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!

I’ve written about how the economy is impacting some of the major and minor professional sports leagues, but what about sport at a participation level?  I don’t think the economy is keeping kids and adults from playing basketball, football, or baseball/softball.  However, the one participation sport that seems most vulnerable is golf.  Let’s think about some of the attributes that fit with golf:

• The demographics are primarily middle-aged, white, middle-to-upper class males.  Of course, this is also one of the demographic segments that has been hit hardest by the crashing markets.
• Golf is an expensive sport to play, with the costs of equipment, clothing, and greens fees.  As personal entertainment budgets get reduced, it is hard to justify the cost of the game.  It will also be hard to justify the expense of equipment for young players that want to learn the game, which could have a longer-time impact on the sport.
• Golf is also a time-consuming sport.  With a down economy, people are less willing to set aside a large chunk of time, particularly during the work day, to play a round.
• The golf course is “where business happens.” Well, there’s not much new business happening, which means fewer “meetings” on the links.

Chris from Arizona State passed along a great MSNBC article from earlier this month that goes into much more detail on the troubles for the golf industry.  In particular, there are more course closings and fewer new courses being developed, which ties directly back to problems in the real estate world.  The article talks about how the housing market has reduced new development, since many courses are tied to new housing development. 

I think its reasonable to conclude that of all the different sports to take part in, golf is the one that will fluctuate very tightly with market conditions.  But are there others that you also expect to suffer?  Let me know your thoughts in the comments!

Football Hits the Economic Wall – The NFL announced a 10-15% reduction in their staffing earlier this week, showing that even the most powerful league in sports is vulnerable to the economy.  They’ve also implemented salary/hiring freezes and are trying to slash expenses. Meanwhile, the AFL announced they may suspend operations for the 2009 season, although now it looks like they may be able to avoid this.

I’ve written several times about how the economy is hurting sports, but most of the time, I’ve referred to specific events or smaller organizations.  While the AFL is still a smaller league, the NFL seemed to be the league most likely to stave off these types of cuts.  Ultimately, it comes back to the drop in corporate dollars.  The automotive and financial industries have always been two of the biggest players in the sponsorship arena, and they are all making significant cuts, which is finally trickling back to the NFL.  But the NFL is still arguably the number one sports brand in the U.S., so they should have the ability to identify new categories that can benefit from aligning themselves with the league, even if they’re not as high-value as cars and banks.

Lots of sports business news over the last week that I haven’t had a chance to comment on yet, so here it goes:

C.C. Sabathia signs with the Yankees for $161M – You can argue back and forth over whether the Yankees should spend so much on him, but there is little question that the Yankees are the only team who could afford to do this considering the economy.  However, I have one other take on this signing.

Everything that Sabathia said and did before signing pointed him away from New York – he wanted to hit, he wanted to live on the west coast, he liked small markets. Yet when the Yankees upped their offer from $140M to $161M, I wonder if Sabathia felt he had to accept on behalf of his fellow players. Traditionally, the first marquis free agent signing sets the market for the rest of the players that follow, especially since agents like to use comparable players and contract values to set their own demands. If he had left a significant amount of money on the table (as much as $40-60M if he stayed in Milwaukee), that could have significantly impacted what other players could earn this off-season. I almost wonder if the MLBPA encouraged him to accept the deal (I am completely hypothesizing – I have not seen any actual news to suggest this).