Tag Archives: Sports Marketing

Throw Back Champs: A Lion King and Devil Rays!

Do you remember when Frank Sinatra, in his senior years, returned to the pop music charts in May 1980 with the Big Apple anthem New York, New York? Or when tennis legend Jimmy Connors, one year away from retirement at the 1991 United States Open, blasted his way into the semi finals against an entire younger generation of opponents?

They were both “throw back” champions of an earlier age, sporting strategies and styles that had not been utilized in years. Sinatra exemplified a bar room style of singing that had long ago yielded to the bouncier formats of rock, disco, and rap music. And Connors embraced a “charge the net” finesse-based approach that had similarly given way to a world of power serves and metallic racquets.

It’s rare to watch a single throw back champion emerge from the pack at any given moment in time; of course, it’s even rarer for two such champions to seize the public’s imagination at the same time. And yet, last week, that’s exactly what occurred across the nation.

Introducing … The Lion King!

Sixteen years have passed since Pixar began to nudge the animated film industry from hand drawn cells to computer generated scenes with the release of Toy Story, its first full length movie. And five years have passed since Disney itself, the venerable pioneer that launched the world’s original full length hand drawn movie in 1938 with Snow White and the Seven Dwarfspurchased Pixar for $7.4 billion.

But Disney has always been willing to pursue “throw back” strategies in order to grab the attention of the American consumer. In the 1990s, for instance, it purchased and renovated New York City’s New Amsterdam, a 1903 theatre in what was then a seedy Times Square district; its successful reintroduction helped launch the revitalization of the Big Apple’s theater center. And just two years ago, it released The Princess and the Frog, an old fashioned, full length film set in Jazz Age New Orleans.

Last month, it dusted off its 1994 animated classic The Lion King and re-released it in movie theaters across the nation. To the surprise of industry veterans around the country, it soared past the new Brad Pitt film Moneyball and became the most popular film in mass release in the United States.

The Miracle at Tropicana Field

Meanwhile, last week, baseball fans were marveling at the manner in which a throwback team in a throwback sport completed a historic comeback in a throwback stadium.

The team was the Tampa Bay Rays, named after the devil rays that swim along the western Florida coastline. The Rays are a low budget baseball team in a relatively small American city, playing in a decrepit ballpark that is named after an orange juice company. And the sport of baseball itself, of course, is a Civil War era game that (by certain measures) has fallen behind football in mass popularity.

But last week, the Rays astonished the sports world by rallying from a seven run deficit on its home field to defeat the heavily favored New York Yankees during the final game of the regular season, which propelled it past the wealthy Boston Red Sox in the standings and into the playoffs. Some sports reporters referred to it as the most exciting night in the history of the National Pastime, an event that reminded fans of the ancient charm of a team game that does not embrace electronic clocks or sophisticated equipment.

There Is A Market …

Why have these throw-back events grabbed the attention of American industry? Clearly, they demonstrate that there a market for entertainment pastimes that, at first glance, might be dismissed as relics of earlier eras. Like Charlie Chaplin movies that are featured at contemporary film festivals, and vintage baseball games that are played under nineteenth century rules and regulations, the enduring popularity of these events reminds us of the significant revenue that can be earned from such endeavors.

And when considered in tandem with the low costs of such productions, the net profits generated from such events can be immensely lucrative. After all, the cost of constructing Tampa Bay’s Tropicana Field in the late 1980s was $130 million, a tiny fraction of the $1.5 billion price tag of the New Yankee Stadium. And the additional cost of producing The Lion King for distribution last month was literally zero, the film having earned back its production costs during its initial run in the 1990s.

Simba the Lion and Evan Longoria (the third baseman who slammed two critical home runs to propel the Rays to victory), of course, are incredibly talented performers with qualities that cannot be easily discovered or duplicated within other characters or players. Nevertheless, as long as throw back champions continue to attract the attention — and the purchasing power — of American consumers, organizations will doubtlessly continue to try to replicate their magic.

Super Bowl Ads: The Tail That Wags The Dog?

Congratulations to the Pittsburgh Steelers for defeating the Phoenix Cardinals and becoming the champions of the world of American football! With President Barack Obama proudly backing the Steelers, and with Senator John McCain of Arizona undoubtedly supporting his hometown Cardinals, one might be tempted to declare a “repeat” victory for the Democrats.

The real victors, though, might be the folks at the NBC television network for managing to sell “a large number” of its advertising spots for $3 million per ad. With longtime sponsors like General Motors declining to purchase air time in the current economic environment, NBC’s accomplishment might have been the most impressive one of the day.

The contest for Best Super Bowl Ad, of course, has long challenged the game itself for the attention of television viewers. From a business perspective, one might ask the following question: is the Super Bowl primarily a sporting event that happens to be televised … or is it primarily a sequence of advertisements that happens to surround a sporting event?

The Role of Flexible Budgeting

Every professional sports league, of course, has its own unique approach to generating and sharing marketing revenues. Some, like Major League Baseball, allow each team to form its own cable television network, thereby allowing organizations like the New York Yankees to become revenue powerhouses.

Others, like the National Football League, prohibit individual teams from signing their own television deals. Instead, the NFL signs league-wide contracts with national networks like NBC and ESPN. Teams in major media markets like New York and Chicago are thus unable to gain a disproportionate revenue advantage over their smaller market rivals.

There is an additional complicating factor as well; namely, teams never know in advance how far they will advance in their league’s postseason playoff series. In other words, they have no way of knowing how much of their product will be available for sale, thereby making it extremely difficult to anticipate how much of their total revenue might be generated by ticket sales and ancillary game-day purchases.

Teams must therefore adopt very flexible approaches to developing their fiscal operating budgets. Fortunately, flexible budgeting techniques can be very useful in ascertaining the impact of advertising revenue on a team’s overall financial structure.

A Minor League Example

Let’s consider an example of a minor league sports team that plays 16 regular season games. If it advances into the league’s playoff round but fails to advance to the championship series, it will play 4 additional games. And if it advances to the championship series, it will (once again) play 4 additional games.

What about game revenues and expenses? Well, let’s assume that the team averages $420,000 per game from ticket sales and another $420,000 per game in food and souvenir sales. It spends $5,000 per game on athletic supplies. And, on an annual basis, it receives $8.4 million from the league as its share of television contract revenues. In addition, on an annual basis, it spends $12 million on player salaries, $10 million on stadium or arena rent, and $4 million on league adminstration and support services.

Now let’s assume that the league permits its teams to sign their own local advertising deals as long as they do not infringe on the league’s national television contract. So let’s say that our team launches two radio and billboard advertising campaigns during the regular season in its local market, and adds two more sharply focused campaigns if it advances into the postseason. Each ad campaign costs $1 million for production and placement services, and each generates earnings of $2.1 million from local businessmen who contract for the product placement of their brand names and logos in the ads.

At the beginning of the year, before the team knows how far it will advance during the playoff series, it creates the following flexible budget ($s in thousands):

At first glance, it appears that the key to financial success is a successful run into the postseason. But what about the role of the radio and billboard advertising campaigns?

The Ad Campaign Is The Game

Stop for a moment. Take a deep breath … and think. You just read my previous sentence and instinctively glanced at the Ad Production Expense line, didn’t you?

That was a mistake. If you did that, then you’re still thinking “inside the box.” An “outside the box” thinker would realize that the ad campaign isn’t just a part of the game. From a business perspective, it is the game.

Let’s go back to the budget and divide it into two sections. Let’s call one section our Marketing Division, consisting of the ad production expense and the product placement revenue that is generated by it. And let’s call the other section the Games Division, consisting of everything else.

Using this approach to bifurcate our financial structure, we can collapse our flexible budget into the following ($s in thousands):

This gives you a completely different image of the team’s financial profile, doesn’t it? Apparently, the marketing activities earn millions of dollars in profits regardless of the team’s success on the field or court. And the games themselves generally lose money, even for playoff teams, unless a team is lucky enough to advance to the championship round. And yet, even for the championship teams, the marketing profits far exceed the profits that are earned by staging the games.

Thus, if you decide to purchase a professional sports franchise, how would you define your business investment? No team advances to the championship round each year; even perennial favorites like the Yankees go through extended droughts. Thus, your only pragmatic business decision would be to focus on generating marketing revenue, and to use the sporting events as a platform for selling ads.