SBJ/May 2-8, 2016/Colleges

A Devil of a deal: ASU works to get most out of rights with Pac-12’s help

From the outside looking in, it’s business as usual for Arizona State athletics. But internally, the Sun Devils have built a model for their multimedia rights that’s unlike anything else in college athletics.

They’ve done it by creating a first-of-its-kind partnership with the Pac-12 Conference that enables the school to manage and sell its own marketing and media rights. As part of this new concept, the conference will handle core business functions for the sales and marketing team, like payroll, accounting, human resources and employee benefits.

It’s a complicated arrangement that Arizona State and the Pac-12 have been molding for a year. ASU is the only school across the power five conferences that doesn’t outsource its rights.

Now that this unique structure is in place, the Sun Devils control their own rights, something Athletic Director Ray Anderson has advocated since the school terminated its multimedia rights deal with IMG College in October 2014.

“I want our sponsors to know that they have a relationship with Arizona State athletics, not a sales organization,” said Anderson, who left the NFL’s league office to become ASU’s athletic director in January 2014. “That direct contact is important.”

It remains to be seen whether this becomes a revolutionary new way for schools to do business — other conferences don’t have this capability right now — but Arizona State officials believe they can drive increased revenue from their rights by not sharing revenue with a third-party rights holder.

MCELROY
“Cashing that guarantee check from a third party is nice, but how much money are you leaving on the table?” said Greg McElroy, ASU’s business development chief who formerly managed sales and marketing for the Dallas Cowboys.

McElroy was Anderson’s first major hire in 2014 and he brought his team sales background with him from the Cowboys and, before that, the Los Angeles Dodgers. That experience helped McElroy construct Sun Devil Sports Properties, the entity that represents ASU’s sales and marketing.

“We’ve built this thing from absolute scratch,” McElroy said. “We started with no list of assets, no rate card, nothing.”

Here’s how the business model works: Arizona State does everything a property normally does: set ad rates, determine the message, generate sales and hire the people for a beefy 10-person staff that makes up Sun Devil Sports Properties.

Those employees, however, technically work for the Pac-12, even though they’re based on ASU’s campus and they’re supervised by McElroy. The San Francisco-based league office takes care of all the standard office needs, including paying salaries, commissions, bonuses and benefits for the ASU sales team.

The conference established a wholly owned company called Pac-12 MMR to execute those duties for Arizona State and any other Pac-12 schools that eventually sign up.

Working with the conference provides the Sun Devils with two primary advantages. It’s easier for Pac-12 MMR to pay commissions and bonuses, pay structures not commonly found on college campuses. And by making sponsors sign their contracts with Pac-12 MMR, those contracts are not subject to open-records requests, the school said. If the contracts were signed directly with the school, all of the terms could become public since ASU is a state university.

“It’s a way to protect our sponsors and their deal points,” said Rocky Harris, Anderson’s chief of staff and a senior associate AD.

The school supplies Pac-12 MMR with an operating budget at the beginning of the fiscal year. When a sponsor pays a rights fee, the check is made out to Pac-12 MMR, which keeps all of the revenue and expenses flowing through the conference.

At the end of the year, revenue is tallied, expenses are subtracted and what’s left on the bottom line goes to the school. Pac-12 MMR does not keep any of the net revenue; the business exists to cover costs and provide a service to the schools.

The Sun Devils won’t close the books on the 2015-16 season for another two months, but they expect to clear a little more than $8 million from radio, sponsorships, signage and other marketing assets. Included in that is some of the revenue from a new campuswide deal with Coca-Cola that includes pouring rights across campus, student engagement rights and athletic assets.

“I want our sponsors to know that they have a relationship with Arizona State athletics, not a sales organization. That direct contact is important.”
— Ray Anderson
Arizona State athletic director
Photo by: AP IMAGES
Athletics hopes to work with the marketing department on the academic side of campus to sign more campuswide deals like this that combine athletic and nonathletic assets.

IMG College’s annual guarantee to Arizona State was $6 million to $7 million, but it’s hard to compare the net revenue numbers because the rights weren’t exactly the same.

McElroy is clearly bullish on ASU’s prospects, though, as the first full fiscal year wraps up. He’s projecting annual revenue growth of 7 percent to 10 percent.

“I was confident we could build a sales and service department that could do better than a third party,” he said. “I’ve done it before and I thought we could do it here.”

Still, questions arise from sponsors and prospects. They want to know why they’re writing checks to the Pac-12 instead of Arizona State.

At the school’s first sponsor summit two weeks ago at Talking Stick Resort in Scottsdale, Allstate’s director of sponsorship marketing, Dan Keats, grilled ASU’s McElroy and the Pac-12’s Bob Keyser on how this new model works. Keyser, the Pac-12’s vice president of partner services, oversees Pac-12 MMR.

One of the most common questions: Do sponsors now have to buy Pac-12 Networks media packages? The answer is no, but the ASU sales force has the wherewithal to sell Pac-12 Networks inventory, and the conference hopes to sell more integrated deals in the future.

But Keats brings up a valid point. While this model has clear advantages, it could go off the tracks if the Pac-12 employees working for Sun Devil Sports Properties focus less on Arizona State inventory and more on selling conference packages.

So far, McElroy believes the Sun Devils are “firmly in control of our own destiny.”

Harris also pointed out that some revenue streams, such as media that’s locked up in long-term deals, are limited or fixed in their growth, so driving new revenue from existing sources, like multimedia rights, will be critical down the road as all schools attempt to combat rising costs.

“We’re looking at sponsorship as one big area for growth now,” Harris said.

The outsource model simply wasn’t working for ASU. The Sun Devils’ scarred relationship with IMG College collapsed in October 2014 when the contract was terminated — it was preceded by two years of contentious behavior from both sides.

They sued each other in late 2014 and a confidential settlement finally was reached last month, enabling IMG to keep an undisclosed amount of revenue from 2014-15 sales while also paying ASU for the inventory that was sold.

When the two sides parted in the middle of the 2014 football season, McElroy was left in charge of an operation that didn’t have the infrastructure to subsist.

Eventually, the Sun Devils made it through football season and McElroy began hiring his sales and marketing staff. Not surprisingly, he looked to the Cowboys first, bringing in Dana Geary and Amber Winger from Dallas to build an infrastructure, develop rate cards and handle client services. Shortly thereafter, McElroy hired Ben Burke from Nelligan Sports to direct sales.

His team now in place, McElroy found himself further emboldened after the Sun Devils’ recent two-day sponsor summit on April 18-19. About 30 sponsors were represented, including Allstate, Coca-Cola and MillerCoors, in addition to several local businesses. Anderson spoke; so did baseball coach Tracy Smith. Ideas were exchanged and a dinner of steak or salmon was served at a 15th-floor restaurant, Orange Sky, with a sun-setting view of the valley.

Pretty standard sponsor summit stuff, except that, as far as anyone knew, it was the first sponsor summit produced by a school property.

And that, for McElroy, was reason to smile.

“We’ve had a lot of firsts around here lately,” he said.

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