First off, I need to congratulate the New York Yankees on their 27th World Series championship (I will admit, I am a Yankees fan, but I always try to keep my views here neutral and unbiased). Anyway, with their victory, I was thinking about what type of economic impact there will be from their 27th title. Then low-and-behold, I see this video on my daily Wall Street Journal email:

Now in all seriousness, this “statistic” about a 5% growth in GDP during the year after a Yankees victory is just a correlation. And as any statistician will tell you, a correlation does not tell you anything about causation (another famous example of this is the statistical correlation between the results of the final Washington Redskins game of the year and the U.S. presidential election). Thus, even if this growth has been seen in the past after Yankees’ championships, there’s no evidence to say the victory itself has a direct impact on economic improvement.

This isn’t to say there will not be some impact from the victory – it just won’t be on the scale of the national GDP. Here are some results that you can expect to see:

• Merchandise Sales: The Yankees are still the most prominent and popular brand in baseball, and New York is the largest market in the country. Combine this with nearly a decade between titles, and you can probably expect the largest World Series merchandise sales numbers since the first Boston Red Sox title in 2004.
• 2010 Ticket Sales and Prices: The Yankees had to overcome some bad publicity and poor initial sales with their original premium seat ticket prices, leading to an early-season price cut. Even with this victory, I’d be surprised to see anything beyond a basic 3-5% annual increase to the adjusted prices, and in turn, I think the team will see a nice uptick in these premium locations next year (especially if the economy does improve by 5%!)
• Postseason Secondary Market: The secondary market started off a little slow this postseason, with several weather-related issues keeping prices on the low side. However, having the World Series in New York and Philadelphia ended up being a big boon to StubHub and other ticket resellers, with tickets being sold for 5x to 20x the face value. In fact, since less tickets were available for resale in Philadelphia than New York, prices for games 3-5 were driven even higher than games 1-2.
• Team Spending: After a few years of “relative” struggle, the Yankees have proven that a large payroll can lead to the title. Will other teams try to up the ante next year to compete with the Yankees? Baseball experts have written that this year’s free agent list is one of the weakest in a while. In addition, the Yankees themselves have a few key players that could test the market. If the economy really is on the upswing, maybe team payroll could increase again next year.

Again, congratulations to the Yankees. I already can’t wait for the 2010 season to get here!

Update: I also just saw this article on Bloomberg.com that reports the Yankees postseason run generated almost $60 million of economic impact for the city of New York, primarily based on increased spending at local business by out-of-town residents.

Forbes recently released their annual list of NFL franchise valuations. Here is the list in order from most (Dallas at $1.7B) to least (Oakland at $797M) valuable:

Not too much of a surprise to see the Cowboys, Redskins, Patriots and the New York teams in the top five. Here are a few other interesting observations from the Forbes report:

• Houston Texans:  The youngest team in the league is all the way up at #6. They do have the most valuable naming rights deal in sports and the Houston economy is holding pretty strong, allowing the team to raise ticket prices without losing fans.
• Losing Value: The Raiders and Lions experience the two largest dropoffs in value relative to last year, which is consistent with the turmoil those franchises have gone through in the past 12 months. However, the 3rd biggest dropoff was the Colts! (5% drop in value). The reason behind this isn’t very clear.
• Minnesota Vikings:  The Vikings have tremendous brand value within the NFL, but the Metrodome is one of the oldest stadiums and really hurts the team’s ability to drive new revenue streams.
• Debt:  The bottom three teams in terms of debt/value ratio are the Jets, Giants and Lions, which makes sense because of the new stadiums (and in the case of the Lions, the lower team value). Surprisingly, the Dolphins are next on the list, maybe because of lower operating revenue in two of the past three years.

The Forbes article offers more detailed looks at each team, discussion on the impact of the recession and previous years valuations. This is great information and I’d recommend digging through all of it!

It looks like even New York isn’t immune to the current economy.  News came out yesterday that the Yankees have decided to cut the prices of their premium field-level seats (New York Times, 4/28/09).  Front row tickets that had cost $2,500 each have been cut in half to $1,250, and tickets along the first and third base lines have been cut from $1,000 to $650.  Anyone who had paid full price previously will be compensated with free tickets to future games, and additional complimentary tickets are being distributed to premium season and partial plan ticket holders.

In the days leading up to this decision, there had been some heated comments going back and forth between Don Garber, the Commissioner of MLS, and Randy Levine, the Yankees team president.  Garber criticized the Yankees for having so many empty seats behind home plate, which did not look particularly good on television.  Initially the team defended their pricing, but after reevaluating they admitted that some seats “might be overpriced.”  Even with cutting these prices in half, the Yankees will still have far and away the most expensive ticket prices in baseball, and they’ll still be the league leader in ticket revenue.

I’d be curious to know what type of price sensitivity analysis the Yankees did before setting their new stadium prices. I’d have the same question for all New York teams that are opening new facilities and substantially raising their prices. A lot of teams still set their ticket prices by feel, which cannot be a very effective method.  If the team’s did run some sensitivity analysis, when did they do it?  The Yankees and the other New York teams announced their price increases quite a while ago, before we knew the extent of the current recession.  If they do the same analysis today, their results would no doubt be quite different.  Some type of advanced dynamic pricing models might help the teams handle this type of situation more efficiently.

I recently wrote a post about how companies that have large sports sponsorship deals, particularly those that have received government funds, are unfairly criticized for these deals.  My logic is that, even though these deals seems excessive, when you calculate their actual marketing value and ROI, they can be very justifiable and effective as part of a company’s marketing mix.

Well a few days ago, Kenneth Lewis, the CEO for Bank of America, publicly defended their sports marketing spend, stating how valuable their sponsorships are to the company (Reuters, 3/12/09).  Here is a great quote from Lewis: “I was never inclined to pump big sums of money into sports marketing until I saw the facts and the numbers…in general terms, for every dollar we spend on sports marketing, we get $10 in revenue and $3 in earnings. This is not wasted money.”

Bank of America sponsors a wide variety of sports properties, including the NFL, MLB, NASCAR, and individual teams.  From Lewis’ statement, they not only recognize the value of these deals, but they are making a dedicated effort to measure them to ensure they are getting the right return.  What they aren’t telling us is how exactly they are measuring them, but there are many established ways of doing this that can be quite accurate (this topic will actually come up again in a future guest post).  I am making a bit of an assumption that the data Lewis is sharing comes from actual measurements and not general estimates, but I would be surprised if this is not the case.

I’m glad to see a company step up and defend their decisions in this area, and hopefully others companies that put in the effort to measure the effectiveness of their sports marketing initiatives will do the same.

Imagine that you work for a multi-billion dollar corporation with a massive marketing budget.  You spend money on all different forms of advertising in order to reach your target audiences.  Now I approach you with a deal that will cost you between $10 and $20 million a year and will generate well over $50 million worth of media exposure, not to mention a direct impact on your bottom line of somwhere between $10-20 million (I’m am making up these rough numbers to make a point).  This seems like a pretty solid deal.  You are getting a bargain on the media value alone, along with a direct positive ROI.  Most companies are going to sign that deal.

Now, what if this company has been recently “bailed out?”  Even though there was an influx of government money to help their operations, the company still has to spend a lot on marketing and advertising to generate revenue.  So if one of those companies gets a hypothetical opportunity like this, with the same type of media value and ROI, they should still be expected to take it.  It makes good business sense.

Unless of course, that opportunity is a sports sponsorship!  Companies like Citi and AIG have received a great deal of public pressure regarding their major sports sponsorships.  There are constant rumors that Citi is being “forced” to back out of the CitiField naming rights deal, and after enough pressure, AIG ended their relationship as the jersey sponsor for Manchester United.  This pressure is unfortunate for both the companies and teams involved, as these deals can still make perfect business sense for both sides.  However, because the deals “look” excessive to the public, they receive backlash and are deemed to be “wasting” public funds.  The problem is that the public only hears about the costs and not about the value, and this only occurs with sports sponsorships.  You don’t hear outcry about how much Citi is spending on their latest direct mail campaign or the cost of AIG’s latest media buy.  I feel that there is a PR need to educate the public on the positive side of these deals, otherwise more and more companies will have to walk away from valuable sponsorships and teams will lose out on a critical revenue source.

(Credit to ABCNews for the AIG/Citi image)

It’s been a busy week in sports business, which is a little unexpected since things tend to die down a bit after the Super Bowl.  I’ve already written about the potential Ticketmaster/Live Nation merger, but here are some quick thoughts on other news items from the past few days:

- Michael Phelps:  So the golden one was caught on film with a bong, not exactly a good PR move.  If this was his first “offense,” then I think it would be less of a story, but he also had a DUI incident a couple of years back.  Some people are sticking by him, most notably the USOC and Speedo, while others like Kellogg are ending their relationship with Phelps.  USA Swimming is withholding their training money, which for some Olympic athletes would be significant, but this will have little impact on Phelps. 

To me, this story is pretty straight-forward.  Some brands are much more sensitive about any potential negative PR, so they will decide to stray away from Phelps.  He’ll still make plenty of money from other partnerships.  The best thing for him to do is simply stay out of the news for a while and concentrate on a strong performance in July’s world championships.  Nothing helps blow away bad PR like championship performances.

- Spurs Sit Their Stars:  Imagine being a Spurs fan living in Colorado, and buying tickets to see your team when they come to town to face the Nuggets.  The game starts without Duncan, Ginobli, Parker or Finley in the lineup.  No big deal at first, maybe Popovich is trying something out.  But then the quarter, half, and entire game ends without them ever stepping on the floor.  I know this was a strategic decision by the team, but those fans have to be ticked off.  This is an example of a unique conflict between the business side and the team side.  Since the game took place away from San Antonio, the implications are not as significant, but what if “Pop” wanted to do this at a home game against a weak opponent?  What do you tell your fans that expect to see the stars play?  I don’t have the answer to this, but it is an interesting dilemma. 

Also, a friend of mine asked me about the gambling implications of this event.  Think about how much money was wagered on this game in advance, and then the best players for one team just don’t play.  Clearly Popovich is a well-respected and ethical coach, so no one is questioning him along these lines  But imagine if this was a Pete Rose type of character making this decision.  Then what would you think?

- Who Needs $25M?  Apparently Manny doesn’t need it, or at least feels he’s worth more.  For the public, it is hard to imagine someone turning down $20-25 million per year in this economy.  I believe that Boras is overestimating what the teams are willing to commit to, considering the teams don’t know how the recession is really going to impact ticket sales and other revenue streams.  I would not be surprised for Manny to come back to the original two years, $45M offer that the Dodgers started with (or something close to it).  Boras has caved before when deadlines get close (Matsuzaka’s negotiation comes to mind).

- How About $18M?  Bud Selig might not hit like Manny, but he gets paid almost as well.  News came out about Bud’s salary from last year, which I don’t feel is inappropriate considering he’s the senior leader for a company that generated over $6 billion in revenue last year.  The unfortunate thing is the timing – it looks bad for MLB for this salary to come out when others are losing their jobs.  I think this story blows over pretty quickly, and maybe Bud could generate some good PR by donating a part of his salary next year to charity.  Maybe he could start a league-wide initiative that other owners and players could support.  That would make for some positive PR.

Jason Peck also has a good weekly recap on his sports business and social media blog.  His site is a great resource for social media content in sports.

Today’s post is courtesy of Gail Sideman (www.publiside.com)

“Sports sponsorship is an emotional topic prior to Super activities”

“Now in for General Motors Corporation…Audi and Hyundai… Replacing FedEx in the lineup, and just in time for Valentine’s Day, Teleflora!”

While this reads like fantasy sports corporate style, these companies represent some of the roster changes in the Super Bowl ad lineup. As we approach the National Football League’s title contest February 1, an estimated 100 million NBC Sports viewers will watch more than the game that will pit the Arizona Cardinals and Pittsburgh Steelers. They may also pay closer attention to the commercials than usual. Super Bowl XLII in Tampa, Fla., will be the first played since the U.S. government announced what many thought for months – that we’re in a recession.

NBC’s Super Bowl advertising rate card for 30 seconds of airtime was listed at $3 million, headed into this year’s game, although industry experts suspect that returning customers and the faltering economy have forced that number closer to $2.8 or $2.9 million.  It’s still no bargain for the average business that’s looking to get itself recognized by the masses.

What remains as the Super Bowl begins its countdown to kickoff is a debate about finances that began with the 2008 college bowl season. While corporations stand on proverbial boulevards asking for handouts and are laying off personnel, are they justified in spending millions of dollars for sports sponsorships?

According to most people informally polled for this post, the answer is yes. The consensus is that these companies still have to reach out to consumers and work to attract business and dollar for dollar, sports sponsorships are the most effective ways to do that.

However, the queries and emotions grow from there. Financial management companies and automakers, just to name two frequent big event sponsors, are asking for money from the U.S. Treasury’s Asset Relief Program (TARP). The 2008 college bowl season featured 34 games, many which boasted top billing as a result of big bucks sponsorships. Among them, Citigroup which presented the Rose Bowl; Capital One Financial Corporation whose company name replaced the former Citrus Bowl; Bank of America Corporation, which requested $15 billion from TARP and sponsored the 2008 Pioneer Las Vegas Bowl and Eagle Bancorp, Inc., which asked for $38.2 billion in TARP funds yet saw itself sound enough several months ago to make its resources available for a first-time bowl game in Washington, D.C.

College bowl games are evaluated annually so the 2009 lineup is yet to be announced.

Patrick Ryan Lewis of Winchester, Va., said that allocation of sports sponsorship dollars is not an easy debate. A dissenter of the government’s bailout program, he said one has to look at the intent of the money provided. In hopes that it’s to help companies improve and sustain their businesses, he said that enterprises have to advertise to maintain current clientele and attract new customers. On the other hand, Rep. Scott Garret (R., N.J.) said in The Wall Street Journal that he questions why banks – which reportedly aren’t using federal funds as intended – need to sponsor nationally televised sporting events.

Sports sponsorships have not been immune to the economic slowdown. While it’s far from creating a hardship on network partners – NBC’s “lower” fees are still 5-7 percent higher than FOX Sports’ 2008 numbers – sales have slowed from flood levels to trickles. For the 2008 Super Bowl, FOX sold its entire inventory by Thanksgiving 2007. Approximately 10 percent of NBC’s spots for this year’s game remained vacant as of this writing.

The bottom line is not always the bottom line. In events such as the Super Bowl or college bowl games, companies can reach more eyes at one time than other means of traditional advertising. Throw in a tie-in to a website promotion or produce a spot that creates word-of-mouth buzz, and the publicity alone will double or triple the investment as people talk about the spot(s) and hopefully react at the cash register for weeks to come.

As with any promotional tools, quality production typically reflects value received. If businesses that have suffered during the last year create targeted, meaningful, creative and emotionally charged spots, chances are that its consumers will react in kind.

A friend of mine passed along an interesting article from AZCentral.com titled “Tickets to NFC title game pouring into resale sites.”  The article talks about how this year’s NFC title game between the Arizona Cardinals and Philadelphia Eagles is setting records for most ticket resales on the secondary market.  Also, because of the large supply of tickets being resold, the average price is just $320 for the NFC game and $380 for the AFC game.  This is less than half of the $710 average price from last year’s Giants/Packers NFC title game.

On a positive note, at least people are buying the tickets.  The Cardinals had a difficult time selling out their inventory for their first round playoff game, while this game sold out almost immediately.  From the team’s perspective, this is a positive economic indicator.  However, the fact that such a large percentage of local fans have no intent on actually attending the games shows problems with fan loyalty and a lack of perceived value (Note: according to the article, only Arizona residents were able to purchase tickets). The next thing to monitor is how long the ticket stay available on the secondary market, and if prices climb or fall as we approach this weekend’s game.  That will be the strongest indicator of what the actual market demand is.

Here are some recent sports business articles that you should check out, and as is the trend, they are mostly related to the economy!

• “Denver’s Bonham Group shuts doors” (Denver Business Journal) – The Bonham Group had been the top stadium naming rights agency in the business, and now they are another economic victim.
• “Bowl economics explained” (Atlanta Journal-Constitution)- An economic review of this year’s Chick-fil-A Bowl.
• Jazz execs plan to ride out auto industry slump (Salt Lake Tribune) – The team’s owner primary business is running an extensive network of car dealerships, so this is a case of examining how an owner’s other businesses may affect a franchise.
• Future of Rampage, AFL still uncertain for 2010 (MLive.com) – Will the AFL return next season?  The teams are trying to figure it out, and there is a March 1 deadline for a new league business plan.
• Economy slows 49ers’ stadium plans (San Jose Mercury News) – This is a bad time to plan for a new stadium, and that’s what the 49ers are currently dealing with.  One idea is to combine efforts with the Oakland Raiders, as the Jets and Giants have done.

Thanks to The Sports Economist for the first two news items.

With 2008 winding to a close, I want to countdown the top sports business stories of the year.

#1 – The Economic Recession

There is one “event” that has had an impact on every part of the industry this year, and that is the economy.  The idea that sports are recession-proof seems to have been thoroughly dismissed.  Let’s take a quick look at some of the economic stories of the year:

• Many major financial companies collapse, leaving millions of dollars of sponsorship money in jeopardy.
• Several automobile companies severely struggle and must cut their sponsorship dollars, most notably GM’s decision to end their relationship with Tiger Woods (arguably the most marketable athlete there is).
• The Houston Comets WNBA franchise folds become of financial trouble and a lack of interested buyers.
• The Arena Football League shuts their doors for at least one season, and possibly longer.
• Ticket sales are down across the board across almost every sport, including football which historically has had the most consistent level of ticket sales.
• League and teams slash their budgets across the board, including staffing cuts ranging anywhere from 5 to 20%.  This also includes NASCAR race teams, who are hit very hard because of their dependence on sponsor dollars and the automobile industry.
• Some smaller sporting events (cycling, golf, racing) are scaled back or cancelled entirely.

Sports is a business, and ultimately every business comes down to their financial stability.  Right now, this might be the most unstable economic time that this industry has seen.  The declines in ticket and sponsorship revenue are having wide-ranging effects, and as long as sponsors and consumers cut their spending, things are going to be difficult. However, there is always hope because of the unique aspects of our industry.  No other business has customers that are as passionate and connected to their product as in sports.  There will always be a passion and desire to be a part of sporting events, and when the economic situation improves, the customers (corporate and individual) will return.  Let’s hope that improvement begins right away in 2009!