Sports and Entertainment Marketing

Sports and Entertainment Marketing Chapter 3 -- Professional Sports

Big League Sports Chapter 3.1

Financial Impact • Dallas Cowboys worth $320 million in 1997 • Paul Allen, owner of Seattle Seahawks and Portland Trailblazers is worth at least $17 billion • Nike and Reebok have spent nearly $400 million in worldwide advertising • Joe Sakic, hockey player, earned $7 million annually from 1996 – 1999 • Professional sports make a handsome profit for owners, players, and sponsors • Professional sports require a huge financial commitment for a huge financial return • Professional sports give a city an identity and a winning tradition fuels the financial fire

Big League Pricing & Planning • Marketers consider the game they have to offer when determining the prices to charge • Cost of obtaining the best professional athletes must be considered • Winning team or product is necessary • Corporations buy groups of tickets to entertain clients

Financial Planning for a Sports Team • Owners and managers must convince cities that the cost of a team or new stadium will be repaid through increased spending of fans • Increased tax revenues to the city • NFL team is a financial asset to a city if: • everyone and everything involved with the team stays within the home city area • the stadium or arena is used for other events also • the team attracts other business development (hotels, restaurants, retail shops)

Bringing Resources Together after the Financial Viability of a Sports Team is Proven • media support, marketing arms, charitable concerns, and other organizations come together to back it • Dallas Cowboys- earned $60 million in profits in the last three years from off-the-field products (media rights, luxury suites, and team sponsorships) • Coca Cola is the official beverage of the NFL, but Pepsi is paying $40 million over the next ten years to be the official beverage of Texas Stadium (home of the Dallas Cowboys)

Prestige, Power Profitability A. value of sports franchises has skyrocketed due to prestige, power, and profitability B. Perks (perquisite) – payoff or profit received in addition to a regular wage or payment (example: tickets to a sports event) • Team owners receive many perks (money and media exposure) • -Jerry Jones –national television appearance • -Jerry Jones paid $140 million for the Dallas Cowboys in 1989 and the value has more than doubled ($65 million for the franchise and $75 million for the stadium)

Prestige, Power Profitability C. Political Clout • Franchise owners bring millions of dollars in business activity to cities – have political clout • Nashville, Tennessee wanted a professional football team (Titans, formerly the Houston Oilers) • new local jobs and businesses • new image for the city • motivation for young people to stay in Nashville • a new stadium was built to accommodate the Titans • Professional Teams and the Community • bring enthusiasm and heightened emotion and morale to a city • bring new jobs to a city (construction jobs for new stadiums, jobs for citizens once the team is operating, tourist dollars in and out of the stadium, boost for surrounding businesses, dollars spent by regional residents who come to the events, increased newspaper sales for the sports page)

Sociological Ties to a Professional Team • teams bring image enhancements to a city • pride to residents • people identify with their teams • something to talk about at work and at home • place for wholesome family entertainment • pride in their hometown • loss of a team can bring bitterness and depression • Art Modell, owner – moved Cleveland Browns to Baltimore in 1995 • Received bomb threats, hate letters and death threats for his actions

The Bottom Line • Winning is everything in sports. • Players are lured to other teams with special incentives for winning. • Bonus clause is put in player’s contracts if they win the big game (Super Bowl) • Power, prestige, and money also apply to college sports – new conference alignments

Attracting a Professional Team Chapter 3.2

Getting in the Game • more cities want professional sports teams than there are teams available • the league controls the location of the teams based on the business benefits to the league and owners • leagues are in business to make a profit • the groups of owners make up an exclusive club – holds the key to membership • cities hope to increase their income by hosting professional sports teams

Distributing the Game 1. individual teams are separately operated businesses, not in competition with each other 2. each team is a member of a cartel – a combination of independent businesses formed to regulate production, pricing, and marketing of a product 3. professional sports cartel – number of independent sports team grouped together and governed by a league agreement to control the market mix and set up the distribution of products

Distributing the Game (con’t) 4. teams are in leagues to have other teams to compete against 5. the league controls the distribution of the teams (locations, number of teams allowed to operate within the league) 6. Cartels are prohibited by federal antitrust law 7. Professional sports leagues are allowed to form a cartel because of special legislation exempting the leagues from antitrust laws

How Distribution is Decided 1. regions within a large potential customer base are considered favorable for the location of a team 2. owners may demand public funds to subsidize the new team 3. tax-paid subsidies must be supported by voters (some people consider this to be a form of corporate welfare) 4. 1998 – Cleveland, Ohio was granted a franchise to operate the 31st NFL team) 5. 24/31 of current NFL owners must agree to the selection of a new city to receive a team 6. owners set the price of the new team and split and “expansion fee” among them (players do not share in the expansion fee) 7. a potential owner has to have the financing to pay the NFL as much as $450 million to $600 million for an expansion team (the team also needs a place to play)

Attracting a Sports Team • there are fewer NFL teams than the market can support • cities compete whenever a team becomes available through expansion or moving • best facilities at the best price • until 1960 teams usually owned their own playing facilities • some state and local governments are eager to share in subsidizing major sports by financing stadiums • some franchises are selling the naming rights of stadiums to subsidize the cost of building the facilities

Attracting a Sports Team (con’t) • late 1990s – some taxpayer resistance to helping build facilities • taxpayers pay for facilities, owners use the money from attendance, broadcasting, and concessions to pay the salaries of professional players

Attracting a Sports Team (con’t) • It Takes Money • huge amounts of money and risk on the part of the owners • new stadiums offer luxury suites and upscale restaurants that increase the chances of profits • facility does not necessarily attract a team (San Antonio still does not have a professional football team) • pricing of tickets, concessions, luxury seating, and merchandise related to a professional team all contribute to the financial picture • television revenue provides the biggest profit (sale of advertising time on TV channels that offer the game) • networks sell the ad time and buy the right to air the games • cost per minute of advertising is based on the number of viewers • TV ratings are a major concern

More Money • 50 million television viewers in the Houston market (the nation’s fourth largest city was granted the 32nd franchise) • Los Angeles (three times the number of television sets as Houston) • Los Angeles was competing against Houston for the team. Los Angeles had two possible owners and Houston had one sound owner possibility. • Two Los Angeles groups competing for the team had neither the financing nor taxpayer support by the spring, 1999 – NFL Commissioner Paul Tagliabue announced that the league would consider financing the construction of a new stadium in Los Angeles • Estimated cost for a new stadium was $400 million • Houston taxpayers had already agreed to pay more than 60% of the $310 million proposed retractable-roof stadium • Billionaire Robert C. McNair had put together a seamless package to entice the current team owners.

And the winner is: The Houston Texans in 2002

Another Option • community ownership • local government or the fans own the team • Green Bay Packers sell publicly traded stock in their team (successful in nearly 80 years of belonging to the people) have won three Super Bowls, keep their facilities up-to-date, without adding more burdens to taxpayers • Major leagues currently forbid public ownership in most cases • “Give Fans a Chance Act” and “Yer Out!” are two political movements against state legislators who vote to subsidize professional teams with taxpayer money

Agents, Managers, and Ethics Chapter 3.3

Show Me the Money • agent – the legal representative of a celebrity 1. the celebrity pays the agent to manage the celebrity’s career, including negotiating contracts with a team, filmmaker, or concert producer as well as negotiating endorsements 2. agents for big name celebrities are either attorneys or accountants 3. complexity of contracts requires knowledge of laws as well as negotiation skills 4. agent is paid a percentage of earnings to protect the client’s financial resources 5. agents can take the credit for the high salaries of top celebrities and athletes

Show Me the Money (2) • professional sports players won the right to become free agents allowing them to play for the highest bidder, promotion of the players’ interests have been handled by firms who serve as the players’ agents • sports agents represent the players to management and also promote the stars to companies that might have endorsement opportunities

Polishing the Market Value A.Celebrities must ultimately be responsible for their own actions 1. character development takes time and effort 2. it can make the difference between a superstar and a wanna-be 3. NBA provides an annual training program for rookie players program provides information on dealing with finances and the news media and on avoiding drugs and alcohol 4. some players arrive in professional sports mature enough to handle their own business and behavior but some do not 5. number of crimes committed by pro sports players disturbs the general public 6. arrested pro players are establishing a history that is hurting the ability to attract sponsors for teams and individuals (illegal drug use, gambling, physical harm to other people) 7. aggression that is acceptable on the playing field is not acceptable in public 8. professional sports teams, leagues, and commissioners forgive transgressions by highly skilled athletes while sponsors may not 9. corporations like to be associated with athletes that fans like

Polishing the Market Value (con’t) B. Handlers – sponsors hire handlers to work closely with athletes who are unable or unwilling to police themselves 1. athletes must behave to be valuable to the firm 2. hired as a full-time mentor, companion, and off-court coach 3. preventing problems is the best financial interest for the athlete and the sponsor 4. the company and the athlete can not afford negative publicity 5. pricing of the sponsor’s product is affected by the costs of hiring someone to watch over the sponsor’s investment

Polishing the Market Value (con’t) C. Advisors –financial and business counselors rather than behavior monitors 1. Michael Jordan became the nation’s richest athlete and spokesperson under the guidance of Nike’s Howard White 2. White is credited with keeping Jordan at Nike since 1984 3. Advisors keep the athlete and sponsor together for the benefit of both 4. Make athletes feel like the company cares about them as human beings, not just as income producing faces

Ethics do Count A. Ethics are a system of deciding what is right or wrong in a reasoned and impartial manner B. NBA lockout during 1998-1999 was settled on the verge of a totally lost season C. Hakeem Olajuwon of the Houston Rockets (player’s association negotiator) met with the NBA player’s association negotiator and persuaded him to set up the last-minute meeting that led to the settlement D. Based on solid moral principles or high standards in both business and personal life E. Stages of moral development 1. childish behavior (bad behavior will result in punishment, good behavior results in rewards) 2. as a child matures – influence of others’ expectations of him or her grows 3. maturity – ac on the basis of a set of principles F. lack of mature adult role models G. unethical behavior by politicians, sports and entertainment figures, and even religious leaders H. lack of ethics can result in publicity that can undo the best marketing plans

Sports and Entertainment Marketing