Month / February 2017

by Frank Maduri

Showtime: Can Magic Johnson Rebuild The LA Lakers?

The Los Angeles Lakers shocking move to reshuffle their front office to put Magic Johnson into the captain’s seat, so to speak, has come at a point where the franchise is truly at a crossroads. This type of shake up of the basketball operations of a team at this time in the season is unusual. The Lakers brought in Johnson as an “adviser” about three weeks ago, and now he is running the show.

The rationale for the decision is pretty clear: the Lakers, who are a storied NBA franchise, have been struggling for the past few seasons. The team has some young players that are talented on their roster, but they need a significant amount of work to get from the bottom of the standings back into a championship contender.

The Lakers are currently 19-39 and are spinning their wheels trying to find their identity in the post-Kobe Bryant period in their franchise history. The 2016-17 Lakers resemble a similar narrative to other teams in NBA history in the years immediately following the transition from a roster dominated by a megastar level player.

The challenging factor in the scenario is developing the right strategy to rebuild the roster and rejuvenate it back to contention. The Lakers are going to make some big, bold moves to improve this team, but they will also do it in a calculated manner.

The more pressing impetus for the move to shake up the front office on the basketball operations side of the house, is to get the core fans excited about the future of this franchise. The change to Magic Johnson certainly will create a sense of hope for the fans that the future in L.A. should improve in the near term.

This decision was a bold one from Jeannie Buss because she had to move her brother, Jim, out of the basketball operations role and back to being a co-owner. She had to separate her family ties to look at the situation as to how it relates to what the best path forward for the team would be at this point.

This decision to move forward with Magic Johnson, who won so many titles with the Lakers during the “Showtime” years, will most certainly be compared with the decision that the New York Knicks made to turn over their basketball operation to Phil Jackson. It is even more ironic that Jackson played a huge role in the success of the Lakers as their head coach and is the former fiancé of Jeannie Buss.

The fans in New York are largely dissatisfied with the tenure of Phil Jackson, and the relative lack of progress shown on reshaping the Knicks to be a successful basketball team. The Lakers fans have to hope that Magic does a lot more to shape the Lakers up than Phil Jackson has done so far with the Knicks in a similar role.

Magic Johnson obviously knows the essential elements in building a successful basketball team from the player personnel side, and he is also a successful business man, so his skill set seems very well suited to his new position within the Lakers organization. Nevertheless, it is a steep challenge taking this roster and reshaping it into a championship contender.

I think the cache that is the Lakers brand and reputation will certainly help Magic in this endeavor. The Lakers may even have some good fortune in attracting free agents because the Knicks have created so many issues for themselves between the Charles Oakley debacle and the Carmelo Anthony botched situation. The situation in New York is so bad that one current player remarked recently to the media that “nobody will go to the Knicks”.

The Lakers have been linked to current Indiana Pacers guard, Paul George, and although they could not get a deal done at the trade deadline, it is largely expected that George will join the Lakers as soon as he is able to within league guidelines.

The expectation throughout the league is that similar situations to those of Paul George will also transpire in the summer months of the offseason. The name of Russell Westbrook has been linked to the Lakers for some time now, and that speculation will probably only ratchet up further with the injection of Magic Johnson into the situation.

Some of the talent on the roster such as Nick Young and D’Angelo Russell could be the building blocks for the next version of the Lakers. The new perspective that Johnson will bring into the job will be fascinating to see as the months move forward.

There is one certainty especially if you ask a Knicks fan: Magic would be hard pressed to do much worse than Phil Jackson has done in the same role in New York. The Lakers need to get back to their championship pedigree, and Magic Johnson is just the right person to take them there.

by Frank Maduri

Follow Up: Aetna Merger With Humana Is Scuttled

The proposed $34 billion merger between two healthcare giants: Aetna and Humana, has been scrapped by the order of the court system over concerns related to higher prices and less competition in the marketplace. Both companies considered an appeal of the court decision, but announced on Wednesday that they were going to accept the decision and dismantle the merger proposal.

The deal seemed doomed to fail from the start because of the enormous impact that it would have over the healthcare of millions of Americans. It would have condensed the number of companies which provide healthcare on a nationwide basis from five to just three. The combined entity would have held a sizeable portion of the Medicare Advantage market, which is a type of medical insurance product which replaces traditional Medicare with a plan that has lower monthly premiums but higher deductibles for most services.

The combined company would have held enormous influence at the negotiating table with other healthcare entities and would have been able to essentially set prices; which could have had drastic consequences to the consumer.

It ended up being these anti-trust concerns which ultimately spelled the demise of this proposed merger. This goes against the trend in recent years of these proposed mega-mergers eventually moving ahead and beyond the anti-trust issues. The uncertainty involving the national healthcare policy with the change in the U.S. Presidency to Donald Trump most definitely played a role in the eventual scuttling of this merger proposal by the senior level executives at both companies.

I have covered mergers and acquisitions for a few years now for many different news outlets. This proposed deal had a clause called a “breakup clause” which I have seen associated with other mergers in the past, where one party agrees to pay the other an agreed upon sum of money if the deal were to not come to fruition. In this situation the Aetna side agreed to pay a breakup fee to Humana.

The breakup fee is reportedly $1 billion that Aetna will pay to Humana, which after taxes is around $630 million. The two sides spent over a year and a half preparing this merger proposal, and all of that work, effort, and resources are now out the window. The shareholders of both entities will most assuredly have some strong feelings about the lost time and energy on this merger. The Aetna shareholders have the added grievance of the breakup fee or termination fee that is being paid out which will eat into profitably totals as well.

The recent negative news speculation regarding some of the Medicare Advantage products also likely played a role in the eventual breakup of this merger. The uncertainty in Washington right now over the future of the federal government decision making regarding a potentially new national health plan also certainly had to have been factored into this situation as well.

This merger was originally proposed during the previous administration in Washington and it was designed to offset some of the conditions in the marketplace that were created by the Affordable Care Act. Those conditions pushed both Aetna and Humana to pursue a merger to synergize their operational capabilities and to streamline their costs in order to maximize profitability.

The court system and regulatory bodies had scrutinized this deal pretty harshly from the onset. The emphasis of any proposed merger in an area as crucial to the public domain as healthcare is going to be treated differently than if two companies wanted to merge to bake bread and cookies in a more efficient manner.

The backdrop to this situation is an American public that has a general distrust of health insurance carriers and is paying more out of their budget for healthcare related services than ever before. The American public also has seen wage stagnation and increased costs for other goods and services and senior citizens feel the budget squeeze; which all of these factors contributed to the opinion of the court that the merger would have had a significant impact on the price and competition in the marketplace.

Furthermore, another factor that makes this merger different than other proposed M&A activity that I have covered in the past is that the path forward is unclear. I can usually speculate in other proposals that may have gone sideways about the next move for the companies involved. The fact that the landscape in the healthcare industry is already so limited on the national level, it leaves both Aetna and Humana with very limited options.

The path for Aetna may be to look at some regional acquisition targets to improve their presence further in certain regions of the country, but that is an incremental move for sure, as they already have a pretty significant overall national profile.

The path for Humana may be to diversify some of their operational capabilities by reviewing some options to expand into other insurance products beyond Medicare Advantage. I am not sure how successful that path will be based upon the potential scrutiny some of those potential activities may be met with from the court system.

The potential changes to the national healthcare policy will eventually guide the decision making of both companies as they navigate the new terrain of the industry at that point.

In the end analysis, the scuttling of this merger, at least at first glance, seems to be the appropriate decision by both the court system and the corporations involved. It would have limited competition in the marketplace and had a negative impact on price increases for a consumer base that has grown very weary of that narrative.

The potential consequences of this ultimately unsuccessful deal could present overarching implications for future M&A activity in the healthcare industry and other industries in the months and years ahead.

by Frank Maduri

NBA Renaming of D-League & Corporate Cronyism

The NBA announced earlier today that their Development League for young prospect players to work their way to the best basketball league in the world, is being renamed and rebranded.

The NBA Development League, long known also by the nickname the D-League, is being renamed the NBA Gatorade League in a deal with one of the NBA’s largest corporate sponsors. The financial terms of the deal were not disclosed and the NBA insisted in their media relations efforts today that the agreement is not to simply attach a corporate name to the D-League or to extract more money from a sponsorship relationship.

The league executives, including NBA Commissioner, Adam Silver, spoke about the agreement being a vehicle toward further integration of the Gatorade Sports Science Institute, which is currently used by star athletes in the NBA and NFL among other leagues. The Institute or (GSSI) as it is also known evaluates the impact that the performance level for athletes at the elite levels of competition endure, and what elements may be needed to provide better nutrition or conditions within the body to enhance that performance level.

The issue at hand, in my view, is that no matter how the NBA wants to spin this deal today, it is for all intents and purposes, a money grab. It is the league using the stature of their brand recognition to extract more revenue from a corporate sponsorship partner. It just looks bad, and it has the media now drumming up names like the “G-League” and “insert sponsor name here” league.

It even caused one reporter at a press event today to ask if the NBA itself was going to follow suit, and sell some type of corporate sponsorship to their name. This question was flatly denied by Commissioner Silver, but I cannot fault the reporter who asked it because the sponsorships have become so out of control in sports. I could envision it: “the NBA brought to you by State Farm Insurance” would be the new name of the league, and every five years they would change the name of the NBA to the next corporation willing to pony up the dough.

It sounds like an exaggeration, but where is the line drawn? This type of transaction today where the NBA essentially names their minor league system after a major corporate sponsor leads reasonable people to take the path of asking what the next deal is going to be centered upon.

The corporations will be pushing different concepts as well because they believe that anything that gets their brand or their name out there is a good situation. I can envision it: “the Kraft Foods NBA Eastern Conference Standings” or the “Coca-Cola Western Conference Standings” where the trophies would be a giant box of cookies or a huge metal Coke bottle.

The decision by the NBA with regard to the D-League, my apologies, now the Gatorade League, is corporate cronyism at its finest. Any entity that gets that type of sponsorship shelled out some large amount of dollars, and with that large expenditure that entity will demand access and influence. The company in this scenario is Gatorade which is a division of Pepsico, and they will want access to players in exchange for this elite level of sponsorship.

The involvement of corporations to this degree should create some type of caution within the offices of that particular major sports league and their franchise owners. However, in the case of the NBA, which has also approved corporate sponsorships on the jerseys of each individual team starting next season that caution seems to be nonexistent.

It is scary to think what type of influence the corporations will be able to wield within the structure of the NBA. The increased revenue is going to have a direct effect on player salary increases, and the salary increases will have an effect on operating costs. The owners, when faced with operating cost increases then start to look at raising ticket prices on the fans and on the businesses who purchase season ticket plans or suites to entertain clients.

The NBA made a bold move today which could have repercussions on the way they handle future corporate sponsorships. They opened the door to a potentially dangerous pathway, where corporate involvement could become detrimental to the integrity of the sport that they were meant to preserve. The cumulative effect on the fans, the customers in this situation, could be a source of a serious miscalculation by the NBA if these types of deals are made in the future.

by Frank Maduri

Football Talk

I write about both sports and television ratings often on Frank’s Forum, and with the Super Bowl just concluded, I was reflecting back on the past few months. The Super Bowl is usually the most watched event on television of the entire year, and some editions of the sporting event have set all-time U.S. television ratings records.

The thrilling comeback and overtime win for the New England Patriots as they defeated the Atlanta Falcons had overnight numbers that are lower than previous Super Bowls. However, the event still posted a 48 overnight rating and about 110 million viewers which is a huge number in terms of the way rating numbers have changed in recent years.

The start of the NFL season coincides with the start of the new season of TV programs. The major networks have had the same strategy for years regarding viewership. The networks tend to pair successful returning series with new series concepts and then determine over a period of time if those lineups are successful.

Many new television concepts for network series usually are not successful. It is very difficult terrain especially with the new technologies available to viewers to successfully navigate the waters of the new media world we live in. The streaming services such as Netflix, Amazon, and Hulu have only increased the competition for new television programs to gain interest and stay viable.

One new series that has become one of the highest rated new shows on network television is from NBC and titled, “This Is Us”. It is a favorite show for my wife and I which we enjoy watching together. In our busy lives we never watch it live on the night it airs, we always watch it via On Demand from our provider, which serves to validate my earlier point on the changes to viewership patterns.

Those of you who have not seen the show yet, but plan to watch it from the beginning or at least check out the pilot episode (which I recommend) I do not want to provide any spoilers. I will summarize one scene which serves as the point of this whole piece on football.

In one scene in an early episode of the show one of the female characters is observing the guy she is romantically involved with while he is watching a Pittsburgh Steelers football game on TV. The scene then shifts to a flashback of her childhood where she is sitting on the floor observing her father as he intently watches the Steelers play on TV.

Then, she explains to the guy she is with, that she cannot relive her childhood and sit there while he watches football. She asks him to teach her about the game, which he gladly obliges, and in the time advanced sequences, she emerges as a huge fan of the sport.

It evoked a memory of a similar situation for my wife and I, except my father-in-law was not a sports fan. She wanted to spend time with me, and anyone who knows me understands that I enjoy sports very much. I enjoy watching games and talking about sports of all types. I especially love and enjoy NFL football.

My wife asked me in the same type of way to teach her the game of football, so that she could understand what was going on, and that we could talk about it. Her brothers are both avid New York Giants fans, so it helped that she knew some of the history of that team for me to use as my baseline for her.

I taught my wife, just as the character “Jack” taught “Rebecca” about football, using props for the lineman and the other positions on the field. We watched NFL Network together, and during the course of watching the games I would answer questions about the rules of the game, which was also a lot of fun for me.

It seems like before I knew it, my wife, like the character “Rebecca”, was a passionate football fan, yelling at the TV (totally out of character for my wife) and watching the Giants on her smart phone while cleaning or doing other household tasks, or while out running errands.

We watch several out of market games together too, we discuss the issues facing other teams in the league, and the strategy of the NFL Draft and that process. In the years that followed, we would have gatherings for Sunday football games, and started our own traditions for the Super Bowl.

In the past couple of years, with my working the weekends, we have lunch together on Sunday before I go in to work, and we will watch the Giants or whoever is on at 1PM. We talk about that game, and then she will put the Sunday primetime game on for when I get home. We will very often watch that together.

In reflecting on the past several weeks, the whole situation really came to a head when I had to work all of the Divisional Playoff weekend a few weeks ago. I would come home late and my wife provided all the background on the games. I listened as she talked about three-man or four-man rush defensive calls, on challenged referee decisions that went to the replay booth, and on the Cowboys play calling to get back into that toe-to-toe battle with the Packers.

She told me all about the Falcons and their vaunted offense, her opinion on why the Seahawks could not get going, and how Aaron Rodgers is the best quarterback at extending plays. It is a nice and healthy distraction away from all the things that can clutter up life and serves as a point of interest for us to have together and share.

Now, football season is over, and football talk for my wife and I will shift to the offseason topics of teams improving rosters, draft prospects, and new head coaches trying to turn around teams that have underperformed.

After that wild Super Bowl game was concluded I told my wife how I will miss football. It always seems so long to wait for it to return again in September, but she reassured me and told me that I say the same thing every season. It will be back before we know it, and she told me that I will shift my focus to hockey primarily, a sport she does not know as well (but will watch with me).

I will miss the games on Sunday afternoons and the Monday nights, but I will miss our football talks. The process of writing this essay helped me understand how much I value the memories of those talks as well as to gain further insight as to how much my wife loves me. She loves me enough to learn about football because she wanted to spend more time with me.

I am lucky, fortunate, and blessed. It is my hope that you find that same type of common interest with the special someone that you share your life with and that time can be fulfilling and fun. In the meantime, I will wait until next season for our football talks to return.