Hoop It Up for Gains

Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

This year’s NCAA men’s basketball tourney tips off Mar. 19, and as millions of Americans prepare to predict a few surprising bracket results it’s interesting to note a mild surprise about March Madness itself: the frenzied spectacle garnered just over $1 billion in advertising revenue in 2012, according to Kantar Media, making it the most lucrative post-season sports franchise as measured by national TV advertising revenue—ahead of the NFL ($976 million) and NBA playoffs ($537 million). Many public companies are winning as a result; investors may be able to do the same.

Since CBS (NYSE: CBS) and Time Warner (NYSE: TWX) forged a $10.8 billion deal in 2010 to share multi-platform coverage of the tourney through 2024, March Madness has blown up. The alliance began in 2011 and through two years has produced a whopping 64% increase in advertising revenue over 2010, according to Kantar Media. One major reason for the heady increase is the live feature of every tourney game across the CBS broadcast channel and Time Warner networks TNT, TBS and truTV, leading to higher overall ratings. CBS notes greater profitability from its restructured tourney involvement because the programing cost savings it has reaped by bringing aboard Time Warner offsets its advertising share loss. Time Warner enjoys greater leverage in carriage fee negotiations surrounding TNT, TBS and truTV—especially the latter—and has already cashed in the networks’ annual feature of dunks and buzzer beaters.

The tourney’s reinvigorated embrace of online and social media offerings has boosted advertising revenue, too. Time Warner will use alternative platforms as a value-add this year by offering pay-TV subscribers free streaming access to all 67 games, and tourney content is available at websites including CBSSports.com and NCAA.com. At the latter portal, for example, HD channel March Madness Live is completely advertiser-supported. Both Time Warner and CBS can use multi-platform tourney coverage to help offset rising programming costs going forward, and given the immediacy of sports the genre is seen as a key catalyst to ramping adoption of timely, engaging online features by consumers.

The tourney’s multi-media thrust, meanwhile, affords tourney marketers ample and growing consumer-connection avenues with which to swell brand exposure. Top March Madness advertisers over the last two years include General Motors (NYSE: GM), Coca-Cola (NYSE: KO) and Capital One Financial (NYSE: COF), said Kantar Media.

Although more brand exposure is generally considered a benefit to advertisers, it’s quite difficult to determine firms’ ROI from March Madness marketing. I crunched some numbers and discovered how the above trio achieved shares gains during March Madness in each of the last two years. Keep in mind that a plethora of additional variables likely impacted the price changes, such as market sentiment, unrelated news, etc. Also, two years does not a trend make, but considering the landmark changes to tourney coverage in 2011 I chose not to dig into prior years.

<table> <thead> <tr><th> </th><th>2012 Tourney Open</th><th>2012 Tourney Close</th><th>Change</th><th>2011 Tourney Open</th><th>2011 Tourney Close</th><th>Change</th></tr> </thead> <tbody> <tr> <td>GM</td> <td>25.48</td> <td>26.76</td> <td>5.02%</td> <td>30.98</td> <td>32.39</td> <td>4.55%</td> </tr> <tr> <td>KO</td> <td>69.51</td> <td>74.14</td> <td>6.66%</td> <td>62.95</td> <td>67.66</td> <td>7.48%</td> </tr> <tr> <td>Capital One</td> <td>49.38</td> <td>56.36</td> <td>14.14%</td> <td>47.93</td> <td>51.82</td> <td>8.12%</td> </tr> </tbody> </table>

Perhaps including the cogent data for CBS and Time Warner adds credence to a belief in an inherent benefit to companies involved with March Madness.

<table> <thead> <tr><th> </th><th>2012 Tourney Open</th><th>2012 Tourney Close</th><th>Change</th><th>2011 Tourney Open</th><th>2011 Tourney Close</th><th>Change</th></tr> </thead> <tbody> <tr> <td>TWX</td> <td>36.35</td> <td>37.59</td> <td>3.41%</td> <td>35.42</td> <td>35.59</td> <td>0.48%</td> </tr> <tr> <td>CBS</td> <td>30.64</td> <td>33.74</td> <td>10.12%</td> <td>22.61</td> <td>25.07</td> <td>10.88%</td> </tr> </tbody> </table>

Any way you slice it, March Madness is a major force in American media. Whether huge companies such as CBS, Time Warner, General Motors, Coke and Capital One Financial receive an actionable boost from their tourney play is up for debate, yet I can’t see any negatives from such play.

Chad Heiges has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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