Basic Economics Driving Super Bowl Ad Buys

This year the focus of Super Bowl advertising has been more on who is not in the game, then who is. Annual stalwarts Pepsi and FedEx are out, and major US car companies will obviously take a back seat. It’s easy to point to the economic recession causing major companies to reassess internal spending, but a better reason is that $3m for 30-seconds only makes fiscal sense in specific situations.

What the recession has forced companies to do is assess ROI (or some measure of impact) of its marketing spend. In doing so, some major brands have come to the realization that all the theatrics and hoopla surrounding the Super Bowl don’t necessarily add up to sales increases. In fact, if a brand drops the ball during the big game, it may actually hurt sales, while a good commercial may find itself into the highlight reels for all of the following week but not necessarily into the next 10-Q. It raises the age old question if someone is going to pick Coke vs. Pepsi based on which commercial they like better.

The Super Bowl is great for smaller or start-up brands looking to emerge into the mainstream and announce themselves. It also benefits more established brands launching a new product line, attempting to reposition within the marketplace, or putting out a specific call to action with the goal of capturing market share. E-Trade and Monster successfully pulled off the former, while Denny’s was hit using the latter strategy with its popular offering last year. Denny’s returns with a similar spot this year, which they can easily measure the success of by counting customers who use the offer, and is a smart ploy since once you have customers in the restaurant you have a greater chance of retaining that customer.

While E-Trade and Monster continue to use the Super Bowl to build their brands, many first-timers will attempt to catapult themselves into the public eye, including Qualcomm’s FloTV, Boost Mobile, and tru TV (a Turner network). The Super Bowl makes sense for all of them as they are announcing themselves and their products to a broad audience, or in the case of truTV, introducing a show related to football that will attempt to capture new viewership for the channel.

On the other hand, does it really help AB-InBev to continue putting up Bud and Bud Light ads every year, or Coke to come up with a new creative and spend close to $6m for one-minute? That’s why Pepsi and FedEx made smart decisions not buying time. They have nothing new to say, no new products to launch, they are already well-established brands that everyone watching the game is familiar with, and to be honest, they may actually receive more hype leading up to the game by deciding NOT to advertise than some competitors who do decide to advertise, an interesting reverse psychology.

In the end, it should not be a big story that FedEx and Pepsi are out, and the likes of kgb and Motorola (desperate to push its new phone) are in. It marks the natural evolution of Super Bowl ad economics. Established brands buying simply to showcase a new creative and be the talk of Ad Week is not worth $3m+, while new brands and new products can use the game as their introduction to the world since it’s the broadest reach it can achieve in one spot all year. However, given the cost relative to the marketing spend and revenue for some smaller, growth companies, a Super Bowl ad buy can be make or break – as many found it during the dot come era.

What Hockey Needs, What Soccer is Getting, and Why Sports Cable Ratings Thrive – ESPN

Monday Night Football on ESPN is up over 20% from last season. College football on ESPN had its best year in over a decade, including its most watched game since the 1990’s. The Heisman Trophy presentation reached new high water marks. Last season’s NBA playoffs finished up. During football season ESPN is consistently the highest rated cable network each week, often by substantial margins.

Yes, sports in general and football in particular, are carrying TV ratings across the board, but much of ESPN’s success should be attributed to the marketing machine it’s created. A daily listener to their morning radio show, a few weeks ago I realized all they day on Monday morning is review Sunday’s games and hype Monday nights game, then on Tuesday they spend most of the show recapping Monday night’s game, bringing in a cavalcade of guests. This is not just a recap, its four hours of national radio smacking you in the face. I noticed it because I got sick of listening to it. Then when you turn on ESPN they are live from the sight of the game, it leads Sportscenter for a full 12-hour cycle at a minimum. Go online, same thing. As a more well-rounded sports fan, I was searching for a crumb of baseball coverage from the winter meetings, but nothing – all football, all the time. Even when the MNF game stinks, they still smack you upside the head with it.

Same thing with the Heisman. Cover stories all week, interviews, enough promotions so that you have the time, date, and tag line memorized. However, given how big the NFL is, maybe this would happen anyway, so its last night that really magnifies what ESPN can do. Broadcaster of roughly 90% of the college bowl games, last night ESPN had the less than illustrious Las Vegas Bowl, pitting BYU and Oregon State in what on paper was a decent matchup, but turned out to be a blowout. They moved the top two teams in college basketball to ESPN2 to put the game on the mother ship, then led Sportscenter with Las Vegas Bowl highlights and full coverage from the sight. The Las Vegas Bowl, a 24-point blowout, the lead on a night with NBA action, almost the entire Top 10 in college basketball on the court, and a significant MLB trade? When you have the control to dictate what people watch like they do, its amazing what is possible. If that game was on Versus, you would get a 30-60 second highlight no earlier than two segments into Sportscenter.

Don’t criticize ESPN for it, they are maximizing value of their assets, and the ratings show that people don’t mind. It shows that any sports property not bigger than ESPN, needs to partner with ESPN, notably hockey. ESPN is planning the white glove treatment for World Cup soccer in 2010, and its almost a guarantee that the ratings will set new records for soccer in the US. In the midst of their coverage, its also a guarantee that the NHL playoffs will get buried as ESPN goes double-barreled with World Cup and NBA playoffs.

It’s not the first time I’ve brought up this subject, but I think its worth noting now as ESPN’s tailored programming and the resulting ratings reached new heights this fall, at a time where hockey is more lost in the media landscape than ever before. They need to get on ESPN, they need to get on now, and they need to let ESPN show them how to market superstar athletes to the public.

Football Business Not Bulletproof

Without debate football is the most popular sport in this country, though in some parts college may edge out the pros, on the whole the NFL stands atop the perch. Many factors contribute to its popularity – the shorter schedule makes it easier for fans to follow and each game more meaningful, the hitting and action, the weekend schedule and prominent media coverage make it hard to avoid, but two huge differentiators are fantasy and gambling.

As typically happens in business, success and excess profits attract competition. This year brings with it another round of potential NFL competition (or complements, depending on your view), with business models built on the premise that we have an insatiable, almost infinite demand for football. Unfortunately, the early returns for the UFL, as many predecessors found it, find that high demand is not necessarily the case when you take away the top players, team brands, and with it the quality of football. Who thought billboards of Ted Cottrell would ever draw fans in NY? Forget the product on the field, I would never want a marketer trying to jumpstart a league that would come up with the idea to market Ted Cottrell to the NY market.

We can debate about the league structure not working, the time of year creating insurmountable competition, but what the league lacks is a gambling interest and fantasy games. Of course, it needs public awareness and superstar players to draw that interest, however in the end gambling and fantasy may mask the true popularity of football. College football creates a strong fan base from alumni or a bond in the local community that is impossible to recreate, especially for a league whose teams have no true home fields or home cities, since its setup more as a barnstorming operation.

Ratings and attendance fell woefully short of expectations in the first few weeks, and the league has already decided to move games from prominent professional stadiums to smaller, local venues (Citi Field to Hofstra is quite a drop off), which is not a good sign in the first month or two of operation. It took the AFL almost 20 years to reach some level of national appeal before it fell apart due to ownership and labor disputes. The UFL and others don’t have that kind of time, and the nomadic model that lacks the cornerstones that make football America’s sport are missing.

On the flip side, the NFL staged it’s third annual London game this year, with much less hype and, up until game day, still not sold out. Stories continue to swirl about the expanding the overseas schedule, franchising a team in the UK, and eventually a Super Bowl there. That’s all well and good, but the league should get its house in order in its core market before making the plunge. Jacksonville and Detroit games are regularly blacked out, the second biggest market has no team, the sport has struggled to gain traction with some ethnic groups, notably the Hispanic community, and it’s failed to gain a foothold in neighboring Canada.

Creating an additional revenue stream through international is all well and good, but for a sport that is not marketed overseas and that few other countries can relate to or understand, one off games don’t create the type of impact that an effort to resolve some of these domestic issues could have. Played one game annually generated initial excitement, but after three years has lost its twinkle, as seen by the lower ticket sales and less emphatic splash. Plus, you can’t send the Tampa Bay Bucs and expect to win over skeptical fans. The fact the league needs to compensate them to go should speak to how little enthusiasm teams have for this idea. And when the fans get more excited about extra point kicks than touchdowns, we know a hard education on the rules is still in order.

I still think international is a great expansion venue for league business, but I think the NFL has some pressing issues within the core market that it needs to address with more vigor before focusing the required effort on a bigger effort overseas. This is without even mentioning the pending labor issues they face. Overall, football is not bulletproof and we may be able to link many of its advantages over the other major sports to gambling and fantasy sports.

Should Sports Change Revenue Sharing to TARP-like Program?

Last week’s SBJ cover story on the state of Detroit’s sports teams battling through the recession further illuminates how hard the recession has hit that part of the country. Sports teams are the least of Detroit’s problems, yet they remain one of the few refuges for an area fraught with unemployment and failing businesses.

Three key points I took away from the story: 1) Detroit has phenomenal sports fans, it’s aggregate per-cap attendance across all four major sports as a testament; 2) for the most part, the city is blessed with top ownership (we know about the Lions), Davidson and Ilitch have put wining teams on the field, done right by the fans, and tried to do right by local business; 3) the recession is stronger than both #1 and #2, which will make it difficult to sustain these teams over the next decade.

Ticket sales and sponsorship revenue are the most critical and most volatile revenue streams for teams. The economy has put both under significant pressure in the Detroit market. Teams face a steeper trade-off in ticket sales vs. price reductions than most markets and its key sponsors lost significant marketing budget. Lions aside, since the NFL shares revenue in a more equitable manner across the league, each team expects a significant revenue drop this year, which immediately makes it more difficult to field a championship-caliber team.

Looking further down the line, the auto industry will never look the same, and the future of these key sponsors and a critical regional source of employment is in jeopardy for the long-term. That said, will Detroit teams require, and should they receive a boost from the league’s central pool, similar to the government backing its local companies.

From a pure market size perspective it’s a border line top 10 DMA (11 to be exact), but the unemployment numbers, per capita income, and discretionary income numbers make it a candidate for help. Should leagues focus more on helping these owners, who have proven they invest in the team, have loyal fan bases, and can be a key market for leagues than the low-income owners that reap the benefits of revenue-sharing, yet do not add much value to the league.

Putting absolute numbers aside, using forward-looking marginal revenue metrics, leagues should consider if adding each dollar they subsidize Detroit with adds more value to the league and other teams than each dollar MLB subsidizes Pittsburgh or Florida, for example. Market size, ownership wealth, and absolute revenue numbers don’t encapsulate who most needs revenue sharing. Leagues should visit which teams need it at the margin, and how much value the investment (and it is investment by the other teams) can add to the league at large. Detroit – along with other traditional sports cities in struggling regions, are good candidates to consider in the short-term.

Can Fans Handle More Fantasy? Teams Should Find Out

Nobody can debate the power of fantasy sports and the value of the marketplace, currently dominated by football. Following typical economics, as customers showed their appetite for more fantasy, competitors have flooded the market with countless products, each claiming a different fantasy experience, or unique prizes. In the end, most of the products are similar and ESPN and Yahoo continue to dominate because of their established brand and unmatched scale.

However, one area I’m surprised content producers have not yet fully exploited is team-based fantasy games or contests linked to in-venue or in-game viewing. Football aside, other major sports have room for growth. In fact, basketball and baseball participation remains flat or down the past few years, so each could use some innovation to invigorate it. Further, the local nature of these sports lends themselves more to team-based games involving their home team and maybe specific opponents or rivals.

The concept aligns with the current movement for teams to nurture a community. Nothing stimulates engagement more than fantasy, so if teams can steer that engagement to their own websites, broadcasts, and live games, it could lead to indirect benefits in key revenue streams, in addition to creating a new branding platform. Further, teams control the assets (players), the arena, at least have a significant say in television, and have a complementary web presence. With this combination of assets teams could activate fantasy in a compelling manner through multiple distribution channels and have real, coveted prizes (locker room visits, luxury suite, road trip) with access that other fantasy outlets can’t offer.

Thus far, most teams and leagues have taken a backseat, allowing media and retail operations to claim much of the value they create. It’s time for teams to become more progressive, be willing to step out and be innovative. We can think of any number of ways to implement the game, that’s not the hard part. Making the decision to do it, marketing it the right way, and executing well are the keys.

Conversely, if teams don’t act soon, media outlets with focus shifting toward local will jump on it. ESPN <Fill in the City> already possesses the know-how and operations to extend fantasy to city and team levels. CBS can leverage its local radio stations to do so as well. It’s only a matter of time for RSNs finally to move on this opportunity they have sat on for years, especially with the ESPN putting the competitive pressure on.

Maybe the fantasy market truly is saturated, and fans simply can’t handle more. But, if I’m running team marketing or business operations, I’d rather find that out rather than let someone else cash in on my assets once again. A few small shops have started to poke around with Facebook apps (Watercooler), and a rogue game or two has emerged here or there, but when the teams or major media entities make the move, then it becomes serious.

What to Make of the NHL Network

Earlier this decade starting 24-hour cable networks became the cool thing to do for major sports leagues – NBA TV, NFL Network, more recently MLB Network, and of course the NHL Network. The first three have sustained notable successes and failures, nonetheless most people are aware of the three networks and what their position in the market is. The NHL, on the other hand, is an afterthought.

Few people know about the network, let alone watch it. That begs the question if your brand wants to use television as a marketing tool and revenue-generating utility, how do you plan to succeed with relatively little penetration. Last check the NHL Network is only in about 12mm households (though the number may increase with the Comcast deal), and despite league management saying the goal is wider distribution, I have not heard much of a fight from their camp to achieve this.

Conversely, they don’t have much leverage with cable operators. MLB, NFL, and the NBA each have major national television deals and broadcast and cable that earn substantial ratings, plus MLB and NBA ratings on regional networks often exceed NHL ratings in similar markets. Clearly, the other three sports have much more demand in the US. MLB boasts more content than any sport because of its long season, the NFL has made ancillary events such as the draft and combine into annual media frenzies, and the NBA’s work with Turner have given its network a boost. The NHL has none of that going for them.

The league tried to leverage cable operators by tying its Center Ice out-of-market package to network distribution, but again the package does not have the demand or popularity to force the hand of cable operators. Given the low subscriber penetration rate, and the difficult battle it faces to move the needle on that, plus the minimal subscriber fees it earns from the cable providers, I’d argue the NHL is failing to achieve both goals – marketing to a broader audience and revenue generation. That said, the league should reconsider its network strategy, rather than pursue a losing proposition.

If the league wants to stay in the content business, they should focus on developing shows and licensing them out to regional networks and international providers, rather than striving to program a 24-hour network. This could help reduce costs, while maintaining a revenue stream, and bolster distribution by leveraging with more availability – i.e. RSN’s, other niche sports networks.

Further, NHL’s online presence is well-designed and provides a great fan experience. It can try to shift the network completely online, have free and premium components, still license content out to television networks and web portals, use iTunes and other mobile distribution platforms, and shift the cable provider strategy to more VOD, which they have pursued with Comcast.

As the red-headed step child of major US sports, the NHL needs to stay ahead on the innovation curve and be willing to take more risk. Following the same network model that other leagues use is a doomed strategy for the NHL at this point. The league needs to develop something unique that extracts value from the current fan base (without gouging them), and achieves the reach and relevance needed to expand its fan base.

Ticket Sales Problems Magnified in NHL

We have focused on lagging NFL ticket sales putting local games at risk of blackout, a recessionary indicator for what is hands-down the most profitable and popular sport in the country. Recent MLB numbers show significant year over year declines in two-thirds of the markets. Hidden behind these stories is the effect on hockey in the upcoming season.

Unlike MLB, the NBA, and especially the NFL, hockey does not have media contracts in excess of a billion dollars and as many big, long-term sponsorship deals as the three major leagues. Same concept applies at the local level – media deals are insignificant for most teams relative to the other sports. Without these guaranteed cash flows, teams rely for a higher percent of revenue on ticket sales, creating much greater exposure to the market.

Last week the Minnesota Wild, with the current longest sellout streak in market where hockey is popular, announced they still have tickets available for every game this year. Late last season the majority of teams announced ticket price freezes or even reductions, which may help stabilize sales but could hurt margins and will certainly not lead to increased revenues.

Given the ownership situations in Tampa Bay and Phoenix creating a glut of negative publicity in each of those markets, and nationally to an extent, the NHL could see a significant and potentially debilitating drop at the box office this season that puts many teams on alert. Someone will have to explain on Phoenix sold any tickets this off-season given the circumstances. Dallas has an owner facing bankruptcy and a lot of ticket money going towards Cowboys games, Florida has always been a bad hockey market, so its likely to be high on the list of discretionary spending cuts for struggling fans. Take the argument right to NY where unemployment is above the national average, Wall Street money is not at its previous levels, and the Yanks and Mets captured a larger share of sports spending this summer (with the Jets and Giants coming), hockey is at risk of getting squeezed.

Teams have responded by reducing cost structures, notably salaries have slightly retracted the past year or two, but likely not enough. With the CBA coming due it could be time for the league and its players to reevaluate the entire system, bring salaries further in-line with what the sport is relative to the big three (a lot smaller than they think), and look for new revenue streams (which they are trying to do online). More importantly they need to put teams into markets they can succeed in and correct the national media situation.

The NHL needs ESPN now. They need to make the NHL Network relevant. And they need to move teams into markets they can succeed in and then do a better job of selling tickets and promoting the league. Last week’s big preseason marketing push barely scratched the surface. Maybe doing it in NY and getting buried beneath the glut of news is not the best stage.

Something to keep an eye on the next few months.