When Howard Smith was hired as Major League Baseball's senior vice president of licensing in 1998, he brought with him an inside view of a licensing business that by that time had become a train wreck.
Smith had been working for Reebok, which in the mid-1990s, he said, was paying millions of dollars to eight NFL clubs to be their licensed apparel provider. Reebok's top-selling gear, however, was that of the Cowboys, which Nike was paying to be a licensee. Even though Reebok benefited in this case, its ability to sell licensed Cowboys gear illustrated the broader problem, Smith said. Because those licensing deals didn't guarantee exclusivity — only exposure on the field — there was nothing stopping manufacturers from flocking to the hot-selling team of the moment and undercutting the competition.
"Back in the '90s it didn't matter," Smith said. "Somebody had an idea, everyone jumped on it, and nobody made any money."
Smith's experience at Reebok was emblematic of sports leagues' approaches to the licensing business in the mid- to late 1990s, when leagues opened their doors to everyone and as a result accommodated no one, according to those in the industry. With as many as 15 to 20 licensees producing practically identical products in the major categories like apparel, many manufacturers priced themselves into bankruptcy or consolidation.
Those market forces, along with the recognition by leagues that quality and service were being sacrificed, have led to a widespread scaling back of licensees.
"There has been a seismic shift in the licensing business," said Brian Jennings, vice president of consumer products marketing at the NHL. "We have removed a lot of people from our lineup that have competed on price alone. That's not what you ever want to be as a licenser. You don't want to ever have a commodity business where at the end of the day, the lowest-cost provider is sitting there nickel-and-diming you away. Ultimately the brand gets diluted."
The NFL, for example, since 2000 has cut its number of apparel licensees by 80 percent, from 40 to eight, according to Mark Holtzman, the NFL's senior vice president of consumer products. Major League Baseball, meanwhile, has cut 25 to 30 of its apparel licensees since 1998 and now has 35 to 40, Smith said.
The trimming process at MLB started shortly after Smith came on board in '98, when he approached MLB ownership and told them they had to start cutting back supply and offering licensees more exclusivity. The owners, he said, wanted to know why the other leagues weren't doing the same. He didn't have an answer for that, so instead he went to a Wal-Mart and bought licensed T-shirts from NASCAR, MLB and the NFL, as well as a shirt with a picture of a fish. The NASCAR shirt and the fish were exclusively produced and were selling for $12.99, while the NFL and MLB shirts, nonexclusive products, were selling for $9.99, Smith said.
Smith's $50 was well spent, as the league shifted its strategy and started guaranteeing exclusivity to manufacturers who approached them with a good idea.
"When we started cutting back, the value of our brand became much more important," said Smith, noting that the league simultaneously began putting the MLB logo on all of its licensed products. "Had we rebranded ourselves when we were in a free-for-all, it wouldn't have meant anything."
The NFL, Holtzman said, saw significant improvements in quality since 2000, when it began to offer manufacturers more exclusivity.
"We are more involved with each licensee, which results in a better product," he said. "This has worked better for us, because we have licensees investing in a better product, marketing the product and working on the presence at retail."
Like the other leagues, the NBA has seen its number of licensees cut in half since the mid-1990s, although Sal LaRocca, the league's senior vice president of global merchandising, said that has more to do with changes in the market than a changing approach by the NBA.
"We've always felt that having fewer strategic partners would be best for our long-term business," said LaRocca, who has been with the league for 13 years. LaRocca pointed out that the NBA over the last 15 years has had three trading card licensees and one backboard manufacturer, one basketball maker and one jersey maker each.
The primary reason for the decline in licensees, LaRocca said, has been the large number of bankruptcies and acquisitions in the apparel sector.
"The marketplace for sports merchandise has changed dramatically in the last few years," he said. "All the leagues have had to refocus how they approach that business, and in some cases that has meant a narrowing of the licensee base."
But even where the leagues differ on why the shift came about, cutting back has improved the final product, they all agree.
Smith said the less-is-more strategy gave companies breathing room where they could afford to grow the business.
"[They] don't have to go in there and keep dropping prices," he said. "They were actually pricing themselves out of the market. Their idea was, 'I'll survive, and then I'll start making money back.' "
