O’Bannon versus the NCAA: A Marketing Perspective (Part 1)

Click here for Part 2 (The value created by colleges)

Click here for Part 3 (The value  created by athletes)

Click here for Part 4 (How would paying players change college sports)

Of all the sports in the world, my favorite is college basketball.  But I do have to admit that being a college basketball fan often feels a bit dirty.  Simply put, major college sports have evolved to be a strange animal that often seems exploitive of the athletes, and counterproductive for educational institutions.  This topic is top of mind due to the progression of the O’Bannon versus the NCAA lawsuit.

For those not following the case, O’Bannon versus the NCAA is an antitrust case that is concerned with NCAA rules that allow schools to profit from merchandise such as jerseys with a player’s names, or video games that feature a player’s likenesses without compensation being offered to the player.  This issue is the result of the strangeness of a system whereby schools and coaches are essentially operating as profit maximizing professionals while student athletes are bound to a code of amateurism.  Essentially, the O’Bannon suit argues that athletes are a vital element of the major college sports industry and that these athletes should receive a bigger portion of the revenues.  The next critical date is June 20th when it will be decided if the suit can proceed as a class action lawsuit.

While the suit is classified as an antitrust case, and the key objection of the plaintiffs is that the NCAA has engaged in price fixing, my view is that this case is really about marketing issues.  In particular, I view the case as about the creation of brand equity and the distribution of the value of this “marketing asset.”  This is a complicated issue.  Sports products are co-created by leagues, schools and players.  To take a notable and extreme example, one of the most successful sports products of the 1980s and 1990s were the Bulls teams headlined by Michal Jordan.  In this case the NBA, the Bulls and Jordan all reaped tremendous benefits.

At the college level, the benefits of brand equity flow more towards the coaches and institutions than the players.  The NCAA and its member institutions might argue that this is a legitimate distribution because their “brands” are a product of history and alumni loyalty rather than the presence of specific players.  For example, while a great many Tim Tebow jerseys may have been sold in Gainesville from 2006 to 2009, it is also clear that Florida would have continued to sell-out games, appear on television and receive significant benefits from being part of the SEC, even if Tebow had gone to another program.

In addition to being fundamentally about “marketing assets,” this topic may also be addressed through analytics.  This past week the Wall Street Journal reported the results of a study conducted for the plaintiffs by Roger Noll that suggests that a 2009 Michigan basketball player would have made about $250,000 per year if revenue distribution rules used in professional leagues were employed.  While the details of this analysis are not available, it sounds as though the calculations are based on revenues and revenue sharing rates across professional leagues.

Because, this case has the potential to fundamentally change the business of college athletics, we think this is an issue worthy of comment and study.  Over the next few weeks, we plan to offer a series of short articles that examine several of the key issues in the case and perhaps offer some analyses that speak to the ability of players to grow a school’s brand equity.

Next: Part 2 – Does Tebow Owe Florida?

Mike Lewis, 2013 Emory University.

 

An “Imperfect” Analysis of the Economics of Native American Mascots: Much Ado about Nothing?

A few days ago I came across an article in Forbes that discussed the continuing controversy surrounding the Washington, D.C. NFL franchise’s use of “Redskins” as a team name.  As a University of Illinois graduate and fan, the issue of Native American mascots is something that hits close to home.  As many may know, the University of Illinois dropped the “Chief” in 2007 while keeping the Illini name.  There are many Illinois fans that view the decision with derision, and think of it as political correctness gone wild.

One nice consequence of the Emory Sports Marketing Analytics (ESMA) project is that we have assembled a significant amount of data that provides opportunities to address many topical questions.  The issue of how Native American Mascots affect a team’s revenues and brand equity is (almost) one such question.  I say almost because while the team name currently in the news belongs to an NFL franchise, the most relevant data we have available comes from NCAA basketball.

Here’s the upshot of our study examining the impact of changing the Native American mascot: Schools experience a very short (1 or 2 years) negative financial impact and then quickly recover.  Furthermore, in the long-term, the shift away from a Native American mascot yields positive financial returns. Now, an examination of our study, and all of the caveats associated with it.

NCAA basketball includes numerous examples of teams that have dropped, kept or adapted Native American mascots.  For example, St. John’s and Marquette have dropped Native American mascots and changed the team nickname.  Illinois and Bradley have retained their team names but dropped all Native American imagery.  Other schools such as Florida State and Utah have received permission from tribal representatives and made no changes to their mascots or team names.  But, it is not perfect data because there are only a relatively small number of examples where teams change names (and as noted above there are a large number of special circumstances such as the Seminole tribe’s embracing of FSU).  The approach we have taken to analyzing the impact of Native American mascots and switches away from using a Native American mascot therefore requires some creativity and several assumptions.

Our first analysis involved predicting men’s basketball revenues as a function of a wide variety of factors including: season winning percentage, tournament success, stadium capacity, enrollment, historical successes (championships, final fours, tourney appearances), and conference affiliation.  For this analysis, we also included variables related to the school’s history and current status with regard to Native American mascots.  Specifically, we included a variable that indicated if the school had ever had a Native American mascot, the time since a change had been made and whether the school had kept a Native American mascot (for this analysis we treated Bradley and Illinois as having dropped the Native American mascot).  This analysis yielded a marginally significant negative term for the variable that indicated if the school had ever had a Native American mascot, and a significant positive term for the time since a shift away from a Native American mascot.  (We should also note that as always we experimented with a large number of alternative specifications, such as log transforms of time since shift and quadratic formulations.  The findings we report are robust in that they occur across these various specifications).

In terms of financial impact, the model results suggest that school’s experience a very short (1 or 2 years) negative impact and then quickly recover.  The results also suggest that in the long-term the shift away from a Native American mascot yields positive financial returns.  As a follow up, we used the brand equity measures created here as a dependent variable and regressed this value against the previously defined variables related to the school’s use of a Native American mascot.  In this analysis we found NO significant effects.  The key implication is that switching away from a Native American mascot has no long-term negative effect on brand equity.

The preceding analysis requires a fair amount of caveats.  For instance, it may not be reasonable to assume that findings from college basketball translate to pro football.  College fans often refer to their teams based on the name of the institution (Illinois beats Maryland) while pro fans might more often refer to team names (The Bears crush the Redskins).  It should also be noted that the data available for studying the effects of mascots is limited.  For example, there are only three schools that have received permission to use tribal names.  This is too small of a sample to make conclusions about the effect of tribal permission on the outcomes generated by Native American mascots.

All that said, we believe that our findings have a great deal of face validity.  While the use of Native American mascots is controversial, it is not clear to us that the consequence of a shift away from a Native American mascot is that big of a deal.  While some fans may complain, it is not clear that these fans actually change their behavior or their shopping habits.  It might also be that merchandise sales become more appealing to segments that did not like the previous Native American mascot.

Mike Lewis & Manish Tripathi, Emory University 2013.

Winners, Losers, and Question Marks from the Men’s NCAA Basketball Tournament

Later tonight, the NCAA championship game between Michigan and Louisville will tipoff in the Georgia Dome.  Even though a champion has yet to be crowned, we can begin to make some judgments regarding the marketing winners, losers, and questions marks of this year’s tournament.  Before we provide our thoughts, please note that tournament success will usually result in greater publicity, fan loyalty, and all the spoils that come with brand equity (think Apple or BMW).

The two teams in the championship game are both interesting stories.  Louisville is a marketing monster, and enjoys the greatest “revenue premium” relative to on-court performance, but Michigan is another story.  Michigan performs poorly on our brand equity metric because history shows that Michigan needs to win consistently to keep the arena packed.  Anecdotally, we had to explain this poor brand equity finding to a distinguished University of Michigan business school professor, who pointed at this year’s excitement as an indicator of fan loyalty.  Given that this was a UM professor, we had to explain using small words, that true fan loyalty means that the fans even show up in down years.

For the two teams in the championship, Louisville is a clear brand equity winner, as they will continue to lengthen their lead on the competition; but the jury is still out on Michigan.  The only potential losers in the Louisville family are the Louisville fans that could be asked to pay higher prices.  As a frustrated University of Illinois fan, Professor Lewis would view this as a very small sacrifice for basketball success.

Michigan faces the challenge of all football schools: the year consists of the football season, spring football, and the remainder is perhaps a tossup between basketball season and football recruiting.  For Michigan to create true basketball brand equity, the school needs to sustain success.  While Coach Beilein’s history suggests this is likely, Michigan could lose multiple underclassmen to the NBA draft.

Two schools that didn’t make the NCAA Tournament also offer an education comparison.  Tubby Smith failed to make the tournament, and was replaced by Rick Patino’s son, Richard.  Given Minnesota’s high level of brand equity (2nd in the Big Ten), this was likely a decision to protect the brand by trying to bring in a dynamic young recruiter.  The most notable team to fail to make the tournament was last year’s winner, the Kentucky Wildcats.  The Emory Sports Marketing Science Initiative makes no pronouncements about Kentucky.  I think we can all agree that Kentucky and Coach Calipari have developed a new and unique business model.

March Madness is known for its Cinderellas.  This year’s top two Cinderella stories were the Wichita State Shockers and the Florida Gulf Coast Eagles.  Our assessment is that Wichita State was the BIG winner.  Not only did the Shockers reach the magical level of the Final Four, but also, at least as of now, Coach Marshall is sticking around.  For a mid-major to build equity, the school needs to sustain success beyond that achieved by an individual coach.  This last point brings us to FGCU.  By his hitting the exit for USC with amazing haste, it is likely that any fan excitement created by reaching the Sweet 16 has left the state of Florida with Andy Enfield.

 

 

Watching for Brand Giants in the Elite Eight

Each year, the second weekend in the Men’s NCAA Basketball Tournament gives us eight teams competing for spots in the Final Four.  One might assume that match-ups between the top college basketball brands will be correlated to the highest TV ratings; however our analysis of Nielsen TV ratings, team match-ups, and brand equity dismisses this conventional wisdom.

We analyze Elite Eight data from 2010 to 2013, and find that metrics at the match-up level such as the combined brand equity of the two teams or the difference in brand equity of the two teams have a negligible correlation with TV ratings (less than 0.1).  Thus, from a brand perspective, the match-up of two Goliaths or the David versus Goliath match-up does not seem to be correlated with viewership. Rather, it seems that on a given Elite Eight Saturday or Sunday, when there are four teams playing, there is a significant positive correlation between the highest brand equity team and TV ratings, and a significant negative correlation between the lowest brand equity team and viewership.

A possible explanation for these findings is that Elite Eight viewers look at the full set of teams playing on a given day, and are drawn-in by strong brands, but put-off by weak brands.  These findings also seem to possibly indicate that given viewership preferences, it is really difficult for a low brand equity college to improve its brand.

 

The Trouble with UCLA…

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.

Chris Collins headed to Northwestern, not Minnesota

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.

 

NCAA Basketball Coaching Compensation

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.

Revenue Premium Based Brand Equity

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.