Tebow Fatigue?

In the past, we’ve discussed Tim Tebow in the context of the brand equity he created for the University of Florida.  With his recent departure from the New England Patriots, we thought it would be interesting to see how fans reacted to his being cut this time around (as compared to in April from the NY Jets).  The chart below simply illustrates the ratio of positive to negative tweets that mentioned “Tebow” on April 29, 2013 [when Tebow was cut from the Jets] and on August 31, 2013 [when Tebow was cut from the Pats].  The ratio dropped from 1.55 to 1.05.  Thus, while overall there were still more positive than negative tweets when Tebow was cut from the Pats, the ratio has declined dramatically from the first cut by the Jets.  There were also fewer mentions of Tebow overall.  Does this signal Tebow fatigue?

Mike Lewis & Manish Tripathi, Emory University 2013.

O’Bannon versus the NCAA (Part 3): Okay so Florida Helped Tebow. What did Tebow Provide to UF?

Click here for Part 1 (The marketing perspective)

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

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

In part two of our series on the Ed O’Bannon lawsuit, we considered the value that schools provide athletes.  The gist of the argument was that schools provide a high profile stage that student athletes can use to develop their personal brands.  In that article, we focused on the specific example of Tim Tebow and the Florida Gators.  In this next installment, we switch perspectives and consider the value that athletes provide to universities and colleges.  To keep things consistent we will again examine the specific case of Tim Tebow.

The O’Bannon case is fundamentally about the fairness of NCAA rules that do not allow players to share in revenues.  The O’Bannon case is primarily concerned with rules that prohibit athletes from sharing revenues derived from products that use the athlete’s name and images.  However, the O’Bannon case also highlights the issues associated with whether and how institutions should compensate or pay players.

The arguments for paying players tend to focus on the enormous revenues generated in football and men’s basketball.  For example, in the 2011-2012 season, the University of Texas football program generated $103 million in revenues.  Furthermore, while players are limited to receiving scholarships, coaches and athletic directors can often receive significant compensation.  Nick Saban’s salary has been reported to exceed more than $5 million per year, and Vanderbilt’s athletic director David Williams’ compensation exceeds $2.5 million per year.

In our previous post we considered the value provided to athletes by schools using an argument based on brand equity.  A cornerstone of this argument was that for high profile schools such as Notre Dame or Florida that sell out almost every year, it is difficult to claim that individual athletes improve the school’s revenue.  HOWEVER, a major flaw in this argument was that we did not consider the role that athletes play in maintaining and expanding a school’s brand equity.  To make a simple argument, while Notre Dame will undoubtedly sell out next year, if the team became a perennial loser, at some point Notre Dame would likely need to cut prices, and would suffer a drop in attendance.

To consider the potential long-term impact of a player like Tim Tebow to Florida, we conducted the following analysis.  First, we developed a revenue based measure of brand equity.  The idea behind this model  is that a school’s brand (or fan) equity can be measured by comparing a school’s actual revenues to predicted revenues based on factors such as a team’s record, student population and other factors that reflect on a team’s quality level and market potential.  More details on this method are provided here.

In the second stage of the analysis, we then developed a statistical model that explained this brand equity measure as a function of team past performance metric (prior to the current season) such as total wins, bowl games, major bowl games and national championships.  We also included in this model a variable that measured the number of Heisman trophy winners produced by the school.  We found that this Heisman term yielded a positive and significant parameter.

When translated to dollars (2008 dollars) we found that a Heisman winner added to a school’s brand equity by $2.15 million dollars per year.  While this is in itself a significant number, it is important to note that brand equity is an enduring asset.  For example, the brand equity associated with BMW provides value year after year as consumers are more prone to buy BMW cars, and to pay premium prices for these cars.

Calculating the long-term value of this brand equity asset requires assumptions about growth rates and the rate at which brand equity decays.  If we assume a 2% real growth rate in college football revenues and a 10% discount rate for brand equity, the value of the brand equity created by a Tim Tebow is approximately $27.5 million dollars.

A couple of points should be made about the previous number.  First, it is in several respects a conservative number.  In addition to winning a Heisman trophy, Tebow also contributed to two national championship teams.  The championships also greatly enhance Florida’s brand equity.  Second, a challenge in analyzing the relationship between team success and individual player achievements is that the degree of cooperation in football is enormous.  Mr. Tebow himself would likely credit his teammates with helping him win an individual award such as the Heisman.  Finally, please note that we have again taken a fairly extreme point of view by focusing on an extreme example such as Mr. Tebow.

Our plan is to conclude this series with each of our (Mike and Manish) perspectives on the big question of whether and, if so, how should schools pay players.  On a final note, we could also execute the football-based analysis described above using basketball data.  We just want to know if you guys are interested.  If so, please follow us on Twitter, and let us know.

Next: Part 4 – How Would Paying Players Change College Sports

O’Bannon versus the NCAA (Part 2): Does Tim Tebow Owe Florida?

Click here for Part 1 (The marketing perspective)

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

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

In a previous post, I began a discussion of the Ed O’Bannon lawsuit.  In this second part of the series, we delve a bit deeper into the nature of sports brands and how these “brands” are related to the antitrust concepts at the core of the case.  In this post, we will take the perspective of the university.  Our next post will examine the issue from the individual athlete viewpoint. The original issue in the O’Bannon lawsuit is that the structure of college sports, where athletes are unable to sell their images violates the Sherman act.  Michael McCann, discussed the antitrust elements of the lawsuit in Sports Illustrated, and describes the suit’s two main claims:

“First, by requiring student-athletes to forgo their identity rights in perpetuity, the NCAA has allegedly restrained trade in violation of the Sherman Act, a core source of federal antitrust law. Here’s why: student-athletes, but for their authorization of the NCAA to license their images and likenesses, would be able to negotiate their own licensing deals after leaving college. If they could do so, more licenses would be sold, which would theoretically produce a more competitive market for those licenses. A more competitive market normally means more choices and better prices for consumers. For example, if former student-athletes could negotiate their own licensing deals, multiple video game publishers could publish games featuring ex-players. More games could enhance technological innovation and lower prices for video game consumers.
Second, according to the plaintiffs, the NCAA has deprived them of their “right of publicity.” The right of publicity refers to the property interest of a person’s name or likeness, i.e. one’s image, voice or even signature. Last year, when explaining why the NCAA has refrained from suing CBS over its use of player information in its fantasy sports game on CBS Sportsline.com, NCAA officials acknowledged that players’ rights of publicity belong to the players, and not to the NCAA.”

Viewed collectively, these two issues really speak to the concept of brand equity, and about whether players should have the ability to “monetize” their individual brands while student athletes.  Branding issues in sports are fairly complex due to the nature of the sports product.  The key point is that sports products and brands are co-created by a collection of players, teams and leagues. What I mean by this is that while sports are inherently about competition, they also require cooperation between multiple entities.  Furthermore, while it is obvious that athletic success is correlated with an athlete’s or team’s brand equity (think Lebron, Michael or the Yankees) this equity is created through competition with other players and teams.  This co-creation is important because while fans may gravitate to star players, it is also obvious that league and team structures are needed for individual athletes to become valuable brands.  It is probably only the rare athlete, such as Michael Jordan, that can grow a league’s overall revenues or fan base.  The vast majority of athletes only temporarily capture some share of the overall brand equity of the teams and leagues with which they are involved.

This is particularly true in the case of college sports.  With a few exceptions, student athletes are relatively unknown prior to joining college football and basketball teams.  When a player puts on a college jersey, they immediately acquire a devoted fan base.  To take an obvious example, a Notre Dame Football player such as Manti Te’o (neglecting the strangeness that became public at the end of his college career) was the focus of a great deal of attention during his senior year.  Manti could have made money by endorsing products or licensing his image during his time at Notre Dame (again, lets clarify that we mean before December 2012).  However, Manti’s fame and marketability was, undoubtedly, largely a function of his playing at Notre Dame.  An argument could be made that Manti had minimal impact on the revenues of the Notre Dame Football program.  Notre Dame has a long and storied history, and already possessed a devoted fan base along with a lucrative television contract.  Notre Dame has a record of consecutive sellouts dating back to the late 1960s.

Tim Tebow is another, and more extreme, example of a high profile college player that could easily have made significant dollars while at Florida.  And again we could argue whether Tebow’s presence on the Gators actually increased Florida’s revenues.  This table shows that Florida’s home attendance increased slightly during the time that Tebow was on campus.  A comparison between 2009 and 2011 shows that attendance dropped by about 1,500 people or 1.7% per game.  At a ticket price of $25 multiplied by 7 home games, this would equate to an incremental $250,000 in revenue.  Of course, it is not entirely clear what these numbers mean, as Florida reported attendance that exceeded stadium capacity in every year (capacity = 88,548).  Also, we are not considering incremental merchandise sales.  Furthermore, given Tebow’s lack of success in the NFL, and his continuing marketability, a claim could be made that Tebow’s brand equity was entirely built at Florida.  Given that Tebow had little effect on Florida’s football revenues, it could be argued that Florida provided an opportunity for Tebow to build his brand while only slightly benefitting them.  Could Tebow have had similar success at another university?  Of course, this is an incomplete example, as Florida may have benefited from increased donations from alumni or seen an increase in applications from prospective students.

Another easy objection to the preceding argument is that it is based on marginal revenues generated by Tebow’s presence.  The distinction between marginal revenues and total revenues is important if one is truly concerned with fairness.  College athletic programs have significant and valuable brand equity.  This brand equity is maintained by current players.  If a team stopped fielding competitive teams, its brand equity would diminish over time.  In a perfectly fair world, players would enjoy rewards equal in value of how well they maintain and grow the school’s brand.  This would, however, be a difficult quantity to measure, as college teams’ brand equities have been built through extensive histories.  In the case of UCLA basketball, I think most would agree that the Bruin brand was primarily built by John Wooden, Kareem Abdul Jabber, Bill Walton and others.  If this is the case, then players like O’Bannon are merely temporary caretakers of the school’s brand.  Would Mr. O’Bannon have been on the cover of the EA sports game if he could not have been pictured wearing a UCLA jersey?

From this perspective, allowing current individual players to market themselves to the highest bidder could be viewed as unfair to past athletes.  If college athletes were suddenly allowed to pursue endorsement deals, I would expect that current high school players like Andrew Wiggins could become instantly wealthy (the fairness of Wiggins not being allowed to go directly to the pros is beyond the scope of this post).  And while many might view this as a fair outcome, I would have to ask the question as to how valuable the Wiggins’ brand would be in the absence of Kansas, the Big Twelve and the NCAA Tournament.  Consider for a moment that the MLB draft takes place in early June.  How well known are the players that are likely to be taken in the first few picks?  Would not a more equitable solution involve compensating past athletes that helped create the pre-existing fan interest that the next generation of athletes would be able to exploit?

Sports and anti-trust laws have a long history, and likely will generate controversy long into the future.  While competition between firms is typically the best way to improve consumer welfare, in the case of sports, sometimes pure competition may not be feasible.  All the major professional leagues now use some form of revenue sharing or salary caps to maintain some level of competitive balance.  As sports continue to morph into an entertainment product (remember the O’Bannon case began with a video game), it will be necessary to include greater consideration of the role of marketing assets such as a player’s brand equity and a college team’s fan equity to moderate future disputes.

Next in the Series: Part 3 – Valuing Exceptional College Athletic Performances