The Economic Viability of an NFL franchise in Los Angeles

In March of 2013 the hopes of bringing an NFL franchise to Los Angeles were dashed when the NFL abandoned the process. The Rams haven’t had a football team since 1995 when the Rams and the Raiders both left. It is the second largest city in the US and therefore a great market, but recent attempts to bring a team have been unsuccessful. I believe that despite the large potential for a football team in Los Angeles, the city is not a viable candidate for a team.

Many teams have called Los Angeles home, but there were two NFL teams that played in Los Angeles: the Rams from 1947-1995 and the Raiders from 1982-1995. The Rams played in the Los Angeles Coliseum from their inception to 1980, when they left for two major reasons: the Coliseum’s large size made it difficult to sellout, resulting in local TV blackouts and costing the team ad revenue, and the neighborhood where the Coliseum resides was very dangerous at the time. They moved to Anaheim, and then left in 1995 for St. Louis.

The Raiders moved to the Coliseum in 1982, followed by years of success (including a Super Bowl in 1984). However, Raiders owner Al Davis never got the NFL to institute pay-per-view telecasts and the Los Angeles Coliseum Commission never gave promised stadium upgrades, so the Raiders returned to Oakland in 1995.

The market in Los Angeles is undeniable. Being the 2nd-largest city in the US has its advantages, and Los Angeles could definitely support a football team. But could it?

In the greater LA area (including Anaheim), there are two professional basketball, baseball, and hockey teams. There are also two college football powerhouses (UCLA, USC) in the area. The two most popular teams, baseball’s Dodgers and basketball’s Lakers, are worth $1.4 billion and $1 billion, respectively. While a plethora of NFL teams generate at least $1 billion in revenue, it’s not guaranteed that a football team could replicate this success in Los Angeles. New York has multiple franchises worth $1+ billion, yet they are twice the size of Los Angeles.

Another problem is the stadium. The potential NFL team could move to the Coliseum, but the Coliseum has a history of losing teams. A stadium has been proposed, but its construction would cost $1.8 billion, and its proposed site is nearby the Staples Center, where two NBA teams and one NHL team play. There are concerns over congestion because of this.

It is possible that many people in Los Angeles want a professional football team, but for now they will have to be content with the multitude of sports teams in the area. The Raiders are also still popular there, so the NFL still has a reach in the city. Los Angeles should prepare for a few more years of no NFL team. The problem isn’t the fan base, but as always, it’s the cost.

Social Media: a powerful tool for sports

During previous posts I have discussed some different marketing strategies that are being implemented in the sport industry; because social media is the most recent and important trend in the marketing world, I believe it is crucial to discuss about how it is being implemented in sports.

Social media has become an inseparable part of the marketing strategy implemented by most companies. Businesses now invest a great amount of resources on social media. This is because of the various benefits social media can generate for an organization. Through social media companies are able to build direct and stronger relationships with consumers, which help businesses generate loyalty. It is also an instrument to promote events and new products, to gather demographic and psychographic information and even to generate additional income through advertisement or sponsorship.

All these benefits can be captured even more in the sports industry because of the emotional attachment fans have towards sports, teams and athletes. Fans want to interact with other fans, share their experiences and reactions with friends, be recognized for their loyalty towards the team, they want to feel closer to their team and athletes and want to become part of a community who shares their same passion. For all of these reasons, it seems as if social media is a perfect tool in sports; it permits fans to get engaged with sports and permits organizations to enhance their fans’ experience, built stronger relationships and generate loyalty.

That is why social media is now widely being used in the sports industry. In the article, “20 Great Uses of Social Media in Sports,” the author discusses a variety of examples on how organizations are innovating through social media; I’ll mention a few of them:

  • Snappy TV: uses a technology to take live clips or online videos (approximately 1 minute long) and post them on Twitter and Facebook. This technology permits the distribution of real time content.
  • Red Sox: they went to Twitter and Facebook to conduct crowd-sourcing or ask fans about a game time change. This could be compared with the classical marketing research done by businesses to gather information regarding their target market’s desires provide a product or service that meets those desires. The Red Sox is building brand loyalty through social media because fans feel they are important for their team, their preferences matter and may also be more satisfied by attending a game according to their preferences.
  • Turner: this company uses social media as a companion to its broadcasts by providing alternative camera angels and chat rooms.
  • ESPN: they provide games through social media, which generate additional income to the company by providing upgrades.

It is important to mention that now there are awards, such as the “Shorty Awards,” that honor the best in social media. Projects such as the MLB Fan Cave and the HBO Boxing have been nominated for this award.

Nevertheless, similar to what I mentioned in my post regarding sponsorships, if social media is not done properly it can also generate negative effects. This is most commonly seen with athletes, who sometimes are found in trouble by writing misjudged, foolish and offensive tweets. Luke Brinley-Jones, in his article “Social Media and Sports: Winners and Loosers,” mentions some examples of athletes who have suffered negative consequences because of bad “tweets,”  for example, Mark Curban (Dallas Mavericks) was fined $25,000 by criticizing referees on Twitter.

Social media, as part of a marketing strategy, is with any doubt one key tool available for organizations. Social media builds stronger relationships with users and enables them to interact and feel connected with the organization. Consequentially, organizations can generate loyalty, acquire information and enhance their costumers’ experience. Social media benefits sports even more because fans naturally feel connected with such sport or sport organization. Therefore, social media should be implemented by every sport organization but being aware that, done improperly, could also generate negative reactions.

For further reading:
http://www.adweek.com/sa-article/social-side-sponsorship-137844

Public Goods

When analyzing a sports team, while in a business mind frame, there is one thing to know – sports entertainment is a public good. There are many kinds of goods, there is personal property, a classification where the property of a person is part of the person them self whereby the owner has the rights to exclude others from its use, and dispose as he/she pleases. There is private property which follows a similar rule, save disposal. Lastly there are public goods. Goods which are non-exclusive and non-rivalrous, effectively meaning that any and everyone can enjoy it’s use. Public goods are extremely important to know about when measuring the value of a sports team. Often times it is said that for sporting organizations the costs outweigh the benefits. However in saying this critics most often refer only to economic activity benefits. An approach called the Contingent Valuation Method measures intangibles, and environmental ammenities such as civic pride, and community spirit. 

A team of researches sent out questionnaires to 1,200 residents of Jacksonville, Florida, home of the Jacksonville Jaguars asking questions about the way they felt about the team. What they found was that only 38% of the questionnaires were returned. They held answers to questions like “do you feel a personal victory when Jacksonville wins?” and “Do you enjoy watching the game when Jacksonville loses?” and other questions similar in nature.

Later in the survey they ask the amounts that these residents are willing to pay, in taxes to aid the football and basketball teams of their city. The results are in the graph below. 

<a href=’http://chartgizmo.com/ChartPage?id=44643&#8242; target=’_blank’>Chart page</a>

What this information, though very basic, is used for is for sporting organizations to present to local governments and other businesses in an effort to promote the need of an official sports team. The common misconception is that all of this data centers around monetary value. The responses that researches came up with showed that most people get genuine enjoyment and satisfaction from a sporting team despite wins and losses and are willing to pay a little extra money to keep the sports around. 

Knowing this, there is pressure on sporting organizations to provide comfortable situations for fans to enjoy, and keep a winning organization. The pressure also involves maintaining a reputable brand. An example is the Yankees for their winning reputation.

Sports involves many different layers of analysis, including measuring intangible assets. All of these measurements are used to  advocate sports benefits. 

How The Super Bowl Host Committee and Entergy Are Practicing “Going Green”

It doesn’t take much of an imagination to think of the energy that the Super Bowl generates in fans, all throughout the country, every year–the challenge is trying to fathom the amount of energy that it consumes. From fuel for travel, to the electricity that powers the game’s halftime show, the Super Bowl’s energy intake has increased significantly after forty-seven years.

The largest sporting event of the year, one that has had the challenge of “besting” itself forty-six times over, since the first ever championship game in 1967, has, in recent years, begun to board the “going green” movement, attempting to offset some of the energy it has consumed. USA Today reports that the latest Super Bowl consumed 4600 megawatts of electricity– this is essentially almost 4 million pounds of carbon emissions produced to operate the hosting New Orleans Superdome and its supporting facilities alone. This is independent of the fuel usage from heightened airline travel, hotel operating energy expenditures, and the number of televisions that are on, that are indicative of the Super Bowl, every year.

The Super Bowl’s energy provider, Entergy Corporation, has voluntarily started a campaign (and are the first U.S. utility service ever to do so) to offset and stabilize their greenhouse gas emissions. (More on Entergy Corporation: http://www.entergy.com/about_entergy) Teaming up with the Super Bowl XLVII Host Committee and the Center for Climate and Energy Solutions (C2ES), the “Geaux Green” project was put into effect, offering fans a way to donate money towards sustainable solutions, informing them of how to live more sustainably, and introducing a competition of which NFL team has the most sustainable fans. Hitting a little more personally, Entergy even implemented, on their website, a tool to allow fans to calculate the carbon emissions that they would generate by traveling to the game, and offering ways to offset them. As well as this, a sweepstakes was put into effect, so that one lucky winner who pledged to live sustainably won tickets, airfare, and hotel accommodations to Louisiana for the big game.

The other portion of this campaign was executed with use of a dairy farm in Michigan. This farm, among two other sites, sold carbon credits, its rights to produce one metric ton of non-CO2 greenhouse emissions per credit, to Entergy Corporation. These credits either neutralized or offset different operations that ranged from: the Superdome’s operations, team hotel electricity usage, and even air and bus fuel required for cheerleaders and coaches.

This was a very big move, considering how much energy 4600 megawatts is. To put this into more perspective, here’s how much energy the 2013 Super Bowl consumed, with information taken from various sources:

4600 megawatts is a LOT of electricity!

4600 megawatts is a LOT of electricity!

Happy Earth Day, everyone!

Week 3 Recap

This week we covered an array of topics dealing with various successes and failures in sports business. The week started off with an article about the 2004-05 NHL lockout. It talked about the main issues of the lockout in addition to the lockout’s short-term and long-term impact.

Tuesday’s post was all about former New York Yankees owner George Steinbrenner. The post specifically detailed his business plan, and how he transformed the Yankees into a sports empire and recognizable brand.

On Wednesday we talked about soccer’s history in the United States and whether it would be a major sport. The article discussed the problems soccer has had stateside and why it is an unattractive investment, even though it is so popular worldwide.

We discussed Super Bowl advertising on Thursday. The article specifically talked about the high costs and the effort companies put into Super Bowl ads. The article also discussed how companies are adapting their television advertising to viral marketing as well.

Why Super Bowl Advertising is a Great Move

Super Bowl ads are something that many anxiously await a year for, just to see what Budweiser  Coors, or Doritos have come up with. There’s much more to this than companies having a little fun, shooting a comical commercial, and getting a few laughs out of Super Bowl viewers every year– it’s the price of nearly $4,000,000 per 30 seconds of airtime!

The Super Bowl, the most watched television event, every year, without fail, has become a noteworthy marketing opportunity for many corporations, granted they can catch a viewer’s eye. Whether it be through humor, tear-jerking, or celebrity appearances, companies go all-out to ensure that the millions of dollars they put forth are put to good measure, coming back to them in the form of product sales and publicity.

The cost of running a Super Bowl commercial may seem steep, but when we take a look at the steady increase in the game’s viewership, even in the last decade, it’s pretty apparent that publicity is not too hard to generate–if you can afford it. In the last ten years, since 2003, Super Bowl viewers have climbed from 88.6 million to 108 million people, on average (based on various online sources for each year). This should come as no surprise, when considering that the span of telecommunications has widened, as well as the United States’ population, and the quality of these commercials, making them (at times) be more or a ritual than the football game, itself.

Advertising via the Super Bowl’s commercial airtime slots come at a high cash value, but not necessarily a high price, when considering the information above. If we create a ratio, which we can call the “cost per viewer,” we can actually see that, when we take into consideration the number of people an advertisement can reach, a high premium on any given commercial isn’t so expensive, after all.

Take, for example, a  run-of-the-mill 30 second long advertisement for a product that hasn’t had a large amount of coverage, lately. To implant in a viewer’s mind that your product even exists is a monumental step in the right decision. If you can reach 108 million people (roughly the viewership of this past Super Bowl XLVII) by spending $4 million, you’re really spending $0.037, (or about four cents) to reach each viewer. Positioning, the marketing term that refers to the creation of an image and a background for a product in a consumer’s mind, then takes over, leaving the purchase to the consumer.

As if the per-viewer cost wasn’t incentive enough, a large trend that has been developing lately is the viral sharing of commercials on YouTube, leaving even more viewers (upwards of additional millions) exposed to a company’s advertising, free of charge. Publicity really does feed back on itself, and companies that realize this are starting to cash-in!

To put this into a little more perspective for readers, I compiled a simple line graph (with data provided by Statista.com) to show each year in the last decade’s Super Bowl viewer statistics and the total ad revenue that was generated through that given Super Bowl. Clearly, over time, as the Super Bowl viewership grew, the ad revenue did as well. Investing time, money, and even a cheesy commercial into the mega-event can yield great long-run success.

As you can see, despite fluctuations in the number of people who watch the Super Bowl, marketers continue to take the chance of spending large amounts of money to advertise during it, knowing its per-viewer and free publicity savings.

As you can see, despite fluctuations in the number of people who watch the Super Bowl, marketers continue to take the chance of spending large amounts of money to advertise during it, knowing its per-viewer and free publicity savings.

Soccer: A viable product for the U.S sports market?

As I was researching about soccer in the U.S, I found an article, “Can Soccer Ever Conquer the U.S?” in which the author feels optimistic regarding the possibility of soccer becoming a major sport in the U.S. Even though some people may argue that soccer is obtaining power and someday it may become a major league in the U.S, I strongly believe that those arguments are extremely optimistic.

Because sports can be conceived as a product, it is important to mention that while we are analyzing the viability of soccer in the U.S, we are basically conducting a marketing research regarding the sports market in America. Businesses use marketing research to gather information, such as, demographics and psychographics from the target market. This information is used to develop products and services or analyze the viability of these on the market being studied. In other words, an idea is determined by the information gathered from the target market. That is why it surprises me that people and organizations are trying to do the opposite for soccer: fit the American sports market and culture into soccer. As you may realize, it is extremely difficult to change a society’s behavior and make this society use a product that doesn’t desire.

My point is that after all of what we know regarding the sports market in the U.S, I don’t see reasons why soccer can ever conquer the U.S. The American sports market holds very specific peculiarities that simply make soccer an unviable and unsuccessful product in the U.S. This is because the great amount of barriers that exist, which make soccer unattractive for investors and the media.

Barriers of entry that exist for soccer range from cultural and historical elements to demographics and socioeconomic status. What all of these barriers share in common, are that they affect soccer’s popularity. In the article, “Why is soccer less popular in the U.S?” Martin Roderick and Ivan Waddington argue that in each society there is a limited space for sports and that once this space it’s filled out there is little space for other sports. In the U.S not only one sport has filled out this space, but a bunch of sports such as Football, Baseball and Basketball. Therefore, it is reasonable to assume that soccer has strong difficulties in entering to the market. It is the same logic as with other markets; for example, companies like Coke and PepsiCo that possess an enormous market share from the beverage market, make this market unattractive for new ventures so deter competitors from entering it.

Additionally, there are many cultural aspects that affect the U.S sports market. The development of American football may have been a consequence of the American Revolution. Americans pursued for the development of a national sport different from that of Great Britain (soccer.) The U.S wanted to become an independent and “unique country.” Therefore, sports like Football and Baseball are not only a sport but an element that represents American history, independence and culture. For this reason, sports fans’ “collective conscience” is occupied by sports that are seen as their “national” past time and have little interest for other sports.

Another barrier of entry is that soccer in the U.S is linked with a person’s socioeconomic status. In the article, “Negative Impacts Defining the U.S Soccer Market”, soccer is defined as a country club sport in which people need to pay to play. Soccer players pay for dues, tournament fees, uniforms and so on. Therefore, all these costs limit the access to other parts of society, make soccer unpopular and even hide players that could be talented but can’t afford to play soccer.

On “Can soccer ever conquer the U.S?” the author exposes reasons why soccer could conquer the U.S and one of the main reasons is that there is an increasing interest from U.S networks to broadcast soccer contests. Even though this may be true, it is important to point out that the media broadcasting is strongly linked with the profitability of the sport and its profitability is strongly linked with its popularity. The main TV channels are owned by large corporations, such as, General Electric and Walt Disney, who are interested in sustaining their profits. Therefore, these channels are interested in broadcasting the major revenue sports.

In the following graph you can see the revenue generated by league in 2009. You may realize that the revenue generated by all leagues other than the MLB, NFL, NBA and NHL generate half of what the MLB generate individually. For this reason, soccer is not a profitable product, at least in comparison with other sports, and therefore it is completely unattractive for investors.

Chart page

It is also important to mention that great part of the media is owned by people and organizations that own teams in the major leagues, for example, the Cubs which are owned by the Chicago Tribune. This makes the media be strongly influenced by private and biased interests.

For the reasons mentioned above, I believe that soccer will never become a major league in the U.S. Big projects like the World Cup 1994, Pele and David Beckam, have shown that the efforts done by soccer organizations only generate sporadic interest in America. I believe that every sport is unique and beautiful. And for this reason, since the moment I arrived to America, I have been enjoying from American sports rather than aiming that soccer become popular.

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