Where does Jordan Brand success leave Nike in basketball?

Ad Age did a brief case study on the Jordan Brand last week, revealing that it has eclipsed the sneaker sales of Reebok and addidas. That surprised me for a minute, but not when you look deeper at the roster of athletes it has assembled. Dwayne Wade, Carmelo Anthony, and Chris Paul are arguably the next three most marketable players behind Lebron and Kobe, so add all of their sneaker sales with the line of Air Jordan’s and you can see why the sales numbers are where they are.

My question is what does Nike plan to do moving forward. Jordan Brand has limited distribution, premium pricing and positions itself as the Mercedes (or fill in the luxury brand) of the industry. One look at their website indicates what the brand strives to be – the lineup of athletes dressed in fine suits lounging in a room no sign of sneakers, basketballs, or uniforms. Jordan Brand also poached Derek Jeter and CC Sabathia, a few prominent football players, and boxer Roy Jones. Again, all top of the line public figures in their respective sports.

Will Nike take Jordan Brand to other sports and continue to carry it as the premium play it is now, or will extend vertically in basketball, expand distribution, and offer products at various price points? From there, what is the end game for brand Nike? If they allow Jordan Brand to expand within basketball, which I don’t feel is the strategy, does Nike shift its focus away from basketball all together. If it horizontally expands Jordan over to baseball, football, and beyond as the premium brand, does it start to target lower price points or will it compete directly with Jordan risking some cannibalization to house maximum market share under the same Beaverton, Oregon roof?

I don’t have any answers, but it’s a testament to the power of MJ on how fast this entity grew and the lineup of stars it immediately attracted. At a time when Under Armour is trying to enter the sneaker business, Nike continues to get stronger, and with Jordan Brand now successful on its own, brand Nike can shift its efforts to other sports and other products to cut into the strengths of Under Armour, Reebok, and addidas.

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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.

NHL Trip Abroad Misguided

A few weeks ago the NHL dropped the puck on its new season, which many of you may have missed. Even those who watch hockey might not know opening weekend took place in Helsinki and Stockholm. Another misguided, failed business move by the league, though I can’t say what they failed at since its not clear what the goal was.

For the NFL, MLB, and NBA, international makes sense since these sports are near a saturation point in many domestic markets and need to establish themselves outside the country to develop new revenue streams. Further, most of the world is not as familiar with baseball and football – though baseball has come a long way recently and is big in the Pacific Rim, so the mission of those leagues is part educational, part evangelist, all to drive future business, similar to what the NBA did starting with the Dream Team.

On the other hand, hockey is arguably more popular in some Northern and Eastern European countries than it is domestically. Not to mention the NHL is far from a saturation point in the US, and still has growth opportunities in its home base of Canada. By taking opening weekend out of the country, it became out of mind, out of sight on the sports scene. The games started at noon, a losing proposition during the week or on the weekend against college football. They were buried on Versus, so no casual fan was likely to stumble upon it. And most importantly, the league did next to nothing to market the games, neither hear nor in Sweden, according to reports from the game. If the NHL plans to have the games, at least stand behind the decision and try to make it successful.

Here’s my confusion. No marketing push. No chance that a team will move to Sweden, so cross off market testing. No need to establish the sport there, as its already popular. Maybe I’ll buy extending the NHL brand, but Sweden has produced numerous NHL players, so fans are likely familiar with the league – and Sweden does play in the Olympics, often finishing better than the US.  Attendance was disappointing, and the league garnered no additional media deals or sponsorships (to my knowledge), so not much on the revenue angle.

All this said, what exactly were they trying to accomplish? While they were trying to accomplish this, did they notice they missed another opportunity to gain some notice with casual fans in local team markets by pushing Opening Weekend, or by having a big game on Versus (think Crosby or Ovechkin) to start the season. Instead, local television in Florida decided not to air one of the games in Helsinki. Explain how that helps a struggling franchise.

Hockey may never compete with the other leagues, but with continued in fighting and poor business decisions, its going to move in reverse as smaller sports surpass it.

OptionIt Allows Teams to Combat Secondary Market

Last week OptionIt, a ticket futures marketplace, inked the Boston Celtics to a pilot deal, their most high profile team yet. It’s a small deal – only 15 games and a handful of seats at each game, but it’s a direction more teams need to seriously assess, given the amount of value they currently relinquish to the secondary ticket market.

OptionIt functions similar to the option market for stocks. Customers can purchase an option to buy a ticket to a certain game for a set price. The option carries a cost and has an exercise date by when the customer must decide to purchase the ticket at the exercise price or let it expire and lose the option price. OptionIt will only sell as many options as it has tickets, so every option is guaranteed a ticket, which makes sense since capping supply will boost prices. If OptionIt allows this to function like a true marketplace, more popular, marquee games will see option prices increase from the higher demand, and they could also increase the exercise price for tickets, essentially replicating the auction process StubHub uses through a different approach.

While teams continue to struggle at the gate, continue to cry poor about revenue numbers and economics, they move at a snails pace relative to other industries to try to fix the problem. A former President of Business Operations for a baseball team once told me that teams fail not when they are trying to sell tickets with a bad team, but by not fully capitalizing when they field a good team. In line with that, it’s a wonder why more teams have not integrated dynamic ticketing and simple, yet intuitive concepts like OptionIt.

Without even introducing the dynamic pricing through market conditions, teams capture a new revenue stream by introducing the option fee, which a third party collects today. For playoff games, or marquee games against big draws, that can net a comfortable six-figures without any cost attached (assuming a straight revenue share type deal with OptionIt). Start using market-based dynamics on the exercise and option price, then teams can begin to capture more of the ticket value they currently give away to the secondary market and ticket brokers.

Teams need to shift their focus from creating new ticket promotions and all-you-can eat packages to controlling a market in which they are the content owner, or at least balance it between the two. As much, if not more money is left on the table from not capturing full value when demand is high as is lost by not selling tickets some tickets at today’s discounted prices. If teams focus on the higher margin opportunity, they can help bolster revenue without even selling a seat.

New Ticket Offers: Innovative or Another Reason to Worry?

In this blog, I’ve previously lauded the Cleveland Indians for cross-marketing deals with the Browns and creating ancillary revenue streams by hosting dinners on the field and additional events outside the game. However, after the Tribe recently announced another cross-marketing deal, this time with the Blue Jackets, a few weeks after owner Charles Dolan claimed the team would lose $15-20mm this season, I’ve started to question how far teams should take these off-field deals.

Cleveland is not alone, as most major league teams are trying creative ways to move ticket inventory – and many continue to struggle as much or more than the Indians, notably Pittsburgh, San Diego, and Tampa Bay. When evaluating company stocks, I always feel that when a company starts introducing products or services it has maxed out a saturated market (i.e. Coke/Pepsi moving outside Colas) or its struggling and started to scramble. The day the ice cream shop down the block started selling potato chips and sandwiches, it was clear the ice cream business was not doing well and the store was doomed. Best Buy selling outdoor patio furniture is another example of a sign that a company may be struggling with its core competencies and in for a rough patch.

It’s no secret Cleveland is struggling, but have they become desperate? Running cross promotions with the local hockey team a month after trading away your two best players for financial reasons may come off as more gimmicky than value-add to fans and customers. I’m sure team management asks these questions of themselves before embarking on these initiatives – does it align with the brand, what is the benefit to the fans, what does the cost-benefit trade-off look like, etc. In addition to the quantity of these non-baseball deals serves notice that the team is really struggling, the totality of the deals also serve notice with fans, and can dilute the brand as it becomes less about baseball.

The Indians face a tall order. The region has a number of cities struggling due to the recession (a recent news publication listed 8 of 10 top struggling cities in the Rustbelt area) and due to its on-field struggles Cleveland unloaded its most recognizable stars at the last two trade deadlines. Now its left with a team of disappointing signings (Hafner) and many unknowns, struggling to sell tickets, bleeding money, and no saving grace evident. It’s somewhat haunted by signing Fausto Carmona and Hafner to early contracts with the good intention of locking them up, but the lasting effect of clogging payroll on two underachievers.

They can’t blame the ballpark like a Florida Marlins or Minnesota Twins, though the Twins don’t have the same attendance problems. At this point, do these additional business deals risk diluting the baseball brand and losing more core fans, while not attracting new fans who view the promotions as gimmicky. Or can the team actually use these marketing deals and promotions to remain sustainable while rebuilding the team? An interesting question that will play itself out in baseball over the next season or two in cities like Cleveland and San Diego, with business savvy staffs and struggling teams.

Natural Evolution of Advertising Hits Golf

ProBagAds might be changing how player sponsorship and advertising for golfers work. SBJ reports the company has released a golf bag with a built-in H-D, weatherproof digital display that can show advertisements, similar to the outdoor digital billboards that are growing in popularity. Tour player Michael Allen debuted the bag in August.

At a time when sports sponsorships have come under fire, hitting golf particularly hard, and with technology innovation creating new, potentially valuable inventory this product is a natural fit. For those who say digital advertising on a golf bag would mar the traditions of the game should go look at what sponsorship has already activated, look at the Fed Ex Cup format, and the purses that golfers earn at each tournament. In the end, if golfers want to earn the big paychecks and support each other, the golf community needs to be open to these ideas.

Don’t expect to see Tiger or Phil walking this course with these bags anytime soon. They don’t need to, since they garner so many top notch sponsorships. It’s targeted to the middle and lower tier players, those scrapping through with less fanfare. Even if those player’s previously had sponsorships, those sponsors have to question the ROI of paying individuals with less media exposure and less probability of contending for wins. This brings those players back in play – and creates potential opportunities for tournaments and the Tour itself to boost revenue.

I envision a formula similar to online ad networks emerging, where ProBagAds (or an agency representing them) will sign players on to use the bags for a percent of revenue generated from their bag. This incentivizes and rewards good play, since golfers who make the cut have four rounds of inventory instead of two, plus national television exposure on the weekend. ProBagAds can find a way to price inventory different for players in contention receiving more media exposure on the weekend, and subsequently pass through the additional revenue to those players.

On the sponsor side, ProBagAds can then go sell a network of inventory across many players to the sponsors. This mitigates the risk of sponsoring an individual, expands the reach and exposure of a golf-based campaign, and reduces the cost of entry by sharing it across many advertisers. Further, the digital component offers space for more compelling creative, calls to action, and better recognition overall thanks to the clarity of the screen. Inventory is probably best sold on a time basis, similar to TV.

While more complicated, tournaments and the PGA Tour could potentially get a stake in the process by signing up players without other sponsorships and offering some form of compensation. Then they could sell advertising or create more value for current sponsors, and use that to help underwrite the growing purses that have put some tournaments at risk.

Outdoor digital advertising works, and works well. The economics are sounds – the screen only costs $2500-$4000 to install, which the product will easily make it back in short order. It’s a great way for brands to get involved with the sport without committing big money, a way for players not earning millions to supplement income, and golf properties to earn incremental revenue. The questions remains though, who will play the role in sales and representation as the product evolves.

Activist Owners Good For Sports

You can go both ways on Jim Balsillie’s pursuit to own the Coyotes – he doesn’t deserve to own a team because of his brash antics and the fact the other owners don’t necessarily want him, or that he would be good for the league, infuse money, and good business sense. The more this carries on, the more I lean toward the latter. His motive seems to be that he really wants to own an NHL franchise – not build an arena, or make a business play. He is passionate about hockey, and that’s a good thing.

Owners with deep pockets and a passion for the sport increase the value of the entire league, and usually field successful teams, financially and competitively. People may mock what Stephen Ross is doing in Miami, from the short-term naming rights deal to the groundswell of celebrity figurehead owners, but the bottom line is he’s trying, he’s active, and he’s doing it for the fans. He came into Miami, hired the best people around to run the team, now he’s bringing in the best people available to create a fan experience and connect the team with the community. Ross is building an all-encompassing entertainment product that will generate sustainable revenue, while giving his football people the resources they need to make the team an annual playoff contender. If you’re a fan, what else can you ask for. Plus, his actions have generated positive brand awareness nationally, and he has successfully extended the Dolphins brand into new target markets with the ownership and partnerships.

Mark Cuban turned a moribund Dallas franchise, and like it or not, helped catapult the NBA from its post-strike, post-Jordan malaise. He managed his team in first-class, created an environment that players wanted to play in and fans wanted to be part of. His antics certainly crossed the line at times, but his antics have certainly had a positive impact on the sport. Look at George Steinbrenner in NY and the Celtics ownership team. Owners that come from successful business backgrounds that buy teams because they have a passion for sports and plan to stay involved with managing the business of the team usually succeed, which benefits everyone around them.

Back to Balsillie, the NHL needs his deep pockets in the league. One less team to worry about making payroll, or to worry about surviving, is a good thing for a league struggling to find stable ground. One more owner that will pour money into marketing the sport, who will focus on putting a good team on the ice, and creating a positive fan experience, will benefit all the other owners and the league as a whole. His style may rub people the wrong way, and rightfully so as he has mishandled many issues. However, in the end, if they embrace him as an owner, Balsillie may eventually yield a payoff for the entire league, if his comparables in other sports are any indication. He certainly has the pedigree with his success at RIM.