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On May 16th, the NBA's Philadelphia 76ers announced a pioneering marketing deal
with online ticket marketplace StubHub - making it the first
team of the U.S.'s four major professional sports to sell advertising space on team jerseys. Not only is this significant because the 76ers are reported to be the first to ink this type of deal, but also because of the profound impact a jersey logo sponsorship could have on future NBA team-player relations.
This sponsorship deal is on the heels of the NBA Board of Governors' approval of a three-year pilot program in April. This new program allows basketball franchises to sell space on team jerseys with half the proceeds going to the team and at least one-fourth going to a fund that expands the league's salary cap. As a result, the 76ers will adorn their jerseys with StubHub logos starting in the 2017-2018 season. If all goes well, this pilot program could become permanent and could even be replicated in football, baseball, and hockey.
The 76ers deal is a potential sports industry game changer. It could significantly expand the league's coffers. With more money on the table and designated revenue going towards increasing player salary caps, this foreshadows the way NBA players may be able to shift leverage in contract negotiations and even pressure teams from entering into endorsement deals.
Basketball Makes it Rain
The U.S. is behind the rest of the world with these kinds of sports sponsorships. Given their lucrative nature, jersey logo advertising deals are long overdue
. For example, the Barclays Premier League (i.e., England's professional soccer league) generated $370 million
in the 2015-2016 season by selling jersey space to advertisers. Since American sports are a booming multi-billion dollar industry fueled by marketing and advertising, we can safely assume this is the beginning of new revenue streams for American sports leagues and franchises.
The 76ers are reported
to earn $5 million per year for a total of $15 million in the three-season deal. As other teams follow, the cumulative effect of these advertisements is estimated
to generate $150 million league-wide in the 2017-2018 season alone. Given the potential amount of cash generation, these deals will probably become a standard way of doing business by the end of the pilot program. This extra money will inevitably benefit players and could lead to changes in how players negotiate with teams, sponsors, and leagues.
The Impact on Players - Show Me the Money!
The biggest impact of these sponsorship deals is that it puts more money on the table. With funds being set aside for salaries, the players' piece of the pie could get larger. Franchises would be able to spend more money on team salaries, which could help highly-rated players and benchwarmers alike. Also, raising the income bar for top-performing athletes could give them more power when negotiating with teams or sponsors.
The sponsorship-on-jersey deals could give NBA players more negotiating power in two ways:
Athletes could leverage their own private endorsements to prevent their team from signing conflicting or competitive jersey sponsorship agreements.
Players could use their negotiated private endorsements to encourage jersey sponsorship deals with their team - thus bringing deals to the table.
With the importance of sponsorship deals growing, the net potential result is that players may gain a seat at the bargaining table and greater control of their economic futures.
Can Players Really Turn Up the Heat?
The big question is whether players could realistically exercise negotiating power by using private endorsements to prevent team sponsorships. Athletes like LeBron James and Stephen Curry are not only team starters, but are also the faces of their respective franchises. They are a big part of their teams' brands. At the same time, however, they also have their own lucrative private endorsement deals.
For example, LeBron James currently has an exclusive lifetime deal
with Nike worth over an estimated $1 billion
. Conceivably, James and Nike could seek to limit direct competition by blocking a sponsorship deal between Under Armour and the Cleveland Cavaliers. This foreshadows potential conflicts of interest between players, teams, and companies like Nike and Under Armour. Nevertheless, LeBron James and other high-profile NBA players could use these endorsements to their own benefit by maximizing their brand value - using them to get higher salaries from their teams and more money from their endorser.
Similarly, players' private endorsements could promote team deals as well. For instance, Kevin Durant's endorsement deal with Sprint could translate into a sponsorship agreement for the Oklahoma City Thunder either through Durant facilitating a deal or the sponsor going directly to the team. This demonstrates the potential negotiating capability and expanding power certain NBA players could have in the coming years.
Can Sponsors Control the Game?
Just as players could impact which sponsors sign with teams, sponsors may be able to influence which players a team signs. This could be based on the positive brand value or negative image certain players have.
Sponsors are in the business of making money and drawing customers to their products. If they believe affiliating with certain players negatively impacts their brand image - due to player scandal or otherwise - sponsors may push teams to sign or drop players. If the sponsorship deal is lucrative enough, the team could align itself to the sponsor's interests.
What Should Players Do to Capitalize on their Value?
Ever increasing salary cap space and this new era of jersey sponsorship deals mean that professional athletes need to become increasingly more proactive in managing their careers - both on and off the court. They need to take the same passion they have for their sport and apply it to becoming better negotiators. As more external factors begin to influence a player's wage, athletes need to leverage the growing pie to their advantage.
Not only do players need to capitalize on their time as professional athletes to support long-term financial success, but they also need to plan for life after the game. As discussed in our previous article
, many athletes experience financial and professional difficulties post retirement. Having an off-court strategy helps their lifelong earning potential. Regardless of how NBA players and franchises react to jersey sponsorship deals, career planning and negotiation skills are becoming increasingly useful.
The time has come for more athletes to become strategic. A wealthier active player is one who proactively leverages his brand value and access as a professional player, and a more successful retired player begins with being a better informed active player with keen business acumen. Being able to maximize an athlete's potential on and off the court and after retirement is central to what we believe at The Azara Group.
The Azara Group (TAG) is a consulting firm that promotes the development of leaders in an increasingly competitive and diverse marketplace - providing strategy consulting services and leadership training services to advance professional and life success. TAG leverages expertise in career strategy, diversity, negotiation skills, and business acumen to provide strategic advice and consulting services to help people and organizations get what they want, achieve their goals, and advance their business and career objectives. TAG also helps companies better attract, retain, and promote diverse talent, and develop robust diversity platforms and strategies to create a more inclusive workplace.
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