The business side of expansion abroad – supporting the NBA in Mexico

On December 12, 2019, two things happened that will forever change the face of the NBA. 

The first was news that 30-year commissioner emeritus David Stern was stricken by a cerebral hemorrhage that would take his life several weeks later. The second was the announcement of the league’s first foray into the Mexico market with an NBA G League team to be housed in the country’s capital for the 2020-21 season.

That team, the Capitanes, could be the bridge to a fully-fledged NBA team in Mexico City within the next decade should all go well, and represents one of the biggest steps the league has taken to date to expand into a truly international sport.

Such goals were long the pet project of Stern. He realized the future of the sport is tied to its audience, but a lifetime of expanding that audience drew to a close as the first word of its success south of the US border came to light as the league’s long-time face slipped of his mortal coil.

For Stern’s vision of globalizing the NBA, and for its wider community to succeed, a number of interrelated parts need to function together to grow the sport. 

Global academies to develop young players, and international leagues to build young audiences, have been added to the league’s portfolio of strategies – Mexico City’s G League team is the most recent and perhaps important. Success will hinge on the success of this organization and related business concerns tied to it. 

In order to better understand how the league is looking at the business of expansion, the head of NBA Mexico, Raul Zarraga, explained more about the financial side.

In the bowels of Estadio Azteca in Mexico City, we discussed the means and method of locals in viewing NBA games all the way to the league’s flagship retail outlet in the toney neighborhood of Polanco. 

With roughly 20 million active fans and more than 120 million souls, who could one day make up an audience not unlike the half of Canada that tuned in to the Toronto Raptors championship run to in the spring of 2019, the future of the NBA in Mexico is a bright one. 

Justin Quinn (JQ) – Hi, Raul! One thing I’m not seeing in the press about how it would work with expansion is the new NBA store or how branding works, is there anything you can share?

Raul Zarraga (RZ) – We are really thrilled and excited about this opportunity, but it’s definitely important to understand the business side of the whole model that we are building here. The idea behind the team is exactly the same model that we are currently doing in the US with the G League. Since we don’t have an NBA team behind our local team, the Capitanes, we have to be creative in the way that we can put together enough attractive partners — sponsors, licensees and media partners. The good thing is we have a very healthy NBA business in here after 11 years. You can see what we are doing, including the store that gains the distribution of the different media partners … and the junior NBA youth programs and the Academy.

So, what we are doing right now is connecting the dots, putting it all together [and] going to the partners with a single face, which is the NBA, saying that we have different platforms for them, to be activating their brands and reaching their consumers.

JQ – Another big thing related to this are the broadcast rights. I know there’s been some concern about dropping numbers in terms of US viewership. What are your thoughts regarding cord-cutting and, for example, NBA League Pass being much cheaper here, we’re also seeing people use VPNs to try to pretend that they’re here in Mexico. 

RZ – The media component is very important, and they need to build an audience – that’s a fact. The good thing is that because we are partnering with a team that already exists… the brand is not going to be new. We need to build a new audience; that’s fine. You understand the challenge that the audience… may represent, but we are really confident that we’re going to be getting to the specific levels that we are looking for at this point. 

As you know, ESPN is the partner of the NBA in the US, and we are sure that’s remaining the best way to integrate the media distribution of the team. We’re not there yet, but can I tell you that we work closely with a market research [firm for] understanding the profile of the audience, whether they want to see [something], when, which day, what time, and experience in cutting the cord, and all these digital assets. Whatever we are, we would be offering through our media policies, including the digital rights to watch the games.

For League Pass, a powerful metric is that we are in the top five, putting aside China and the US. So, the habits of the consumers are really good [in Mexico] and they are aligned with the content that we’re going to be offering.

JQ – Would you offer something that is along the lines of a free version of League Pass with your own commercial agreement, and then an additional subscription fee if you don’t want to have commercials?

It’s a trend in the market. We’ve seen that the different products, even with the applications that we see on our phones, that’s a model you can have it with – advertising or not. That’s one of the models we understand the priority of, and we understand those products that go directly the consumer. I strongly believe that we need to have the NBA available in any format, in any place in the nation, and we are looking for alternatives to make it available – whether it is from digital or linear television.

JQ – There are concerns about broadcast rights and less talk about reaching people through options like cell phones, which are especially important because a large number the people in Mexico don’t have televisions or have access to household internet.

RZ – From the research that we have, fans will always prefer a big screen. Our partnership with ESPN and Televisa is really good. It goes beyond the games that they are broadcasting. It’s also the experience we are building together. The most important thing is we have great partnerships with them, Televisa and ESPN, and we look forward to keeping this for a long time. They understand the relevance of the digital asset, that’s why we have a partnership with ESPN as well as League Pass. 

But on the other side, we understand that the trends of the market are changing and we need to be ready for that. It’s something that has always distinguished the fans in Mexico. Our core fans are between 18 and 34. They choose the sport they like between between the ages of 9 and 11 years [old], and that’s a moment that they are getting connected to these kind of products [and] alternatives that we are very conscious of that [are] always delivering the content that the fans want in the best format that is available for us. Delivering the goals that we are expecting for our partners and for our friends.

JQ – How will the NBA Store fit into the overall schema?

RZ – [It’s a] first step, the first of many. It took a lot of time. It took the time that it has to take, because it’s not easy to make those kind of decisions. We want to make sure that it is the right moment in the right place, and we are so happy to see that there are lines we will get into the store and that Adam [Silver] was able to be there to show it to the fans. It’s part of the licensing and merchandising strategy. We have great retail partners as Innova, and Liverpool (two popular Mexican retail outlets) but we also understood that this kind of flagship store goes beyond just selling the merchandise. It’s like telling the NBA fans that we trust in them, and that we are putting this store [here] for them with all the products available. At this point it’s been doing so well that we need to bring more product in.

JQ – That’s a good problem to have

RZ – Right! So, this is the first of many steps that we need to take. I look forward to having  more stores. I have gotten calls from different partners outside Mexico City that they want to talk. I’m very glad to see that other partners are interested in opening stores, in all those things.