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Excerpts from
Professor John A. Davis, Dean-GMBA and MGB and Professor of
Marketing, SP Jain School of Global Management
Dubai-Singapore-Sydney, and co-author Jessica Zutz Hilbert prepared
this case, which is an excerpt from their book Sports Marketing:
Creating Long-Term Value (2013 John A. Davis and Jessica Zutz
Hilbert and Edward Elgar Publishing UK). This case is for academic
purposes only. Cases are not intended to serve as endorsements. To
order copies or request permission to reproduce materials, contact
Edward Elgar UK in writing. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or
transmitted in any form or by any meanselectronic, mechanical,
photocopying, recording, or otherwisewithout the permission of
Edward Elgar Publishing UK.
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The following excerpt is from Sports Marketing-Creating Long
Term Value.
Chapter 1, pp.11-18. John A. Davis. 2013 Edward Elgar UK.
Cycle of Value in Sports
Live sports events reveal the interplay among four fundamental
variables. This
dynamic relationship among the four variables is known as the
cycle of value and the
diagram below shows how they contribute to creating value in
sports:
Athletes
Fans
Media
Sports Marketing
The cycle is simple and is represented by this diagram:
In essence, athletes attract fans, fans attract media, media
attracts sports marketers,
and sports marketers attract athletes. The cycle of value is a
vital dynamic in sports
since it describes the interrelationship among the four key
variables. The logic is
clear, but turning this into a valuable investment for sports
marketers is an ongoing
challenge. The purpose of this book is to uncover and understand
these variables and
how they interact to affect value and sports marketing
decision-making. We will learn
about the role of each of these four variables and how they
interact to develop and
sustain value for sports marketers.
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Sports Value Chain
The cycle of value is at the core of a more sophisticated
concept known as the sports
value chain that is, in essence, a description of the
interdependent links among the key
components of the sports industry:
Leagues, Federations, Governing Bodies
Every major sport is governed by an organizational entity that
prescribes the rules of
competition, schedules games and matches, manages post-season
championship play,
and serves to protect the intellectual properties within
(trademarks, logos, slogans,
colors, and similar key identifiers). Each governing bodys rules
and regulations can
also affect how sports marketers develop their marketing
activities. The governing
bodies and league structures vary by sport, as examples later in
this book will show.
Owners, Teams, Clubs
Within most sports are teams and clubs run by individual or
corporate owners (two
notable exceptions are professional golf and professional
tennis). Teams and clubs
have developed fan followings over time, with the level of fan
loyalty and size of
their overall fan base dependent on their location, longevity
and history of success.
Owners acquire athletes primarily through universities,
developmental leagues, and
trade, and the size of investments made in athletes,
particularly acknowledged stars, is
in the tens or even hundreds of millions of dollars. The best
known teams and clubs,
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such as the Premier Leagues Manchester United or Major League
Baseballs New
York Yankees, command premium valuations. Forbes Magazine
publishes an annual
list of the worlds most value sports franchises. In 2011 the top
50 were
Franchise League Owners Value
1. Manchester United Premier Glazer family US$1.86 billion
2. Dallas Cowboys NFL Jerry Jones US$1.81 billion
3. New York Yankees MLB Steinbrenner family US$1.7 billion
4. Washington Redskins NFL Dan Snyder US$1.55 billion
5. Real Madrid La Liga Club members US$1.45 billion
6. New England Patriots NFL Robert Kraft US$1.37 billion
7. Arsenal Premier Stanley Kroenke US$1.19 billion
8. New York Giants NFL John Mara, Steven US$1.18 billion
Tisch
9. Houston Texans NFL Robert McNair US$1.17 billion
10. New York Jets NFL Robert Wood Johnson US$1.14 billion
11. Philadelphia Eagles NFL Jeffrey Lurie US$1.12 billion
12, Baltimore Ravens NFL Stephen Bisciotti US$1.07 billion
13. Ferrari F1 Fiat Group US$1.07 billion
14. Chicago Bears NFL McCaskey family US$1.07 billion
15. Denver Broncos NFL Patrick Bowlen US$1.05 billion
16. Indianapolis Colts NFL James Irsay US$1.04 billion
17. Carolina Panthers NFL Jerry Richardson US$1.04 billion
18. Tampa Bay Buccaneers NFL Glazer family US$1.03 billion
19. Bayern Munich Bundesliga Club members US$1.03 billion
20. Green Bay Packers NFL Shareholder-owned US$1.02 billion
21. Cleveland Browns NFL Randolph Lerner US$1.02 billion
22. Miami Dolphins NFL Stephen Ross US$1.01 billion
23. Pittsburgh Steelers NFL Daniel Rooney and US$996 million Art
Rooney II
24. Tennessee Titans NFL Kenneth Adams, Jr. US$994 million
25. Seattle Seahawks NFL Paul Allen US$989 million
26. Barcelona La Liga Club members US$975 million
27. Kansas City Chiefs NFL Lamar Hunt family US$965 million
28. New Orleans Saints NFL Thomas Benson US$955 million
29. San Francisco 49ers NFL Denise DeBartalo York US$925 million
and John York
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30. Arizona Cardinals NFL William Bidwell US$919 million
31. Boston Red Sox MLB John Henry and US$912 million Thomas
Werner
32. San Diego Chargers NFL Alexander Spanos US$907 million
33. Cincinnati Bengals NFL Michael Brown US$905 million
34. AC Milan Serie A Silvio Merlusconi US$838 million
35. Atlanta Falcons NFL Arthur Blank US$831 million
36. Detroit Lions NFL William Clay Ford US$817 million
37. McLaren F1 McLaren Group US$815 million
38. Los Angeles Dodgers MLB Guggenheim Baseball US$800 million
Management*
39. Buffalo Bills NFL Ralph Wilson Jr. US$799 million
40. St. Louis Rams NFL Stanley Kroenke US$779 million
41. Minnesota Vikings NFL Zygmunt Wilf and US$774 million Mark
Wilf
42. Chicago Cubs MLB Ricketts Family US$773 million
43. Oakland Raiders NFL Mark Davis US$758 million
44. New York Mets MLB Fred Wilpon and US$747 million Saul
Katz
45. Jacksonville Jaguars NFL Wayne Weaver US$725 million
46. Chelsea Premier Roman Abramovich US$658 million
47. New York Knicks NBA Madison Square US$655 million Garden
48. Los Angeles Lakers NBA Jerry Buss and US$643 million Philip
Anschutz
49. Juventus Serie A Agnelli family US$628 million
50. Philadelphia Phillies MLB David Montgomery US$609 million
and partners Source: Badenhausen, Kurt. The Worlds 50 Most Valuable
Sports Teams. July 12, 2011. Forbes. Retrieved July 24, 2011 from
http://www.forbes.com/sites/kurtbadenhausen/2011/07/12/the-worlds-50-most-valuable-sports-teams/
Players Unions, Associations
These are labor organizations whose purpose is to represent and
protect players
interests concerning wages, working conditions, hours and their
rights as professional
athletes.
Coaches, Managers, Agents
Coaches and managers are concerned with team and individual
player development,
developing strengths and unique skillsets, and strategizing
athlete/team performances
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throughout each season against each opponent. Agents are
paid
consultants/representatives of each athlete, helping negotiate
their playing contracts
and endorsement deals (agents receive a percentage of the
athletes playing and
endorsement contracts). Agents help maximize the athletes
marketability during their
primary playing years.
Stadiums, Venues, Arenas
The stadiums, venues and arenas where athletes and teams play
are essential to sports
marketing. Not only do they provide seating for fans, but they
have facilities for
owners and leagues to develop additional revenue streams through
the sale of
merchandise and food and beverage items. In addition, most
sports facilities provide
signage and similar marketing communications vehicles for
corporate sponsors and
advertisers. Additional revenues are often realized by offering
pricing tiers based on
seat type (standing, reserved, luxury box) and location.
Furthermore, as the teams and
athletes competing in stadiums, venues and arenas develop over
time, so too do the
reputations of these facilities, leading to a phenomenon known
as home team
advantage (due to the presence and support of their home fans
and the psychological
comfort of playing in ones own facilities). Naming rights are
often another way for
owners of teams and facilities to generate additional financial
gain for their sports
franchises.
Loyal Followers
Sports fans are a type of customer in the classic business
sense. While sharing some
similarities with traditional business customers, loyal sports
fans differ in that their
commitment and devotion to their favourite team and/or athlete
tends to remain
steady, even when their favourites are underperforming. Finding
similar loyalty from
typical non-sports customers for a company whose products are of
inconsistent
quality is rare, particularly since most products have
competitive substitutes that
consumers will use if their previously favourite brand
disappoints them. Given this,
media companies such as television broadcasters, as well as
advertisers and sponsors,
find loyal sports fans to be a particularly attractive and
valuable audience.
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Casual/Attendees
Many sports fans are more casual and less loyal to their
favourite teams and athletes.
These fans may follow sports only occasionally, such as during
big games with rivals,
or during the end of season championships. Or, casual fans may
have a light interest
in a given sport and watch it if they are seeking an
entertainment alternative. Even
though they are not as committed as loyal sports fans, casual
fans are still attractive
and important to media companies and corporations since they
typically represent a
larger portion of the population than loyal sports fans,
comprising a significant
audience. There are also members of the viewing audience with
little interest in
sports, but still watch them occasionally because of the social
nature of the event (i.e.
their friends are watching, or a unique entertainer will
perform, or a special promotion
is being advertised, or other similar appeals attract them).
Broadcast, Print, PR
Broadcast, print and PR (public relations) are also known as
traditional media because
these have dominated the media landscape for decades and have
well-developed
methods for making full use of their media type for marketing
communicators.
Traditional media are particularly effective for raising
awareness among large
audiences and communicating a clear, simple message that is
memorable. Sports
marketers, particularly in Europe and North America, still
significantly rely on
traditional media to reach mass audiences. Most sports events
are still broadcast
through conventional televisions, or aired via radio.
Cable, Digital, Social, Internet
Since the advent of the commercial Internet in the 1990s, the
pace of technological
change in media has been rapid, showing few signs of slowing
down. Cable, as
opposed to airwave broadcasts, has facilitated the rapid
development of new
programming in sports, increasing access around the world and
allowing media
companies and advertisers to tailor their messages to narrower
audiences. The
emergence of digital and social media in the 2000s has added to
the range of tools
sports marketers can use to appeal to various audiences. Digital
and social media has
also fostered a much stronger and more demanding consumer
audience, effectively
changing the relationship between organizations and their
customers from one
controlled by the organization to one controlled by customers.
This change has also
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coincided with a shift from one way (from organization to
market) to two-way
simultaneous communications (an ongoing dialog between the
organization and the
marketplace). The result is that organizations (sports
companies, teams, leagues)
are finding that they must listen far more actively to their
customers than ever,
otherwise the risk of a fan backlash increases noticeably. This
is not meant to suggest
that fans control the business decisions of their favourite
organization (such as player
trades). Instead, the implication is that any sports
organization, or athlete, must be far
more attuned to the feedback from their fans to ensure their
reputation and brand
value remain strong.
Suppliers, Merchandisers, Licensees
Suppliers, merchandisers and licensees supply the products
sports fans and athletes
buy. Sport governing bodies, teams (and owners), sporting goods
manufacturers, food
and beverage companies, and sports agents all play a role in
generating additional
revenues through officially approved products with protected
trademarks, logos and
slogans purchased by sports fans. These offerings are an
important mechanism for
fans to stay connected to their favourite athletes and teams and
to display their loyalty
to others. A form of social pride is an important by-product of
fans wearing and
consuming the products of their favourite sports entity. These
products also help
reinforce the brand image of that sports franchise and often
serve to inspire demand
from other consumers.
Sponsors
Sponsors are typically companies that wish to be associated with
a given sports entity
(league, event, team, athlete, coach). Sponsors pay a fee for
this right and, in the
case of major sports events such as the Olympic Games and FIFA
World Cup,
companies invest in extended sponsorship relationships lasting
years. The rationale
for sports sponsorship is to raise awareness of the sponsoring
entity and associate the
values of the sponsored entity with their firm. Paying
sponsorship fees represents only
part of the investment. Sponsors then have to activate their
sponsorship by spending
additional money on buying media time, hiring an advertising
agency, developing
creative communications, and even developing and launching new
products.
Activation activities can cost another 2-3 times the initial
sponsorship amount, but the
potential benefits are significant when a sponsor/sports entity
relationship succeeds.
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Advertisers
Advertisers are those organizations that seek to use a sports
event, team or athlete to
promote their products and/or companies. An obvious example is
the stadium signage
seen during the UKs Premier League and Europes UEFA football
matches. The
SuperBowl game, pitting the top two teams from the U.S.s
National Football League
(NFL), is known for being a successful event for companies to
gain exposure. The
SuperBowl is also well known for the unusually creative, even
weird, advertising
companies have. Not all advertisers are sponsors (nor do they
have to be), but all
sponsors advertise since they want to leverage their sponsorship
investment to attract
new customers, reinforce existing customers and develop their
brand image in front of
a large audience.
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The following excerpt is from Sports Marketing-Creating Long
Term Value.
Chapter 3, pp.86-87. John A. Davis. 2013 Edward Elgar UK.
F1
F1 (Formula One) began formally in 1950, although an earlier
version of racing,
called Grand Prix Motor Racing, was popular for nearly 20 years
in the 1920s and
1930s. The term Formula refers to the unique vehicle
specifications the sports
twelve racing teams are required to meet. The sport has
undergone many changes
over the years, perhaps none more important than those
introduced by Bernie
Ecclestone in the 1970s. Prior to Ecclestones arrival. F1
drivers could choose which
races they wished to enter and negotiated terms with the
individual promoters of each
race. While there was a loyal fan following, it was eclectic,
mostly European,
relegated to the cities in which the races were held, and
perceived as a sport only for
the very rich. Ecclestone determined that the future success
depended on getting all
teams to participate in all races. He reasoned that this
commitment from the teams
would build confidence from sponsors that the teams and drivers
were reliable, which
would help improve fan loyalty, increase overall fan numbers,
and thereby make the
sport more attractive to TV broadcasters as well. His changes
took many years to
enact, but in short, Ecclestone transformed the sport from a
regional novelty event to
a true professional league with a more formalized set of rules.
TV interest grew,
sponsorship investments increased, and the sports popularity
grew around the world.
During his early years in the sport, Ecclestone progressed from
being an owner of one
of the racing teams to eventually taking over as CEO of Formula
One Management,
Formula One Administration, and Formula One Constructors
Association, all three
of which are in the Formula One Group of Companies. The Formula
One Group is
responsible for overseeing the FIA F1 World Championship every
year, comprised of
two individual world championships: the drivers and the
constructors.i Twelve teams
compete in 20 races each season, and the top 10 finishers
receive points as follows:
1st: 25 points 2nd: 18 points 3rd; 15 points 4th: 12 points 5th:
10 points 6th: 8 points 7th: 6 points 8th: 4 points
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9th: 2 points 10th: 1 point
Each team is allowed two drivers. If those two drivers finish in
the top ten, then they
each receive the points associated with their particular order
of finish per the scale
above, and the points then count toward the drivers
championship. In this example,
since both are from the same team, then the combination of their
two point totals are
awarded toward the constructors championship. F1 has become one
of the largest and
most popular sports while also nurturing an image as the worlds
most prestigious
racing sport.ii i Williamson, Martin. A brief history of Formula
One. n.d. ESPNF1.com. Retrieved November 2, 2011 from
http://en.espnf1.com/f1/motorsport/story/3831.html. ii F1. Points.
n.d. F1.com. Retrieved November 14, 2011 from
http://www.formula1.com/inside_f1/rules_and_regulations/sporting_regulations/8681/.