Sports Marketing: The Motor that Drives the Sports Business

On April 19 and 20, more than 100 experts from around the world met in Madrid, Spain, for the first International Sports Business Management Industry Meeting, hosted by the Sports Business Management Research Center of the IESE Business School. They tackled the challenges confronting the sector in three key areas — marketing, finance, and personnel management. Universia-Knowledge@Wharton attended the meeting, and reports on the most important match in the business of sports.

 

A panel discussion on marketing, “Exploring Sponsorship and Brand Marketing,” brought together executives of organizations and institutions that sponsor sports with managers of companies that need funding from sponsors. When the talk focused on sports, the participants included Francisco Huertas, marketing director of Adecco, a multinational human resources firm, and Iñaki Urdangarín, president of NOOS Instituto, a consulting firm that advises companies and institutions about sponsorship strategies. The team representing the sports organizations was manned by Sandro Rosell, vice-president of Futbol Club Barcelona and Bernard J. Mullin, president and CEO of Atlanta Spirit.

 

Orientation to the Product or the Consumer?

 

Juan Manuel de Toro, professor at the IESE business school, performed the role of referee. De Toro got the match going by talking about the conceptual framework of sports marketing. He analyzed the various kinds of sports marketing companies, putting special emphasis on the need for segmentation in the design and development of strategies for creating and maintaining brands in the sports sector.

 

According to de Toro, sports marketing is “orientated toward consumers. It’s about thinking, deciding and acting in terms of the final consumer.” As a result, “you have to know who your consumers are, and what they want and need. As much as possible, you have to tailor your offer to their needs, so you can get to know them and provide them with a worthwhile benefit. The orientation is toward the market, not to the product.”

 

Rosell, who has more than 18 years of experience in the Nike sports marketing department, disagreed. “In the eternal discussion about who is king, the product or the customer, I believe the most important thing is to invest in the product. If you do not have a great team, you don’t have customers. Not just when it comes to a sports team, but any commercial enterprise. Everything begins with a good product.”

 

“Sports products have more in common with leisure than with traditional consumer products,” added de Toro. “You are dealing with more than just a service; the sports consumer is looking for entertainment, diversion, passion, emotion; you have to consider his complete emotional dedication.” However, Rosell argued, “in sports marketing, it is very hard to bring business needs and emotional needs together.”

 

“Excessive orientation toward the product has been – and continues to be — very characteristic of sports institutions, to the detriment of consumers,” said de Toro. “It a very short-term approach and it depends on the latest scores. Are sports scores the only thing that counts, at any cost? What are the values associated with the brand of the sports institution?”

 

Sponsorship Strategy

 

Iñaki Urdangarín, president of NOOS Institute, and professor of management policy at ESADE, emphasized the need to bring sports sponsorship activities in line with overall corporate strategy so its effectiveness can be more effectively measured.

 

Urdangarín, who played for the Spanish handball team on 170 occasions, criticized the shortage of conceptual models that would permit managers “to guide the formulation of strategy and systems for measuring the strategic impact of sponsorships.” In his view, “concrete indicators are required” in the sports sector “for enabling us to relate sponsorship activities with our strategic and business goals.”

 

Another player was Francisco Huertas, director of marketing at Adecco, a multinational human resources firm with annual revenues of €17.2 billion. Huertas agreed with Urdangarín, and he went on to explain the various steps that his company takes in its sponsorship strategy:

 

Evaluating the Project:

·       Identifying the values of the sports institution

·       Branding (What impact will the project have on our brand? Will it create value?)

·       Public relations (Possibilities for improving public relations with customers)

·       Specifics of the presentation (Participation of the company in the sponsored event)

·       Alignment of company goals: Pricing, billing, and profits

·       Impact of the project on identifying common interests of the company and the sponsor

·       Completing the advertising: Training seminars, etc. (Additional activities that complement the sponsorship activity)

·       Internal and external communications (The impact on brand recognition)

·       Measurement and evaluation (Combining the quantification with a more refined and analytical evaluation)

 

Everyone involved in this meeting agreed there is a shortage of criteria and clear goals for guiding companies when they make decisions about sports sponsorship. Urdangarín identified some of the most common mistakes that companies make: “Doing what the president likes; being guided by previous commitments with partners and providers; viewing sports sponsorship solely as a form of publicity; and thinking that sports sponsorships are only for big companies that have very high earnings.”

 

Rosell added other mistakes to that list: “They invite the President to the best box seat at the stadium, and our brand pops up on the [stadium] television. The son of the President likes this sport, so they decide that he is the target that they should be addressing with their sponsorship. Or they believe that they are going to boost consumption of their product, and sell more” through their sponsorship.

 

Another key member of the panel was Bernard J. Mullin, current president of Atlanta Spirit and a former marketing director for the NBA. Mullin said that in the case of his firm, “sponsorship of every team is encompassed within the NBA’s strategy.” Regarding the Atlanta Hawks, the organization he has managed for the past year and a half, Mullin said, “Although it is currently the worst team in the league, with 11 wins and 68 defeats, sales have grown 67%, and sponsors’ profits are up 15%.”

 

These figures show how even those U.S. teams that are not leaders can profit from the business model of sponsorship. The NBA approach contrasts with the way the soccer business is managed in Europe. According to Rosell’s study, “European Sport Sponsoring 2003,” ”very few European soccer clubs make money. And a mere five or six, such as Juventus, Milan, Bayer, Arsenal, Real Madrid, and Barcelona, are big competitors in the marketplace.” According to the study, 61% of Europeans are interested in soccer, 28% in tennis and 17% in Formula One racing.

 

Rosell presented a global vision of the soccer industry. Over the past ten years, soccer has experienced annual growth of between 15% and 25%, leading to significant changes in the structure of revenues and costs. “However few clubs are profitable,” Rosell said. The business model has changed from that of a largely local industry to a global business. He compared the industry to entertainment. Finally, he warned that in soccer, “headlines play the role of dividend pay-outs.”

 

On a personal note, Mullin recounted the experience of Atlanta Spirit, which manages three brands – the Atlanta Hawks of the NBA, the Atlanta Thrashers of the NHL, and the Philips Arena. “The profits of the three brands are a combined $250 million, and the profits from sponsorships approach $40 million. In these figures we are not including television rights, because the U.S. has a big network of local television stations.”

 

Mullin describes his approach to sponsorship: “We do not sell sponsorships; we develop a business that does everything possible to adapt to the sponsor and its target public. We offer something that serves their customized needs. In the U.S., it is common to search for a few sponsors [at any one time]; we prefer to work with just a few who offer us a lot of money each. That way, they can give you better, more personalized attention.”

 

Managing the Brand

 

For his part, de Toro broke down the key features that characterize a brand. “It is a guarantee for consumers that their needs and desires will be satisfied. It is also a source of differential revenues (higher price, more share and greater loyalty). It is a vehicle that other brands can use for their communications needs (for example, by engaging in sponsorships). A brand also offers the possibility of more easily extending a line of products and services; it is the tangible component of the intangible.”

 

Rosell differentiated three dimensions in the creation and development of a brand: The sports activity itself (involving players, the team and its success at sports), the social activity (creating a base of emotional attachment), and the business activity (where results are measured in “sources of revenue,” “solid financing” and “controlling costs”). Rosell stressed that, “in a club, you have to create a brand, but to do that well, first you have to create a product.”

 

According to Rosell, F. C. Barcelona, one of the world’s leading football teams, has turned mass marketing and media exposure of its brand (especially via pay-per-view) into its single largest source of revenues. Rosell asked, “Are we football teams the sponsors, or are we the ones who are being sponsored? Are we managers of the brand, or are we waiting until someone comes along and buys us? In Barcelona’s marketing department we have to create a competitive brand, but we also have to make people love us; people have to come in from outside and buy us.”

 

Measuring Return on Investment

 

Huertas emphasized the importance of measuring sponsorship activity with the same systems used for measuring other business activities. “Although you have to make your numbers, you can measure the return in terms of their relative role, such as growth in billings and customers…. There is a component of empathy and value that you cannot quantify.

 

“No single tool is useful for everyone,” Huertas emphasized. “Every company has its own goals, and it will value different strategic factors, just as Iñaki [Urdangarín] said. Some will value the publicity; others will value their relationship with owners of the company; others will value the impact on their social reputation, and so forth.”

 

Regarding the impact on corporate return on investment, Mullin offered this American perspective: “These days, you no longer see the kind of rich people who used to invest money in a team just for the love of the sport. Nowadays, everyone wants to make money from sponsorships. The sponsors demand that you deliver a report at the end of the year showing the number of times their brands and logos were mentioned and appeared on television and in the press. They want photos of all the logos that appear in the stadium. Everything is controlled. Four companies in the U.S. focus exclusively on evaluating the return on investment from sponsorships. It is like an audit process where we have to demonstrate that the sponsors added to sales, made money, and so forth… Everything is analyzed rigorously.”

 

While sports sponsorship is a very profitable activity, there is a shortage of “tools that measure the return on investment,” Rosell added. “In my 15 years at Nike, I have yet to see one effective tool, not even from companies that analyze the media. Of all the evaluations and valuations, the only measurement that works for me is when the sponsor is satisfied.”

 

The moderator blew the final whistle, signaling the end of the match. The audience gave an ovation to the four experts who provided proof that, despite some disagreements, the relationship between sponsors and the teams they sponsor is based on mutual need and understanding.

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