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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 means—electronic, mechanical, photocopying, recording, or otherwise—without 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 body’s 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 League’s Manchester United or Major League Baseball’s New

York Yankees, command premium valuations. Forbes Magazine publishes an annual

list of the world’s 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 World’s 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 athlete’s playing and

endorsement contracts). Agents help maximize the athlete’s 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 one’s 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 UK’s Premier League and Europe’s 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 sport’s

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 Ecclestone’s 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 sport’s 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 driver’s championship. In this example,

since both are from the same team, then the combination of their two point totals are

awarded toward the constructor’s championship. F1 has become one of the largest and

most popular sports while also nurturing an image as the world’s 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/.