The New Sports Economy

http://kellogg.northwestern.edu/conference/sbc/index.html

 

Jennifer Lynn Storms (Senior Vice President for Sports and Event Marketing, Gatorade)

Gatorade History:

99-03: Organic Growth
04-06: Health & Wellness Craze
07-08: Economic Trouble

Gatorade has done research to see where they are losing their customers and primarily, they are losing them to tap water (49%). The perception is that it is ‘not what it used to be’ or ‘not for me’. The marketing strategy has changed and positioned Gatorade to be for ‘All Athletes’ (as opposed to elite athletes only). The marketing spend has also shifted away from TV/print toward digital. (87% in 2008 to 66% in 2009). That’s where the ‘teens’ are.

15-20% of sales are international.

There has also been a trend toward focusing efficacy in the marketing message. While it is difficult to integrate the science message into mass marketing (because you lose the customer), you don’t want to give up on efficacy either because that is your brand (it is not just colored water). A good ad along these lines is the Dwight Howard (with Orlando Magic) commercial, where after drinking Gatorade on the bench, a new, energized Dwight comes out of the old, tired Dwight and goes back to the game.

‘Eveything to Prove’ – marketing message

The Serena vs. Serena campaign portrayed Serena Williams, the tennis player against Serena the Dancer. ‘The Democratization of the Athlete’ This was well-received,by Serena because she was in the same league with Serena Williams, and by Serena Williams because she was compared to a graceful dancer.

The marketing shifted from traditional marketing (TV, print) toward social (online, blog, Twitter etc.) It is important for Gatorade to get athletes during their teen years because once they adopt, they are adopters for life.

G series. A holistic concept (but business started slow). The new campaign highlighted the importance of pre, during, post (Prime, Perform, Recover). People were drinking Red Bull, which is ‘bad energy’. Gatorade has Prime as ‘good energy’. In general, bookending G2 (by Pre and Post) helped with the placement of G2 (Perform). The new perception was ‘Ok – I need to drink it during the workout. Got it.’

Gatorade lost some money on the Tiger deal even though she thought they will keep it (We later asked her how they manage these type of risks. She said they manage it contractually and do heavy due diligence before a major sponsoring deal for about a year – meet with the athlete, the family etc. She was reasonably happy with contractually managing the risk, but we believe there is room for improvement)

Innovation is not a new concept for Gatorade, but they try to do it better. Their number one focus is it should be better for the athlete.

Product Development Cycle. Starts with the athlete. Athlete provides input, the lab tests it, sideline usage (by the athlete), commercialization. On the teen side, the teen sees the athlete drinking Gatorade on the sideline and asks mom (the decision maker/buyer/shopper) to get it.

Q & A – Performance food (not bars or ‘healthy frozen food’) could be a future opportunity for Gatorade (someone from the crowd asked about this possibility). Low calorie Gatorade coming up. Pepsi bought 80% of the bottling business. Gatorade does not consider 5-hr energy as a competitor – it is rarely discussed internally.

Our Takeaways:

1. Getting to the teens with the ‘all athletes’ concept and shifting toward the digital media has also implications for us. She specifically mentioned that being portrayed next to elite athletes was well-received. It is not you vs them, it is all of us. Think about it. The same divide exists in finance – the Wall Street vs the Main Street. Ultimately, the cornerstone of our education strategy will be the democratization of the consumer via a better understanding of finance at all levels.

Social media is less of a problem. We are just starting up, so we’ll be online, and I think we all understand the power of social.

2. From a marketing standpoint, Gatorade is facing the exact same problem. There is a technical message which they don’t want to get lost on the consumer, but your ad can’t just list the electrolytes and everything else Gatorade has, either, because you’ll lose the customer. The challenge is to subtly integrate the technical aspects into the marketing message, exactly what we are working on right now.

Panel 1 – The Economy’s Effect on Sport Business

Panelists:

Jay Blank (Executive VP, Chicago Blackhawks)
Ryan Luckey (Head of Sports & Entertainment Marketing, MillerCoors)
Andrew Miller (Assistant to the President, Clevaland Indians)
Jonathan Jensen – Moderator (Adjunct Professor, Sports Management, Columbia College, Chicago)

Challenges

Blackhawks – ESPN voted Blackhawks (BHs) the worst franchise (among all four major leagues) in 2005 or 2006. The BHs have not won the Stanley cup in 46 years (back then). From a revenue standpoint, they were at the 30th place out of 30 teams. With respect to sponsorship they were in the bottom and were one of the last two or three teams. The Blackhawks market needed credibility from a branding standpoint. There was work to do. A successful draft and the Wrigley arrangement (more on this later) helped to turn things around.

MillerCoors – The recession taught them beer is recession-resistant but not recession-proof. People dine out less and when they do, they drink less beer (yet switch to a better beer when they drink). For them, it’s more about marketing, not sports. You use sports as a tool to ‘eventize’.

Cleveland Indians – In 2007, they were one game away from the World Series. They had a brand new ballpark in 1994 and sold out 456 games. At some point, they had the third highest payroll. Over the last two, three years, manufacturing has decreased in Cleveland, three or four major companies left, and Cleveland experienced the second highest population loss in the country (after New Orleans). They are trying to re-engage fans, find alternative revenue streams and try to reach young fans. Indians haven’t won since 1948 (second only to Cubs) and the city of Cleveland has not won a championship (in major sports) since 1964.

What They Did

Beer does not grow at double digit (except for Blue Moon). Maybe goes up 1% in a good year and drops 2% in a bad year. Coors was official beer of the NFL. Miller was taking a team approach. Texas is a hot market (weather) – 1 out of 10 beers in the U.S. is sold in Texas. Cowboys is a good property. The strength of Cowboys and the Texas market helps them there.

BH – Build the sponsor relationship – let the sponsor win round one. Relationship with Chevrolet (Jay was with the Cubs before joining the Blackhawks and the previous relationship carried over). Two BH players, Jonathan Toews and Patrick Kane, were a major part of the branding initiative. The BH organization got them out there and made players a brand. When they won the Stanley Cup, two million people were at the parade.

Indians started the ‘Snow Days’ – additional 6 weeks utilization of the ballpark. People ice-skating around the field. The goal is creating fan engagement and fan memories. You just don’t watch a game, you are on the field. Other teams do similar events – Red Sox hosted a soccer game with Liverpool. San Diego Padres show Starwars on big screen, people camp on the field. Teams are ‘eventizing’ their property.

Some teams started to do 6-game or 13-game plans. These are good packages when you have a lot of inventory (seats). It is difficult to fill the stadium especially when the team underperforms. Baseball is extra difficult, you have twice as many games. The Wrigley field experience is unique, but not so for all teams. Concert tickets are harder to sell because i) more open access to music on the internet; and ii) economy.

Since 1994, Blackhawks and Bulls owned the building through a joint venture.

Indians performed a research on what the attendance drivers are. Here are the drivers (in no particular order): Performance, opponent, day of the week, whether kids are in school, weather. A lot of things you can’t control, like weather. They respond by variable ticket pricing (cheaper tickets in winter).

BH – Most Chicago people didn’t know much about BHs, or hockey, for that matter. They were not familiar with hockey terms (icing, powerplay etc.) They started a sponsorship with the Cubs and the White Sox (advertise between innings) and positioned it as an entertainment option. Turns out that the average NHL fan was a huge NFL fan, so they sat down with the Bears and started doing some commercials with players from both teams (it ended up not running due to some licensing issues)

MillerCoors – Different problem. Incremental signage is NOT the issue. Brand awareness is 97-98%. It’s all about activation. They also do Business to Business activation (can buy packages with Pepsi, Frit-O-Lay chips, and beer).

Indians – Ohio is a big football state and Cleveland is a big football town. Ohio State football is the big game in town – cross-marketing opportunities.

More on Tickets

The growth of secondary ticket markets (Stubhub, Ticketmaster etc). How does this change the business?

BHs had a relationship with Ticketmaster (Ticket Exchange). Lower level tickets are ~$180, which is expensive. The secondary market acts as an insurance to the consumer because they can recoup the cost of the ticket, which actually helps BHs (people are more willing to buy knowing they can offload it). Some people, of course, try to sell tickets with a profit, which is something BHs decided to live with.

Indians – MLB has a relationship with Stubhub. There are 300+ tickets available for every game, and for some of these games they haven’t started to sell tickets, so it must be the season ticketholders making their tickets available.

Q&A

1. Effect of Mobile

BH – Developed an app – free download. Fresh content every single day. Trying to get the person on the L. Mobile can also help with ticket sales, especially if they have inventory. They try to unload that four or five hours before the game (sometimes at discounts up to 50%) and mobile helps to reach the customer. Jay believes it’s all about content. Technology around it could change, but if you have good content, like player visibility, players picking up a flip cam, making jokes etc., it helps with the brand. Players were very cooperative, too. They are young; 21-22 years old, but fairly established in the market.

Indians – Social Media & Twitter. Fans love learning about their favorite players and teams Indians hired a former Northwestern baseball player who is now managing their social media strategy.

MillerCoors – Some apps, like Miller Lite Taxi finder. Also, people like to win stuff. They don’t care that much about winning 2 million dollars vs a T-shirt. The ability to win is what matters. From a technology standpoint, they have the Snap Tag technology, you are automatically entered to win.

2. BH Sponsorship with Cubs, White Sox. Are they competition?

BH – Not really. Once the hockey season ends (some time between April and June), the BHs don’t have a voice. The baseball partnership gave them a voice during off-season in the sports community. They don’t look at NFL as competition either. NFL is a great brand and they just wanted to attach to that market. Interestingly, now with the BHs on the rise, some other teams want to attach to the BHs. BHs have a very young fan base (the youngest in town), which helps them.

3. Revenue sharing?

Indians – Baseball is different from NBA and NFL. In 2007, they beat the Yankees and took the Red Sox to seven games. Not so successful since. Thin margin of error.

BH – Revenue sharing leads to parity. In the NHL, the top third of the market subsidizes the bottom third (BHs are a big market team). Salary cap is between $42-59 million. Jay thinks it’s healthy to have a hard cap because it creates balance. A $90 million cap would probably price the fans out of the market.

Indians – Big differences in baseball. Yankees spend $200 million and the Devils spend $40 million. But the Yankees have ten times the revenue, so they can afford it.

MillerCoors – ROI (Return on Investment) is the main metric. The purpose of the sponsorship is to earn money and activation. Better measurement tools are still missing. The sponsorships should be CARS (Credible, Affordable, Respectable, Simple).

4. How does losing players impact brand maintenance and sponsorships?

BH – It’s tough – you develop personalities and they’re gone. They are focusing on all their players. The BHs have more turnover than most of the other teams. They try to build new guys – but it is difficult.

MillerCoors – Sponsorship value does not depend on performance. Win or lose, you create value and more awareness. They are there through the thick and thin. Performance is not much of a driver for retail activation. The goal is to reach 95% of the fans they have never been to a NFL stadium and 70% of the fans that have never been to a ballpark. The question is how to activate them by using, say, the Indians as a tool?

5. Is Brand equity of players a determination in selecting them?

BH – If the player is a prospective draft player, teams will spend time with them, their families. But the marketing side comes after the performance side. They do have a media trainer though (a lady from Cleveland).

Indians – The marketing aspect is a little more important if it is a long-term contract or a free agent. But performance always outweighs that, especially in draft settings.

6. Can partnerships dilute the brand?

BHs – Sometimes you need to be careful – they did a commercial with Harris but didn’t run. Harris didn’t like certain things. You have to respect that.

Our Takeaways

The text in italics are pretty much the takeaways here. It is all about fan engagement, creating additional channels, during the season as well as off-season, and finding alternative revenue streams. The challenges in ticket sales was a good discussion – clearly that’s on the radar. The SRI does address pretty much all these points – it creates engagement, even during off-season, creates an alternative revenue stream for teams and helps with risk management.

Panel 2 – The Global Expansion of Sports Leagues & Business

Panelists:

Patrick Pierce (Director of Global Marketing and Sponsorships, Aon)
Brian Goldstein (Senior Manager, Global Sport Marketing, McDonald’s)
Johan Hedberg (Chief Operating Officer, Caddiemaster Enterprises)
Gordon Kane – Moderator (Founder, Victory Sports Marketing)

Gordon: This morning, Manchester United played Manchester City, and the salary total on both teams was $850 million, which is a record, and much higher than any sports event in the U.S.

Aon – Three primary business units: 1) risk portfolios, insurance brokerage; 2) reinsurance, work with insurers like State Farm, Zurich; 3) Recently acquired Hewitt (HR, consulting, outsourcing). 121 countries, over 60,000 employees, $8.5 billion in revenue. Manchester United shirt sponsorship.

McDonald’s – Sponsors the World Cup and the Olympics, Brian manages the day-to-day on sponsorships.

Johan – Did business in Canada, Israel, Germany, etc.

Aon – The goal is reaching young fans. You have these marquee events, what do you do in between? Fans crave more content (Comment: Note the very same issues – Young fans, need for content and off-season activation).

McDonald’s – 117 countries, 64,000 stores. 64 million people eating McDonald’s every day. Fans ARE their customers. How to expand customer base in places like South Africa, Qatar, Russia?

Aon – Soccer clinics in South Africa (Johannesburg). The assistant coach of Man U was there. You reach i) children of your clients; but more importantly ii) children in the community. These are big events for children. Other events in the Netherlands but in different formats (e.g., meetings with Van der Sar (a famous Dutch goalie))

McDonald’s – Recognition and recall is important. An example is the voice over by Morgan Freeman in McDonald’s campaign. In the World Cup matches, every player walks on the field while holding the hand of a child. All these children (22 per game, a total of 1408) were picked by McDonald’s. McDonald’s has a global budget but it is pushed to local affiliates.

To put things in perspective, the 2011 Superbowl was viewed by 116 million people in the U.S. 700 million people watch the World Cup. Similarly, while Super Bowl had a lot of viewers over the last few years (110 million in 2010), its 10-year average is more like 80 million. 88 million people watch Man U every single game.

Aon – Man U has phenomenal brand awareness in Asia. 100% in Korea (they have a Korean player), over 90% in Japan and China. For Aon, brand awareness in Asia is low, but the potential revenue is very high. Two years ago, people in Asia didn’t know Aon, now they see it on the TV every day through the shirt sponsorship on Man U jerseys. This makes conversations in Asia easier and a major reason why they have the sponsorship. (Comment: Note again the common elements – for corporations like Aon, Millercoors, sports is a tool to activate clients/consumers and it’s not so much about performance)

McDonald’s – South Africa is a unique market, no McDonald’s store within 1000 miles. You are NOT supporting a sponsorship because of a location, it is more of a tool to connect with the customer. 99.99% of the people do not go these events (the World Cup or the Olympics), so let’s bring the event to YOU. (Comment: Note again the similarities with the other panel – the exact point came up, how do you activate the 95% who never set a foot in an NFL stadium?)

How to measure?

Aon: We measure risk for a living, so we have a lot of analytical tools we employ before investing. We did 420 acquisitions in the last 20 years, but the Man U sponsorship has united the company like never before. We also look at what this does for employee retention and revenues. We have some complex models and proprietary tools around this.

McDonald’s – Beyond ROI, we also look at ROO (Return on Objectives). It goes beyond the dollars. What do moms think of McDonald’s? Find the best athletes and connect with local venues (like Yao Ming/China/NBA). McDonald’s Europe pays for the sponsorship of the Euro Soccer Championship, but now there is considerable interest by South Africa and Middle East and a potential buy-in into sponsorship by global (Comment: Good example of regional becoming global).

Q&A

1. Other notable sponsors in this area?

UNICEF – Aligned with sports even though it is a children agency. UNICEF had a Barcelona sponsorship until recently but now a Qatar company has it. Barcelona was leaving money on the table (the new deal is 30 million Euros a year). (Comment: Interesting case that combines social responsibility, globalization, need for revenues. Read more here:http://uk.eurosport.yahoo.com/09022011/58/la-liga-barcelona-drop-unicef-logo-shirt.html)

Ying Li Solar – another company that is active in this area.

In general, the trend is that the Middle East is popping left and right into the sports marketing and sponsorship scene.

2. Risk management with Aon sponsorship

There is some risk – but not a lot. First, it is a club, and not an individual. Two, it is a long term deal. Things may change – Alex Ferguson (long time coach) could leave for example, but not that much.

3. Community Building?

McDonald’s – Building rapport, engaging workforce. Viewing parties in Switzerland, Botswana.

Our Takeaways

Again, see the text in italics. Our first observation here is the community building aspect of it. It is important to engage with your customers and make a return on your investment, but it is crucial to do that under the social responsibility umbrella. We think this is perfectly aligned with our non-profit education arm and for-profit trading arm. Workforce engagement, the common goal elements etc. were also very interesting. Finally, note the link between sports and developing countries, especially Africa.