Category Archives: sports business

July 19, 2017 · 11:29 am

Not So Great Expectations

The gasoline that keeps a good portion of the sports machine running is sponsorship. I’m using the gasoline analogy today because there has been a high profile sponsorship dispute going on in the world of auto racing and I think it’s instructive to any of us who sell or buy pretty much anything.

You’ve probably heard of Danica Patrick, NASCAR‘s only female driver in its top-level series, The Monster Energy Cup. She drives for Stewart-Haas Racing (SHR), who sold the rights to sponsor her car in 2016 for several years. Somewhere along the line things went south and Nature’s Bakery terminated what was a three-year deal after the first year, claiming that SHR “did nothing other than collect Nature Bakery’s money”. An additional issue was that Danica personally endorsed a competing product (albeit one with no visibility on the car or around the races). SHR sued to recover the agreed-upon payments. As it turns out, Nature’s Bakery will sponsor four cars during this season, split between SHR’s drivers, as part of a settlement.

I spent a lot of years selling sports sponsorships and I know first-hand how hard it is sometimes not to over promise in your zealous pursuit of the sale. In this case,  Nature’s Bakery was told to expect a 4-to-1 return on investment. The reality was there was no significant increase in sales. That could have been due to any number of reasons, including some that had to do with logistics and not with awareness, but it points to a core issue.

When you’re selling anything, setting expectations and agreeing on how performance is going to be measured is key. In this case, many of the measures of awareness did rise significantly, but if the client’s goal was sales then the buyer and seller seem misaligned. Keeping expectations of both parties on the same page and in alignment must be the goal of all parties, and the documents shouldn’t be signed until that goal is reached.

There also seems to be some inexperience in sports sponsorship at work here. A team that has Coke as a sponsor might very well have athletes who endorse Pepsi. An arena with Mastercard as a building sponsor might see an athlete who plays in that building in an American Express commercial. Danica is one of NASCAR’s most visible drivers and her personal endorsements should have been identified to the buyers (even though anyone could find them easily on her personal website). Always remember that a good seller sits on the same side of the desk (figuratively speaking) as their buyer since you’re both trying to accomplish the same thing.

Aligned expectations, appropriate measures of reaching goals, and transparency are how sports sponsorships (and others too!) get done and stay on track. You with me?

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July 12, 2017 · 12:15 pm

Is The End Near For Sports?

I know you might be thinking that my headline is just some outrageous form of click bait and that I can’t seriously think that big time professional sports are heading down the same path as traditional big media. Let me throw a few recent articles at you and maybe you’ll come to a different conclusion (which I do hope you’ll post in the comments).

The sports business is based on a few large revenue streams. One is income from the games themselves: ticket sales, concessions, merchandise, etc. What makes many of those things possible is a nice facility – an arena or stadium. We’ve seen franchises move (and piss off their fans) over the stadium issue, sometimes even before the bonds on the last stadium built for the team are paid off. I urge you to watch the John Oliver piece on the relationship between teams and towns but here is why I suddenly think there is an issue. As reported by Mondaq:

A bill has been introduced that would eliminate the availability of federal tax-exempt bonds for stadium financing… The bill would amend the Internal Revenue Code to treat bonds used to finance a “professional sports stadium” as automatically meeting the “private security or payment” test, thus rendering any such bonds taxable irrespective of the source of payment.

In other words, it will make public spending on a private facility way more difficult. That will lead to fewer new facilities and a much harder path to growing that revenue stream. Strike 1.

Then there is the largest revenue stream for most big leagues: TV. Kagen recently reported that the U.S.pay-TV industry will lose 10.8 million subscribers through 2021, according to their latest forecast. You might already know that ESPN has been losing subscribers – May 2017 estimates were 3.3% lower than the year before. For every million subs lost, ESPN takes in roughly $7.75 million less PER MONTH – or $93 million a year, and they have already lost multiple millions of subscribers. Yes, some are being replaced via the sale of OTT services, but that requires spending to sign customers, something ESPN hasn’t had to do before. The same subscriber loss issue is true of every other sports network albeit to a lesser degree since their monthly fees are less than ESPN’s. Smaller subscriber fees mean a diminished ability to pay those large rights fees. Sure, other channels (some would say suckers) will step up – Facebook, Twitter, YouTube, and others. But my guess is that the outrageous increases many entities have secured over the last few rights cycles are gone for good. Strike 2.

Finally, costs are not going to go down, at least not without major disruptions such as the two recent NHL lockouts. Players aren’t going to make less (the downside of the salary cap), team personnel probably won’t, at least not without a lot of turnover, and many of the other costs are either already low (minimum wages) or difficult to cut (food costs in the concessions, etc.).  In an effort to mitigate some of the lower revenue and growing costs, some of the entities involved in sports are beginning to do what the airlines have done and make what was once part of the deal (in-flight meals, free bag check) part of an a la carte menu to grow revenue. Specifically, look, for example, at what NBC has done with their Premier League package. They are doing away in part with their NBC Sports Live streaming coverage in favor of a new premium streaming service called “Premier League Pass” that will be in addition to the matches that are already broadcast on live TV. The stand-alone streaming service will cost $50 in addition to whatever you’re paying for your cable subscription. That will bring in more dough but it will also anger fans. Strike 3?

Don’t misunderstand me. I think interest in sports generally has never been higher, and I think any sports entity that doesn’t rely on a big TV contract and employs athletes as independent contractors (I’m looking at you, LPGA) will be in good shape. I just think there is a major disruption coming in the next few years as we’ve seen in the TV and music businesses. Watch out as the next cycle of TV deals begins and if this bill is passed. It’s going to be a bumpy ride, don’t you think?

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April 26, 2017 · 1:03 pm

A Lesson From Junior

I’m a fan of NASCAR, specifically of its top tier, now called the Monster Cup Series. For my non-gearhead friends and readers, don’t knock it until you’ve tried it, preferably in person (bring earplugs!).

      NASCAR.com

Some big news came out of the NASCAR world yesterday and it prompted a thought that is applicable to any of us in business. Dale Earnhardt Jr. is retiring after this season. Only 42, he’s been NASCAR’s most popular driver ever since his dad died on the last lap of the Daytona 500 in 2001 and leads an enormous fan base known as Junior Nation. Full disclosure: I’m a member. He’s really the spiritual leader and one of the last remnants of the NASCAR of old. As a USA Today article on his retirement stated:

A kid of means sent to work in an auto dealership by his father until he began racing, Earnhardt Jr. spoke the language of the fan, in a Carolina accent pleasing to the grassroots folks, was sponsored by a beer company and projected enough hell-raiser vibe to endear himself to the masses. A historian of the sport, he cited the exploits of Cale Yarborough or Richard Petty or Darrell Waltrip with a sharp recollection of fan and provided a generational and cultural bridge for NASCAR.

In other words, Junior isn’t corporate, is authentic, and because of that, is beloved. That’s really a lesson for any of us. Consumers adore personalities but only if they believe that what they’re seeing isn’t an act. Any of Junior’s interviews will show you that he’s real. His language is sometimes salty, often grammatically incorrect, and is definitely not the creation of some media trainer’s badgering. Consumers can tell when a brand is inauthentic just as any of us can see it in a person.

This is why I rant sometimes about engaging in conversations with and not in advertising to our consumers. It doesn’t mean boasting about how “real” you are but it does mean defining what your brand means and sticking to it. The definition should be expressed in the language of your consumer and be relevant to why they’d engage with you in the first place. It means participating in social interactions with your fans, not in demanding or leading them.

I guess I’ll need to figure out where my driver loyalty heads next. It seems that NASCAR needs to figure that out as well. As a long-time fan, I’ve watched them migrate from their Southern roots and identity to something much more vanilla, at least that’s how I see it. Junior is the last bastion of the old, authentic NASCAR. Wherever they go next, I hope it at least half as real as he is. Now ask yourself if you’re “being real” too.

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