Rick Welts on the blacklash the NBA is facing from China

First On CNBC: CNBC Transcript: Golden State Warriors COO and President Rick Welts Speaks with CNBC’s “Squawk on the Street” Today

Rick Welts

Image source: CNBC Video Screenshot

WHEN: Today, Monday, October 7, 2019

WHERE: CNBC’s “Squawk on the Street

The following is the unofficial transcript of a FIRST ON CNBC interview with Golden State Warriors COO and President Rick Welts on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Monday, October 7th. The following is a link to video of the interview on CNBC.com:

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DAVID FABER: A headache for the NBA. The Houston Rockets trying to mend ties with China and its business community after the team’s General Manager Daryl Morey Tweeted support for protesters in Hong Kong, Friday night. The NBA, calling the tweet, quote, regrettable. Maury has since removed it. He’s replaced it with an apology. With us now is Golden State Warriors President and COO Rick Welts. By the way, that team has just opened a new arena, $1.4 billion worth of arena, in fact. It is the first sports arena to be privately financed. Mr. Welts, always nice to have you. Congrats on the new arena.

RICK WELTS: Thank you very much.

DAVID FABER: Great timing for us. I’m not sure about for you. We need to delve into this a bit. The NBA has been notable for allowing its players, perhaps more than any other league, to speak freely, certainly about issues of importance to those players here in the United States. Here you have a General Manager voicing support for democracy protests. I’ve got a lot of people this morning saying, ‘Why are there two standards here? Is it just because you guys are potentially going to have a lot of money at stake in China?’

RICK WELTS: Well, I don’t think there are two standards. Commissioner Silver addressed this earlier today and acknowledged that one of the things we think make the NBA special is that we do encourage individuals to have the opportunity, not just players, whether it’s players, management, anybody else, to have personal opinions. They are personal opinions. Adam acknowledged in this case there is some economic repercussions for that. What I can tell you for sure is it’s not going to erase the decades of work that, you know, myself and everyone else in the NBA has put in in building a tremendous base for basketball in China. And I think this will pass. And I do think our future in China is probably pretty remarkable.

DAVID FABER: Do you worry, though, about future – I mean, for example, Steve Kerr, your coach, a very great coach, very outspoken as well often times on issue of importance to him. He’s a worldly fellow growing up in, I think, Beirut, Lebanon, for example. His father was a diplomat. You know, what if he were to come out and similarly say something like that? Does the leak to have put a muzzle on people who want to speak perhaps about the democracy protests?

RICK WELTS: It’s not going to happen. That’s not what the NBA is about. It’s not what our leadership is about. As I said, I think it’s one of the things that has really distinguished the NBA in terms of the encouragement of everyone to have a voice. These are—especially our athletes—these are really smart young people who know more than how to play the game of basketball. And a learned opinion, Steve Kerr is a great example. I mean, who has greater standing than to talk about gun control than someone who has suffered the loss of a parent through assassination, with a gun, right? Steve has great standing in talking about that. And no one is ever, in the NBA, going to discourage people from having those opinion.

CARL QUINTANILLA: Then why say it’s regrettable?

RICK WELTS: Well, because we have worked so hard in China -- actually going back to the ’70s, Abe Pollin took the Washington then Bullets to China in the ’70s. And we have a very big presence in China today. We’ve taken the Golden State Warriors there twice. I’ve been there on my own, promoting the game of basketball. And basketball brings people together. But, also, historically has been a place where we can have conversations like this because it’s a common ground for people who otherwise don’t have anything else in common except their love for the sport. So, I think historically this is the role that sports always plays.

CARL QUINTANILLA: So, maybe the big surprise was the reaction from the Chinese, right? I mean, that -- I was surprised having done stories about how much the Chinese love basketball.

RICK WELTS: And the Houston Rockets in particular. I’m hurting for them today, too, because Yao Ming is the biggest reason that NBA today is as popular as it is in China. And Yao and others, and the Rockets in particular, have probably done more to promote the game of basketball than any other team.

MORGAN BRENNAN: Let’s put numbers to it. In terms of the business opportunity in China, how big is it both for the Warriors and for the league in general?

RICK WELTS: Well, it’s the only place in the world other than the United States where we have a separately incorporated business, so the NBA in China has literally hundreds of employees in China today who are promoting the game of basketball. And promoting the sport and its business on Television and consumer products. We have teams going over there. I believe we’re going to have a team over there next week. So, I think when we put this in perspective six months from now, it’s not going to look as big as it’s looking today.

DAVID FABER: You don’t see a long-term risk here then.

RICK WELTS: I just think the positive side of it is overwhelming when taken in proportion to what happened yesterday.

DAVID FABER: Because you do have – you have Chinese population that’s getting state run media that sees these protesters as violent, riotous, which obviously may not very well be the case as we all know. They’re reacting to this sort of this Tweet in the sense you’re attacking us, but you think this all dies down, or?

RICK WELTS: I would think so. I’m an optimist. And I think, again, on balance what the NBA has done in China is quite remarkable, especially over the last 20 years. And I think at the end of the day that’s really what will carry our story.

DAVID FABER: Yeah, I mean, you had, what, 500 million people I think, Tencent says 490 million people watching at least some form of the game of the NBA last year.

RICK WELTS: Yeah.

DAVID FABER: And certainly, when the playoffs come around. So, a lot of them watching Golden State given your history.

RICK WELTS: No, exactly.

DAVID FABER: Do you expect that will continue to grow? You’re already talking about a market that’s larger than the U.S.

RICK WELTS: I do. I’m very optimistic about the future of basketball internationally and I think the NBA is uniquely positioned to really be a torchbearer in that. And I think our business over time will continue to grow in China.

MORGAN BRENNAN: So optimistic, internationally. Meantime you’ve got $1.4 billion Chase Center. You just started playing games there, over the weekend. I guess talk to us a little bit about what went into financing and building the stadium and how this positions the Warriors above and beyond just a basketball team?

RICK WELTS: Well, that’s exactly what this is all about. We’ve tried to something – you know, to create a foundation for our success and competing for championships for decades going forward. The finance story is relevant because this is the first 100% privately financed arena in decades in the NBA. And it’s a bad formula, I will tell you that. Don’t try it anywhere else than San Francisco –

MORGAN BRENNAN: Why?

RICK WELTS: --with this team, with what’s going on in the Bay Area economy right now without that combination of events, it would have been literally impossible to do this completely privately.

DAVID FABER: But that was the combination that allowed it to occur, in your opinion, favorably?

RICK WELTS: Well, a team that’s gone to the NBA finals five consecutive years, won three championships, and a Bay Area economy right now which is, you know, roaring. Probably the greatest economy in the world right now. So, put those things together and create the right facility. It’s the first time San Francisco, in its history, has ever had a world class sports and entertainment center. It’s crazy, right? There’s no city half San Francisco’s size that hasn’t always had one of these. And it’s not just basketball, it’s concerts. It’s everything else.

MORGAN BRENNAN: So, is the strategy here to basically build out a West Coast style MSG enterprise?

RICK WELTS: We actually hope that Madison Square Garden becomes known as the Chase Center of the East, actually.

MORGAN BRENNAN: You’re talking to a bunch of New Yorkers here. That’s--

RICK WELTS: I lived here for 17 years, so, I spent a lot of time in Madison Square Garden. But I do think the other economic story here is what it takes to build one of these. This is not just an arena. This is an 11-acre development, 580,000 square feet of office space that Uber will occupy. 29 retail locations, mostly restaurants. So, there’s a lot of other elements. And those have to be there to be able to finance the type of arenas we’re building today in the United States.

DAVID FABER: How do you think about the distribution of your product, via video? We talked about Tencent, for example, in China and the streaming right there. But here in this country we’ve got the regional sports network, we’ve got the traditional cable companies, obviously, still carrying many of those and the big cable networks that have contracts with the NBA. Do you see that relationship changing at all and some new entrants coming in?

RICK WELTS: I see it completely changing. I mean, you’re touching on for all of sports what’s going to be the biggest story, I think, over the next decade is how will we consume live sports broadcasts the old model is dying. And there will need to be a new model. But what will that be? And I mean, that’s where I think the NBA has a great advantage is Adam made a very long-term deal. So, we have steadily increasing revenues over the next five years from Disney, ESPN, ABC, and Turner. And we have that time to experiment and see exactly who’s going to step in. Who is it going to be? Is it going to be Facebook? Is it going to be Apple or is it going to be Google?

CARL QUINTANILLA: What’s the answer?

RICK WELTS: I don’t know the answer. That’s why you guys are here. So—

DAVID FABER: You’ve got Amazon as well.

RICK WELTS: Or Amazon, I think, could potentially be a player. But live content still is king. It’s the only thing we still watch, other than you, the only thing that we still watch live. And that’s powerful.

CARL QUINTANILLA: I’m always struck by the NBA, the major sports leagues was the most forward thinking in social media. They’ve experimented the most in VR, right? Do you see other technologies changing the way we see the game other than just the streaming distribution?

RICK WELTS: For sure. Certainly. 5G is going to make a difference in how we consume video. We’re the first NBA arena that Verizon has wired for 5G. So, we’re prepared for that. But, you know, will people continue to watch two-hour games? Or more and more we’re seeing people consume parts of those games. How do we deliver what people want on the device they want when they want it? And then, how do we monetize it? Right? We have a time-tested formula for Television distribution that’s worked very well for all the leagues. But, it’s the story to watch over the next decade on how that evolves.

MORGAN BRENNAN: How does sports betting fill into that? What is the potential that can be unlocked here?

RICK WELTS: You know, again, we have tried to take the lead, we the NBA, and believing that sports betting is going to be a big part of our future. Every else in the world it already is. And, you know, Adam Silver, again, from the early times has been talking about how the integrity of the game is enhanced by the more visibility we can have in sports betting. Today out of sight is more dangerous than full transparency about everything that’s happening. So, I think, how it evolves state by state is really complicated puzzle right now, but we’re headed in that direction inevitably where we’re all going to be – all the leagues are going to be involved in sports betting in a significant way.

DAVID FABER: And finally, the team itself: Durant is gone, Klay Thompson is out with an injury. How are you feeling about your prospects heading into the new season?

RICK WELTS: I think there’s some real optimism in our locker room. I think, yes, we miss K.D., but we’re the only team that is starting the season with four all-stars. Draymond Green, Stephen Curry, Klay Thompson will be back and D’Angelo Russell came back to the Warriors in the deal that took -- when K.D. went to the Nets. So, you know, we’re not healthy right now. And Klay Thompson has got to be healthy for us to be a contender, but if we can hang in there the first half of the season, I think we can make some noise when playoff time comes around.

DAVID FABER: Well, we appreciate your taking some time with us this morning. Good luck on the upcoming season.

RICK WELTS: Thank you. Appreciate it. Thanks.

DAVID FABER: Rick Welts joining us.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver