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Volume 22 No. 6
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Understanding objectives can reveal true value of college rights

In the wake of the NCAA’s August decision to allow its five richest conferences a greater degree of rule-making autonomy, some observers believe that the schools in the Pac-12, SEC, Big Ten, ACC and Big 12 may soon elect to pay their student athletes a stipend. Given that a full 80 percent of the schools in the Power Five conferences are public and receive some government support, combined with the financial tumult that funding cuts have wrought on higher education, it’s fair to wonder how these universities will generate revenue to potentially pay hundreds of student athletes thousands of dollars each year and to develop new facilities.

Simply put, to ensure they are getting the best value for their brands, university athletic departments must take steps to emulate the business models and approaches taken in the professional sector. For example, let’s examine multimedia marketing rights and sponsorship. Universities already sell advertising underneath the scorer’s table and in plenty of other places. But my experience negotiating on behalf of professional sports teams tells me there’s very good reason to believe that current college multimedia marketing rights agreements are not achieving the business objectives of the client. In this case, they are not paying universities what they could be earning and utilizing for their athletic and academic priorities.

The traditional model for these deals was born in the 1990s, when a couple of large marketing companies approached schools with an offer that sounded pretty good at the time. In exchange for six- and seven-figure annual guarantees, the universities would assign to these agencies the rights to sell in-game radio advertising, corporate sponsorships, stadium signage, and a variety of other rights and properties associated with their athletics programs. It felt like a win-win. Marketing shops like IMG and Learfield would use their institutional expertise to sell inventory, freeing up schools to focus on what they do best — educating students and student athletes.

But while the popularity of college sports has soared, the value of the schools’ multimedia marketing rights agreements has not. According to The Dallas Morning News, the total revenue — including ticket sales and media rights — for March Madness grew from $41 million in 1986 to more than $900 million last year. That exponential rate of increase dwarfs the revenue growth that universities have received from their licensing deals. This discrepancy is due in some part to a marketplace that until recently hasn’t been especially competitive. Two major agencies, IMG and Learfield, represented the only games in town for a long time. Even today, they represent the large majority of the Power Five conference schools.

Two decades on, it’s clear that these models may require re-examination from the schools’ perspective. The pie has grown as social media and other digital outlets increase the inventory schools can offer. Meanwhile, the value of cross-vertical content has skyrocketed. The “rule of seven” in advertising dictates that viewers need to see a message at least seven times before it becomes effective. Few avenues are better at capturing the sustained attention of a specific audience than college sports, where devoted partisans tune in to a season’s worth of coverage every year.

Given that universities are constantly connecting with fans in new ways, how valuable are these universities’ licensing rights? It’s a good bet that almost nobody outside of the large agencies knows — even the universities signing the deals. The practice of providing an upfront guarantee to schools has enabled marketing agencies to structure contracts that are so complex as to be nearly incomprehensible. For the very same reason they chose to delegate advertising sales in the first place, universities have difficulty vetting the value of what they’re giving away; they’re rightfully preoccupied with the education of their students. But without a real understanding of the assets they’re selling, schools will continue to find themselves in a feeble negotiating position.

So what can universities do to ensure that they’re fulfilling their fiduciary duty to students, faculty, alumni and, in the case of publicly funded universities, taxpayers? They need to understand their objectives. For some schools, the traditional annual guarantee makes sense as they seek budgetary consistency and predictability, or wish to leverage guaranteed future earnings for current capital improvements. But universities should no longer feel hemmed in by the status quo. Today’s market has plenty of new channels and emerging partners, enabling administrators to get creative about finding a deal that matches their institution’s priorities.

Of course, upending tradition requires taking a hard look at business goals. In order to come up with the right balance of oversight, content rights and other considerations that have a direct impact on the economics, schools will need to review their objectives. There’s a long buffet of options, and it’s easy to fill the plate with the first few dishes a school sees. No matter the model they choose, however, universities should be certain to include conditions that make their agreements with partners and vendors more transparent by increasing communication and information-sharing related to the implementation of the agreement. This additional information will provide all parties with better data points to make decisions and improve upon the business model in an ongoing manner.

If universities study the numbers, set their objectives and demand the transparency described above, they’ll find a marketplace that’s suddenly primed to reward their preparation. For the first time since the big-time college athletics paradigm was established, there are fresh faces that universities can turn to if they’re looking for alternative options to the mainstays IMG and Learfield. The University of Kentucky recently left longtime partner IMG to sign a staggering 15-year, $210 million deal with upstart JMI. Ben Sutton, the president of IMG’s college division, said his firm lost out by a whopping $31 million — a discrepancy that illustrates how more competition in the marketplace should benefit schools.

This week, five-star recruits will pour out of stadium tunnels to see tens of thousands of cheering fans clad in school colors, eyes fixed on the field. In creating the incomparable experience of college sports and cultivating rabid fan bases, universities have already done the hard work of building a rapt audience. If they seize the opportunity to re-examine their multimedia marketing rights, they’ll soon reap the rewards.
 
Irwin Raij (iraij@foley.com), partner at Foley & Lardner and co-chair of its sports industry team, recently represented Syracuse University in its new multimedia partnership with IMG.