Recently, we sat down with the Goizueta Newsroom to answer some questions about our research and the website:
While often seen as one of the premier basketball programs in the country, UCLA is not even ranked first in brand equity in the Pac 12. It is not a top 10 program with respect to brand equity. Thus while there is a mainstream elite perception of UCLA, our study indicates that over the last ten years, UCLA has not created the revenue premium of schools like Arizona. This has negative implications for recruiting and fan loyalty.
Reports this morning have Chris Collins accepting the head coach position at Northwestern over the same position at Minnesota. Based on our Big Ten Brand Equity Rankings, this seems to be a mistake. Minnesota is ranked second in the Big 10, while Northwestern is ranked 8th. Greater brand equity means higher fan loyalty and more revenue in the athletic department. This money can be used for better facilities and for recruiting. Chris Collins seems to be eschewing brand equity in order to return to his hometown.
For many college basketball coaches, the NCAA tournament provides an opportunity for increasing their pay. For instance, it has been reported that Tubby Smith could have received a $2.75 million bonus if the Golden Gophers had won the NCAA Title, while Shaka Smart could have earned an additional $350K if VCU had won the tournament.
The variation in incentive contracts of coaches suggests that the value of making and progressing in the NCAA tournament is not well understood. In the analysis below, we report the one year projected value of reaching the tournament or the final four for schools and coaches.
For example, for the aforementioned Tubby Smith, we estimate that reaching the final four would result in $797,700 in brand equity (annual) while Minnesota’s cost in terms of bonus payments to coach Smith would have been $600,000. In contrast, if VCU had progressed to the final four, the benefit to VCU is estimated to be about $1.1 million while the payout to Coach Smart is just $56,000.
We suspect that this analysis will provoke questions. Several such questions are provided below:
1. How was the analysis performed?
Elsewhere on this site we report an analysis focused on school’s and conference’s brand equity. These estimates are computed using a revenue premium model. Basically, this model examines single year revenues as a function of performance in a given year. The excess revenues (the residual of the model) represent a form of brand equity. Specifically, the revenue premium (or deficit) provides a measure of how the team’s brand influences fans to pay more (or less) for the school’s basketball product than is merited simply by the team’s on court success.
To understand how this brand equity is created, we then examined the relationship between brand equity and each school’s past NCAA success (Tournament participation and Final Fours) and conference membership (major or mid major). The results from this statistical model then reveal how brand equity is created by reaching the tournament or the final four. We also use a nonlinear specification for these terms to account for whether cumulative achievements yield diminishing returns. Finally, we include terms that estimate separate effects for high and mid major conference members.
2. Since Brand Equity is an enduring asset wouldn’t it make more sense to look at the Net Present Value (NPV) of the created brand equity?
This is a complicated issue. On one hand, it is likely that an improved brand image will have at least medium term effects. It is, however, hard to assess the dynamic impact, because coaches can often “harvest” a significant amount of the increased equity through higher salary levels.
3. Why don’t colleges use greater incentives and perhaps less salary when negotiating a coach’s compensation package?
It could be argued that our analysis suggests that compensation should be more heavily skewed towards bonus payments. The logic for this argument is that if brand equity creation can be measured then coaches should be paid for their actual results. However, we must remember that the coaching hires occur in a competitive market. It is likely that coaches are somewhat risk averse and may prefer fixed salaries over incentive-heavy contracts.
4. Why doesn’t Louisville create brand equity from making the tournament?
In the case of schools’ like Louisville, the existing brand equity and fan expectations are so great that the impact of making the tournament is negligible. It is more likely that making the tournament merely maintains the Louisville brand. Failing to reach the tourney would likely hurt the brand, but Rick Pitino would need to take the Cardinals to the final four to improve the Louisville brand.
Brand equity is a common concept in marketing. The basic idea is that well known and well thought of brands provide value to organizations. Examples of high brand equity brands include companies such as Coca-Cola, McDonald’s and Apple. These brands have value because consumers may have significant loyalty to the brand, or may be willing to pay a price premium. There are a wide variety of methods for calculating brand equity. Most methods involve surveys of consumers, and focus on data such as awareness levels, loyalty rates or consumer associations.
For our “College Basketball” brand equity analysis we use a “Revenue Premium” method. The intuition of this approach is that brand equity is reflected in a school’s men’s basketball revenue relative to the team’s quality. To accomplish our analysis, we use a statistical model that predicts team revenues as a function of the team’s performance, as measured by winning rates and post season success. The key insight is that when a team achieves revenues that greatly exceed what would be expected based on team performance, it is an indication of significant brand equity.
There are, of course, other possible measures of brand equity. Consumer surveys could assess fan awareness, or we could look at a school’s ability to recruit five-star student athletes. The advantage of a revenue premium approach is that the brand equity measure is directly determined by market performance. This is not to say that a revenue premium approach is not without faults. Schools may face short- or medium-term constraints that prevent them from fully exploiting the value of their brands. For example, while the Duke Blue Devils score very well in our analysis, Duke University could likely increase overall revenue by replacing Cameron Indoor Stadium with a larger facility.
For now we have conducted two analyses related to revenue based brand equity premiums. The first is a ranking of teams for the 6 major conferences. Secondly, we have also ranked all the conferences in Division 1 basketball.
Our hope is that fans find these analyses of interest. We will be happy to respond to questions about the method and to engage in debate. We also expect to frequently update the site with additional analyses, insights and updates.