license, the ATP typically receives a transfer fee. Due to ATP’s 50-50 partnership structure, any surplus at the end of the year is split evenly between players and tournaments through either membership dues/rebates or via the pension. Transfer fees can contribute to these payments, therefore meaning players can indirectly benefit from the value of a tournament and a tournament transfer.
It is also important to note that the tournaments assume the risk of their enterprise in full – with players guaranteed 100% of prize money no matter how financially successful the event is. And while the tournaments assume the full risk of running their events, players do not share any % of their personal endorsement revenues.
With all due respect this seems like a distraction from the actual issue. Tournaments receive a 31-year license and more days for their tournaments, two factors that will increase overnight the value of their tournament licenses significantly. Furthermore, the Plan allows tournaments to invest in infrastructure (further adding value to their asset) and have the players pay for that through the proposed profit share.
While the ATP likes to speak about the risks the tournaments take (which conveniently ignores that the Plan states that if a tournament operates at a loss the ATP may enact a mechanism to readjust this prize money down (which seems to mean the opposite of what the ATP is saying, in that there is actually little to no risk to the tournaments and more risk to the players)) it ignores both the fact that players take on risk literally every time they step on the court. Nobody is saying tournaments don’t work hard, but the value creation from the players to these tournaments is not assessed properly, if at all.
The ATP states in the Letter that “the tournaments assume the risk of their enterprise in full – with players guaranteed 100% of prize money no matter how financially successful the event is.” The Letter further states that the tournaments “assume the full risk of running their events”. The tournaments like to talk about assuming all of the risks, but when a risk event happens (eg. the global pandemic) the tournaments were quick to push that risk across to the players to share in. The tournaments did not “assume the risk of their enterprise in full.”
Why is the profit share being done on an aggregate and not individual tournament basis, and why is the formula based off net revenues as opposed to gross revenues?
We are taking an aggregate across the whole Category. This is the fairest way for the profit share to operate, minimising the impact of any outliers (high profits or high losses) from the equation, and assessing the performance of the category as a whole. We believe that taking an aggregate provides a fair and accurate picture of the state of the business, a position that can ultimately also protect the players.
In terms of the formula, we have explored and modelled different options. All the formulas we have explored and modelled used the P&L of the tournaments as a base, including how much they make in profit and how much they pay in overall player compensation.
With the above in mind, we have chosen a bottom-line formula in order to deliver:
- complete alignment of the interests of tournament and players
- complete transparency
- long-term sustainability
With due respect, we do not see how aggregating revenues can protect the players. The PTPA questions how aggregating revenue would be the best way to show complete transparency?
Imagine you have 4 tournaments who earn the following in profits: $20M; $12M ($4M); and ($8M). As shown by the chart below, if you aggregate the tournaments’ profits, the players’ share of the profit is $10M. If you do not aggregate the tournaments’ profits and go tournament by tournament, the players’ share of the profit is $16M.
The Plan proposes aggregating all tournaments each year before sharing profits with the players. Why do players need to pay for poorly run tournaments? Why would those poorly run tournaments be guaranteed a 31-year license to operate? Also, if players only are given one aggregated number at the end of the year, how is that transparent? Lastly, while poorly run tournaments drive down the value of the proposed profit share to the players, it is highly likely that those tournament owners that operate their tournaments at a loss will be able to recognize tax benefits (one way or the other) for such operating losses. Again, the players ask, how is that fair?
|1||2||3||4||Aggregate Profit||Profit Split To Players|
|$ 20,000,000||$ 12,000,000||$ (4,000,000)||$ (8,000,000)||$ 20,000,000||$ 10,000,000|
Tournament by Tournament Profit Split
|Profit||$ 20,000,000||$ 12,000,000||$ (4,000,000)||$ (8,000,000)||$ 20,000,000|
|Profit Split to Players||$ 10,000,000||$ 6,000,000||N/A||N/A||$ 16,000,000|
Why is infrastructure included as an expense?
Capital expenditures are part of the proposed net revenue calculation. This is an issue very common to any type of business and not unique to our sport. The required basis of accounting for each tournament’s income statement is Generally Accepted Accounting Principles (GAAP) in the respective country. While there may be differences in GAAP in different regions around the world, all provide for recognising capital expenditures in the income statement through depreciation of those expenditures over the expected life of the asset purchased. For net revenue purposes, depreciation will only be related to the respective tennis event. If a facility or other assets are used for other purposes (for example if a facility hosts other events during the year), then an allocation between events/uses will be required.
While it is helpful that the ATP has acknowledged that depreciation will only be related to the respective tennis event, the players still have a few concerns.
While it may be typical for businesses, having players pay for depreciation when entering into a profit or revenue share would not be typical in a sports context. Would the tournaments be willing to pay for the players infrastructure (e.g. coaching, all travel, all meals)?
The value of a tournaments’ license will increase with investments in infrastructure, the tournaments can realize that value by selling their appreciated asset while the players are stuck paying for the depreciation of that asset. This does not seem fair to the players.
What is the projected timeline for when this new prize money formula will be applied to 500s and 250s?
The Masters 1000 prize money formula and profit-sharing principles will apply to the ATP 500s and ATP 250s when those categories as a whole get close to generating net revenues that exceed base prize money levels. Until that time the 500s will continue with the current prize money formula.
There are significant costs associated in the full audit process which do not make sense to incur until those tournaments get closer to performing more profitably. We are tracking tournament financials and the 500s and 250s are not at that level yet.
With regards to ATP-owned events – Nitto ATP Finals, ATP Cup & Intesa Sanpaolo Next Gen ATP Finals – these events are not part of a wider category of events. They have unique individual contracts with ATP, including any associated license fees which contribute towards the ATP’s bottom line, of which any surplus is shared with player and tournament members via a rebate, if applicable.
Is the ATP willing to commit, prior to finalizing the 30-year deal, to full transparency on these tournaments so the players can be confident in these statements about the 500s and 250s. Generally speaking, this should be about the players receiving a fair share, not whether or not there are additional costs associated with an audit.
With respect to the ATP-owned events, this answer is still unsatisfactory. Dollars that contribute to the ATP bottom line are split with the tournaments; so essentially while other tournaments do not participate in these events and players do, the ATP is saying players should not get a fair deal so that tournaments can receive a bigger piece of the revenue in events they do not participate in? Again, the players ask, how is this fair?
OUTSTANDING QUESTIONS YET TO BE ANSWERED
As mentioned, the PTPA is encouraged by the responses from the ATP to its questions.
However, there are still a number of questions that were posted on the PTPA website that have not been answered, and the PTPA feels are critical to determine whether the players are receiving a fair deal.
Such questions include:
- What added benefits (health, insurance, pension) will the players receive?
- Why is it a profit share and not a revenue share?
- How is revenue defined in the profit share?
- How are expenses defined in the profit share?