SBJ/June 26 - July 2, 2000/Opinion

Turn your competitor into a sales partner

The good news — people are spending more in absolute dollars on sport each year. The bad news — these dollars are shrinking as a percentage of the entire entertainment industry (see table). Throw in the escalating cost of college and professional sports (and its impact on profitability) and the need to innovate is clear.

As part of the growing entertainment industry, spectator sports is simply one of many segments competing for consumers' disposable income. Competition has increased not only within spectator sports, but also within particular geographic markets. In some markets, heavy competition among sport enterprises alters supply-and-demand relationships.

For example, in 1998-99, Phoenix had PGA and LPGA golf events, NASCAR auto racing, the Arizona Fall (professional baseball) League, Major League Baseball spring training, Arena Football League and the Arizona State University athletic programs competing for fans with the NBA's Suns, the WNBA's Mercury, the NHL's Coyotes, MLB's Diamondbacks and the NFL's Cardinals. Because of this ample supply of sport options, Phoenix would be a prime candidate for the establishment of some form of partnership among some of these organizations.

One strategy for sport organizations to compete with other entertainment options is to form a strategic marketing partnership in the form of a "regional sports alliance."

The primary focus of a regional sports alliance is the sharing of resources and skills to help grow the entire entertainment market. A larger market means more consumers spending money in the sport industry, which should shift the emphasis away from teams competing among themselves. Instead, the members of the regional alliance join as a self-governing entity to compete against other forms of entertainment.

Revisiting Phoenix, a hypothetical example shows the potential strength of a regional sports alliance. Let's assume these five teams — Arizona Cardinals, Phoenix Suns, Phoenix Mercury, Arizona Diamondbacks and Arizona State University football team — decide to participate in a Phoenix Sports Alliance (PSA).

Managers of the PSA would introduce a ticket package consisting of two tickets for two games for each of the five teams (a total of 20 tickets). The package probably includes teams of low interest to certain consumers, so to generate fan interest the PSA may have to reduce the sale price (i.e., a 5 to 10 percent discount for the ticket package) or include key match-ups from each team's schedule. For example, the PSA might include some of the teams' more attractive games on their schedules.

Why would the NBA's Suns reduce their ticket prices or include a game against the Los Angeles Lakers or San Antonio Spurs as part of the package? Why would the ASU football team include tickets to a Pac-10 Conference game against UCLA, a program with tremendous drawing power? These contests will undoubtedly generate great consumer demand on their own.

The answer lies in a team's long-term vision; the promotion can be thought of as an insurance policy or hedge against the lean years by increasing its share of the entertainment pie. The intent is to introduce non-users of a particular product (fans who have never attended a Suns or ASU game) to an exciting game atmosphere in an attempt to elevate their fan status from non-user to that of a light user — moving them up the user group "escalator."

Attending five games for the price of four has built-in added value for the consumer. Keeping in mind that the alliance's objective is to grow the overall entertainment market, reduced ticket margins could be offset by the reduced promotional and marketing expenses of each team. For example, rather than having to purchase five individual promotional spots (e.g., newspapers, radio, TV) to publicize five individual teams, the alliance could purchase three spots, a 40 percent reduction in costs, yet increase each team's exposure to the market by 200 percent —from one spot to three. As market share continues to grow for the alliance, each team will experience increased revenue from sponsorship fees, TV and radio rights fees, parking, concessions, merchandise and ticket sales.

The time is ripe for sport organizations to rethink their marketing strategies. Regional sports alliances should provide for some of the following:

Ensuring against the cyclical nature of teams suffering through periods of losing.

Broadening the market by treating consumers as "sports" fans as opposed to a segmented market.

Increasing the alliance's market share of a growing entertainment market.

Reducing advertising/marketing costs by pooling resources.

Increasing the leverage of teams when negotiating TV and sponsorship contracts.

Enhancing brand loyalty through the active promotion of strong fan relationships.

I'd appear naive if I were to neglect the fact that this concept is not without its detractors. Obviously the question must be posed: "If regional sports alliances provide such a competitive advantage within the entertainment industry, why do so few exist?"

Quite possibly the answer lies in the fact that the spectator sport industry is typically years behind marketers from more traditional industries. Strategic alliances have become common practice in the automotive, technology and telecommunications industries, to name a few. Or possibly years of fierce competition among sport entities within a particular region have burned too many bridges. Or perhaps these sport organizations fear the possible consequences, most notably the cannibalization of their own consumers. Or maybe the sheer complexity in the logistics of such an alliance is prohibitive.

Lastly, it might not be any of these reasons. Rather it might be that the few that do exist (Toronto Raptors/Maple Leafs, Tampa Bay Lightning/Storm) are simply ahead of their time — and the majority of the spectator sport industry.

Tony Lachowetz is a Ph.D. student in sports management at the University of Massachusetts.

BIGGER PIE, SMALLER SLICES
Spectator sports, amusements and personal consumption (in billions of dollars)
Product or service
1970
1980
1985
1990
1994
Total recreation expenditure
$93.80
$159.70
$215.00
$291.80
$369.90
As % of total personal consumption
4.3
5.3
6.1
7.1
8.3
Spectator sports admissions
$3.70
$4.50
$4.80
$4.80
$4.90
As % of total recreation expenditure
3.9
2.8
2.2
1.6
1.3
Commercial participant amusements
$7.70
$15.30
$20.00
$24.90
$32.90
As % of total recreation spending
8.2
9.5
9.3
8.5
8.8
Video, audio, computer equipment
$6.20
$12.70
$24.70
$47.90
$89.00
As % of total recreation spending
6.6
7.9
11.4
16.4
24
Source: U.S. Department of Commerce
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