Navigate Research

Industry Insights

As the industry leader in evaluating and measuring marketing investments, Navigate has a wealth of knowledge in the sponsorship and marketing space. This blog shares our knowledge and insights on current events in the sports business, marketing and sponsorship worlds.

Can college athletics continue to spend like this?

Navigate Research - Monday, April 18, 2016

Erik BradySteve Berkowitz and Jodi Upton

Source: USA TODAY 3:24 p.m. EDT April 17, 2016

Bubble, in a sports context, typically refers to college basketball teams with middling résumés, or perhaps the sort of gum that comes with trading cards. Economist Andrew Zimbalist suggests college sports may be facing a bubble of a different sort, the kind that goes — pop!

Total revenue for the 50 public schools in the Power Five conferences rose by $304 million in 2015, but spending rose by $332 million from the year before, according to a USA TODAY Sports analysis of financial information that schools annually report to the NCAA. At the 178 public schools in Division I conferences outside the Power Five, revenue increased by $199 million, but spending rose by $218 million.Revenues in college sports are rising, and have been for decades, thanks largely to TV rights fees for football and men’s basketball. But expenses are rising even more: Athletics departments typically spend more money than they generate. By the NCAA’s reckoning, fewer than two dozen public schools can cover their annual operating expenses without money from university coffers, government sources or student fees.

(Louisville and Rutgers are removed from the computations because they moved to Power Five conferences during the time frame. The analysis is based on documents acquired in conjunction with the Sports Capital Journalism Program at Indiana University-Purdue University Indianapolis and the Grady Sports Media Program at theUniversity of Georgia.)

DATABASE: Schools' expense, revenue details

Zimbalist says this kind of spending is not sustainable, and he thinks litigation of some stripe — courts deciding players can be paid beyond their scholarships, for instance — could cause the bubble to burst. Among the other potential wildcards are an ongoing lawsuit pertaining to athlete compensation limits that seeks hundreds of millions in damages, concussion lawsuits, or a change in the National Labor Relations Board’s position on college athletes unionizing.

“There are big-time things leading it to pop,” says Zimbalist, a professor of economics at Smith College and author of Unpaid Professionals: Commercialization and Conflict in Big-Time College Sports. “It’s an unstable situation.”

Jeffrey Orleans, an attorney who specializes in higher education law with a focus on athletics governance and administration, says it’s a bit like the killer asteroid theory: Something could fall from the sky and blow up college sports’ economic model.

“There’s so much out there that it’s hard to feel comfortable,” he says. “On the other hand, it could be like the Cold War. For 50 years we had all kinds of ways the world could have blown to hell, and somehow we survived it.”

NCAA president Mark Emmert says the very fact that so few athletics programs are self-sufficient demonstrates their worth in terms of building community and providing opportunity.

“A very small number of the 1,100 (NCAA members) have a positive cash flow on college sports, so those schools are making a decision that having a successful athletic program is valuable to them despite the fact they have to subsidize it with institutional money,” Emmert says. “The same thing is true for a lot of academic programs. So every school has to sit down and say, 'What is this worth to us?’ ”

Kansas State president Kirk Schulz, chair of the NCAA board of governors, believes the bubble metaphor is overwrought.

“I’ve heard that now for the last 20 years and I don’t want to be skeptical and say nothing like that could happen that would ever change the direction of intercollegiate sports,” Schulz says. But he compares it to predictions of a bubble in higher education where prospective students would one day decide that degrees for ever-higher tuition just aren’t worth it anymore.

COLLEGE BASKETBALL: Coaches' salaries

“And guess what? We all have record numbers of people who want to come and pay these tuition rates and get these degrees from our institutions,” Schulz says. “So I’m a little skeptical about the gloom and doom of a bubble that’s going to burst and everything is going to go south.”

Even so, Schulz agrees that athletics departments cannot continue to outspend revenue indefinitely. He blames the building of more and more buildings.

“I worry that we put ourselves in this mode where whatever we have right now is not good enough,” he says. “We’ve always got to build something bigger and better with more school colors and more logos. And I don’t think it is sustainable.”

Will TV revenue continue to rise?

Schools’ figures for the 2014-15 fiscal year were affected by changes in the methodology they are supposed to follow in compiling certain revenues and expenses for the NCAA. Among the Power Five conferences, the revenue increase was driven in part by an influx of bowl money from the inaugural College Football Playoff and theSEC Network’s debut. The amounts generated by those enterprises are likely to keep rising, but not nearly as sharply as they did in 2015.

Meanwhile, the expanding expense side of the ledger will be under additional pressure from scholarships based on the cost of attendance, which didn’t begin hitting athletics department budgets until the beginning of fiscal 2016.

Still, A.J. Maestas thinks an elite portion of the Power Five schools will continue to do quite well because their revenues have room to rise even more. He is president and founder of Navigate, a firm that measures marketing investments in sports and entertainment.

“If you take a look at affinity, passion, ratings and licensing — all the metrics that would be highly correlated with revenue — and you picture a bar chart that compares the NBA to college basketball and the NFL to college football, the college versions would be below the pro versions, but not by nearly as much as people might think,” Maestas says. “But if you look at revenue, it is radically below."

Matt Balvanz, Navigate’s vice president of analytics, says the firm is projecting the NCAA’s top 25 athletics programs can expect revenue to grow by 116% in the next 10 years. By contrast, the firm predicts revenue growth of 63% in the NFL and NBA, 55% in the NHL and 48% in Major League Baseball.

But how will TV revenue keep going up in a world where cord-cutters are leaving cable TV and cord-shavers are opting out of high-priced sports channels where they can?

“No matter how tough things are at ESPN right now, nobody ever cuts their way to greatness,” Maestas says. “We see signs that consumers are willing to pay … for premium content, and college football is premium content.”

Neal Pilson is a former president of CBS Sports and founder and president of a consulting company specializing in sports television, media and marketing. He says skeptics “have been predicting a bubble in TV rights” since the mid-1980s — and he should know. He was one of them.

“The (then) president of CBS Sports, to whom you are speaking, predicted rights fees would go down because there just wasn’t enough business to support the rights fees we were paying,” Pilson says. “He was wrong, obviously. Shortly after, he and his network paid $1 billion for the NCAA tournament. And everything has progressed in one direction since then."

The progression took another leap forward last week, when CBS Sports and Turner paid $8.8 billion for an additional eight years of the tournament, through 2032. “It tells us,” Pilson says, “that the appetite and interest in major sports properties is a fixed part of our TV sports culture.”

Pilson points out many of the conference TV rights packages are wrapped up for years, with a significant exception. The Big Ten Conference’s deals, expiring in 2017 and under negotiation now, are “going to be a bellwether, a gut check,” he says. “If there’s a bubble, we’re going to see it in the negotiations coming up.”

Bearable for Bearcats

Navigate’s projections of high revenue growth are only for the top 25 programs. What about everybody else, particularly those schools outside the Power Five?

“It’s going to be a challenge, obviously, with costs increasing if you are not in that top tier,” Balvanz says. “It’s going to be really tough to find those trigger points to maximize revenue. It’s going to force them to be more and more creative.”

On a dollar basis, Cincinnati’s athletics program is one of the most heavily subsidized at a Division I public school, receiving nearly $23.2 million from the university in 2015. But it also is being creative in cutting costs. Omar Banks, the department’s chief financial officer, says revenues are expected to decline in future years for complicated reasons having to do with the breakup of the old Big East, UC’s tenure in the American Athletic Conference and how units of revenue from the NCAA men's basketball tournament are being distributed.

Cincinnati has instituted rules banning plane travel for non-conference games, saving “a couple hundred thousand dollars,” and capped per diems at $45, saving upwards of $75,000, he says. The department’s operating expenses rose from $25.2 million in 2005 to $59.5 million in 2013, not adjusting for inflation. Its expenses have decreased since ($55.4 million in 2014 and $51.7 million in 2015).

In 2015, USA TODAY Sports found, there were 21 public-school athletics departments that spent at least $100 million – more than double the number at that level in 2012.

“Those schools, when they amass their surpluses, they’re creating this new demand for high-priced coaches,” says Banks, president of the College Athletics Business Management Association. “They can probably weather the storm much better than we can.”

Cincinnati’s football team has made a bowl game nine times in the past 10 years, its men’s basketball team has played in the past six NCAA tournaments and its women’s soccer team won the 2015 AAC tournament. But Banks says that even with the cost cutting, if it doesn’t increase revenue from ticket sales and annual fundraising, “we could be looking at the percentage of subsidy that we receive becoming much higher.”

Orleans, a consultant to the reform-minded Knight Commission, says that’s precisely the problem: “I think the schools that are relying on all this external revenue are potentially in a fragile place. What I think is getting less attention is all the schools in Divisions II and III and some in Division I that don’t have access to all these huge revenue streams but whose costs are being driven up by the spending habits that trickle down from the top.”

Combined GDP of Serbia and Estonia

Tom McMillen, executive director of the Division 1A Athletic Directors’ Association, quibbles with the term bubble but says Zimbalist is right that court cases pose a potential threat, including two in which the plaintiffs are seeking an injunction that would lift the NCAA’s new, cost-of-attendance-based limits on athlete compensation.

“There are a lot of challenges,” McMillen says. “The millions of dollars that the conferences and the NCAA are spending defending the model are eating away at dollars that could be put to more productive use. (The athlete-compensation litigation) in particular is existential. It blows up the model of college sports. If that would ever happen, there’d be a race to Congress to get some relief.”

Some members of Congress do not look kindly on the NCAA. Rep. Charles Dent (R-Pa.) is among five members who introduced a bill that would establish a Presidential Commission on Intercollegiate Athletics, which would be required to review and analyze a variety of issues in college athletics, including its financing. The bill would also require schools to provide four-year scholarships, and offer baseline concussion testing for athletes in contact sports.

“The NCAA is simply incapable of reforming itself,” Dent says. “It’s important for us to have a serious conversation about how all these conferences are going to be able to survive in this new system” where the Power Five have more autonomy.

Over the past 11 years for which USA TODAY Sports has compiled their NCAA financial reports, public schools in Division I have spent $71.3 billion on athletics — roughly the combined GDP of Serbia and Estonia. Add in athletics spending at private schools, which don’t have to release their figures publicly, and that’s probably around $100 billion.

Zimbalist says athletics departments simply can’t keep spending so much. “Politically, it’s not sustainable,” he says. “Legally, it’s not sustainable. Economically, it’s not sustainable.”

Zimbalist says he is working to try to get the American Council on Education, a consortium of presidents, and the Association of Governing Boards of Universities andColleges, a consortium of boards of trustees, to support Dent’s bill. He thinks presidents and boards will need to work collectively if they are to forge real change.

“I think that everybody realizes now” that change is coming, he says. “College presidents know they can’t continue financially” the way things are. “Individual presidents can’t do anything. They’ve tried in the past, and all they’ve ended up doing is getting themselves fired.”

Schulz is leaving Kansas State this year for Washington State, where athletics directorBill Moos sent a letter to donors last month acknowledging a departmental budget deficit of more than $13 million for fiscal 2015. That was its second consecutive shortfall of more than $13 million, and came even with the department receiving $6.1 million in subsidies. Moos' letter said, “we continue to work extremely hard to maximize our existing revenue stream as well as identifying and securing innovative new ones.”

Schulz says he can’t say much about all that until he gets there and begins working on it. But he believes that college presidents are going to show more restraint on coaches’ salaries in coming years.

“I think many of us have reached the limit on what we can do on football salaries, for example,” he says. “Can a Kansas State pay a football coach $5 million a year? Probably could, but I’m not sure we’re willing to go that far. … Those are the types of constraint that are going to be there. But I see those as more of a gradual set of changes than this overnight, everybody is deciding to do something. I just don’t think that’s realistic.”

Contributing: Christopher Schnaars, Brent Schrotenboer

Sharing is Not Caring: The Future of Cable TV

Navigate Research - Monday, March 21, 2016

Written by Matt Balvanz

If you’ve been paying attention to the news surrounding the future of cable TV, you’ve probably already concluded that the industry’s days are numbered. With all of the programming options available online for monthly fees well below cable TV packages, why would anyone not cut the cord at this point? Industry experts believe the only valuable aspect of the cable TV bundle is the access to live sports. But, according to a 10K filing from Disney in November of 2015, ESPN’s subscriber base has dropped from 99 million in 2006 to 92 million, a loss of 7 million subscribers. So, it appears live sports isn’t even immune to the cord-cutting phenomenon.

Are sports fans really deciding that traditional cable TV packages are so expensive that they aren’t tuning in to live sports anymore? Should sports content providers be worried that their games aren’t as valuable as they used to be? Should cable distributors be worried that their coveted bundle packages are priced too high? Or, is there another force working behind the scenes that is driving this behavior? I believe one major driver that nobody is talking about is password sharing.

According to a consumer survey of 10,000 US broadband households conducted in Q3 2014, 6% of respondents claimed to use a password from a friend or relative to access non-cable programming, which equates to about 6 million subscribers. Keep in mind that this 6% is just the people who were willing to admit to borderline illegal activity in a survey, so the results are likely conservative.

So, we’ve got 7 million people who cut the cord, and 6 million people (conservatively) that are using other people’s passwords to access cable TV. It seems to me that people are still very interested in watching sports and other quality programming, but they would just rather not pay for it. The obvious question here is why are cable companies and other over-the-top networks like Netflix and HBO allowing all of this password sharing. Executives claim that they are fine with the password sharing for now, since it gives potential customers a way to access their content, and the current environment is all about gaining subscribers, so it’s best not to risk the negative PR. But, at what point do the subscriber losses reach a level where these companies start to crack down on password sharing? And when they do, will people really stop viewing cable programming for good, or look for ways to pay for the content again?

Nobody can predict the future, but my best guess is that when the 6 million+ people who are paying $0 per month for cable are no longer allowed that pricing luxury, they will look at the options available, and re-subscribe to cable TV. Of course, the viewer experience of cable TV will look a lot different, as there likely won’t be cable boxes or actual cable cords running through living rooms, and consumers will be watching on TVs, phones and tablets. But ultimately, I think sports fans who have been cord-cutters will come running back once they can’t use a friend’s or family member’s password.

I know this goes against nearly everything else you will read. Right now the conventional wisdom is to forecast a doomsday scenario for cable TV in the age of cord-cutters and cord-nevers. But most of the rumors surrounding over-the-top options (Apple TV, YouTube, and Amazon most prominently) claim that they are trying to piece together subscription packages with around 12 channels costing consumers $40 per month. Compare this to current cable TV packages offered by Time Warner Cable and Comcast that offer 70+ channels for the same monthly cost, and if someone is forced back into making a purchase decision, why would they pay the same amount for fewer channels? Unless over-the-top options can offer equal or more content at a value that’s the same or better, I think cable TV will see some degree of resurgence once password sharing becomes more difficult.

The only question then will be what we will call the cord-cutters that re-subscribe to cable. Cord-menders? Cord-fasteners? At Navigate, we plan to call them “Cord-comebacks” if and when this day comes.

Beyond the Valuation

Navigate Research - Tuesday, February 23, 2016
Written by: Dan Kozlak

Sponsorship valuations have become an increasingly important and valuable tool. The significant growth in sponsorship investment levels corporate partners allocate from their marketing budgets to achieve advertising and business initiatives, as well as the dependence properties place on sponsorship revenue streams to operate at the highest level possible, have necessitated their use.  Valuations serve as a credible source for determining an appropriate price for a partnership, as well as demonstrating the return on investment a partner has received from the exposure generated by properties’ assets.  

By educating both properties and corporate partners about the appropriate value for partnerships, it can help generate an efficient market place where both sides can feel confident executing such partnerships.  However, determining the total fair market value price of a sponsorship is just one advantage valuations provide.  As anyone who has been involved in sponsorship negotiations can attest to, establishing an appropriate price for a partnership is just the initial step.  

There are a few other key components a valuation can satisfy beyond determining a fair price.
In instances where the sponsorship in question is new, dramatically expanded, or does not have a renewing partners, valuations can serve as a prospecting guide.  Establishing a fair market price for a partnership enables properties to focus their efforts towards prospective sponsors that can afford such investments and who have historically purchased sponsorships at a similar level.  Instead of simply targeting all potential corporations, setting a desired price allows properties to save time and resources by exploring only feasible partners.  And if it is unknown whether a potential partners would be willing to make such an investment, providing a broad price range during initial conversations can help prospects determine if they would like to further discuss the opportunity or not.  Establishing this pricing level can help save a great deal of time and resources from a partnership development standpoint.

Demonstrating the overall value of a partnership does help to establish the ultimate price it is sold for.  However, a valuation can serve as an asset package management guide.  Almost all sponsors have specific objectives they would like to fulfill from their sponsorship investments. A valuation of each asset can ensure an agreeable portion of the package’s value is being driven by assets that achieve those objectives.  Based on a sponsor’s desired “key performance indicators” (K.P.I.’s), a sponsor and property can work together to ensure the right mix of assets is utilized to deliver against those metrics.  This comes from a combination of the sponsor sharing these objectives and marketing goals (i.e. driving awareness, differentiation from the competition, building brand affinity, product promotion, etc.) and a property supplying and activating appropriate assets to achieve these goals.  However, this is only possible through a full asset package valuation.

Corporations engage in sponsorships with the ultimate goal of garnering a return on investment to their company’s bottom line.  Valuations provide a more accurate means of measuring their generated return against what the sponsorship has proven to be worth.  Measuring this observed fair market value of an existing sponsorship can help a sponsor to determine whether they should renew existing partnerships, optimize their asset mix, expand their partnership, or step away from a partnership.  Properties can also utilize the assessed fair market value to demonstrate to existing or future partners the return they can expect when partnership with their organization.  No matter which side of the partnership the return is measured on, a valuation will provide the most accurate performance gauge possible.

In negotiations, confidently knowing what a partnership should be worth in the marketplace can be very valuable.  Valuations can aid prospective sponsors by indicating whether the price they are being pitched appropriately aligns with the assets they are being charged. Valuations also aid properties by determining where they can establish pricing at knowing they can confidently walk away from a low-pitching prospect to pursue an offer they know they can command in the market place.  Having this information provides either side with an upper hand during negotiations.  By establishing the fair price of a sponsorship, partners can make appropriate decisions in their best financial interests.

While it is important to understand the best price to place on a given sponsorship, there are many other additional advantages to conducting valuation.  Valuations can assist in prospect targeting, asset package management, accurately gauging return on investment, and negotiation strategies.  Given the increasing amount of cost associated with sponsorships, executing valuations can be well worth their investments.

Navigate Research wins national award for second year in a row

Navigate Research - Tuesday, December 15, 2015
Navigate Research, an industry leader in evaluating and measuring marketing investments in sports and entertainment, announced today that they have won the 2015 National "Best and Brightest Companies to work for®” award from the National Association for Business Resources (NABR). 

Navigate is also a proud winner of the 2015 Chicago’s Best and Brightest Companies to work for, 2014 National Best and Brightest Companies to work for, 2014 Chicago’s Best and Brightest companies to work for, 2015 SportsBusiness Journal Forty Under 40 (AJ Maestas) and Forbes’ 10 Best Organizations to Work For in Sports. 




About Navigate Research
Navigate Research specializes in the evaluation and measurement of marketing investments, primarily in the sports and entertainment industry.  We help our clients determine the value of their partnerships and understand how they're performing.  We work with a variety of brands and agencies, as well as professional teams and leagues.  Some of our clients include ESPN, NFL, Anheuser-Busch, Southwest Airlines, The Los Angeles Lakers, The Ohio State University and The National Rugby League.  www.NavigateResearch.com 

About "Best and Brightest Companies to Work For®"
The "Best and Brightest Companies to Work For®", a program of the National Association for Business Resources is presented annually in several markets: Detroit, Chicago, Atlanta, San Francisco, Milwaukee, Houston, Grand Rapids and Nationally.  

The Evaluation Process included representatives from the Best and Brightest team working with the over 450 companies to identify their strengths and opportunities through an in-depth evaluation.

Participants' practices were bench-marked against other participants in their region and across the nation. This multifaceted approach created a rich assessment that provided opportunities for expert analysis reports, competitive comparisons overall assessment of other factors including Return on Investment.