Are NBA Jersey Ads a Slam Dunk?
Evan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The National Basketball Association is going to allow advertising on its game uniforms, making it the first of the traditional big four North American sports leagues to do so. Beginning in the 2013-2014 season, a small, 2.5 inch by 2.5 inch advertisement will appear on the shoulder of your favorite basketball hoopster.
The NBA already has a contract agreement with Adidas (NASDAQOTH: ADDYY) to manufacture and sell jerseys and other merchandise. The agreement requires players to wear Adidas’ jerseys on-court, and even wear their warm-ups and non-game jersey sportswear. While the players’ apparel is already one big ad for Adidas, the NBA is seeking to open up the jersey space to other companies.
Brooklyn Nets Chief Executive Brett Yormark and Dallas Mavericks owner Mark Cuban are among top NBA officials who have long endorsed the concept of selling jersey ads. Mark Cuban is especially looking for something that will be a better option than the Facebook (NASDAQ: FB) stock debacle as he lost over $200,000 alone on Facebook. Cuban commented that the $200,000 loss was simply “gambling money” and downplayed his losses, but nonetheless he is still looking for a better investment to make.
NBA Commisioner David Stern said the league is looking to rake in $100 million in revenue by permitting small advertising patches on uniforms. Estimates vary from $100 to $125 million, but some others say that even these numbers are too conservative.
The NBA is now leasing out practically the only remaining space not plastered with advertisements in the league. Why is the NBA doing so? The league is, after all, one large business conglomeration; a very large investment for team owners. By allowing jersey ads, the NBA stands to make millions of dollars – something that makes team owners and many players very happy. The new agreement will be designated as “Basketball Related Income” (BRI), from which players take home 50%.
Many basketball fans, on the other hand, are extremely unhappy with the new agreement. They view this new deal as something that will make jerseys look tacky, unappealing, and ugly. Photos of what advertising will do to the jerseys of players are popping up all over the internet – including this one of the New York Knick’s Carmelo Anthony:
Entire photo albums of Kobe Bryant with a Mercedes-Benz logo emblazoned on his chest or other players with miscellaneous logos and ads are big hits on the internet. However, these pictures are not truly realistic or feasible – yet. The ads will appear more like this (photo of Miami Heat’s LeBron James):
Fans probably do have some valid points about aesthetics. It might become a bigger concern later in the future if NBA decides to sell off more 2.5 by 2.5 inch chunks of jersey space. However, other conjectures by fans might be a little bit of a stretch (the Anthony photo being an example). Fans say that jersey revenues will decrease and overall the deal will actually lose money. But even if jersey sales go down, the NBA will still make large profits – the contract deals would more than offset any revenue possibly lost from lower jersey sales. But jersey sales would probably still be at the same rate if not more than they are now – just look at the success of European jersey manufacturers with giant ads all across the players’ uniforms.
Also, imagine how awkward it would be for a Nike (NYSE: NKE) logo to be affixed on an Adidas-manufactured uniform. Considering LeBron James and Kobe Bryant have large Nike endorsement contracts, the situation would be fairly icy. However, the NBA could explain this away by saying that players have their own shoe deals and control over their shoes, while the NBA has control over what to do with the uniform.
Once you get past aesthetics (granted, it might be hard for some to do), it's difficult to find business rationale against selling jersey space. The only real reason to not sell ad space is that $100 million is a drop in the bucket for a giant like the NBA. Split up among the 30 different teams, it wouldn’t even be able to pay for one athlete’s average pay ($5 million). However, more money for the NBA isn’t a reason to not put ads on jerseys. In fact, as I pointed out earlier, estimates of $100 million revenue are fairly conservative, meaning even more revenue might be generated.
If a corporate logo doesn't compromise the skills of NBA players and actually strengthens the NBA by boosting revenue, then it might be an idea that should be enacted. Besides, fans that don't like the patch can choose not to buy jerseys. That’s the beauty of a free enterprise market. More likely than not, that small patch will fade into the background sooner than later.
There are still some issues to hammer out, and if they aren’t dealt with effectively, then they might become major problems. The league has exclusive relationships with corporate sponsors, which means teams wouldn't be allowed to sell uniform “real estate” on the shoulder to competitors. Marketing departments need to make sure that they’re not breaking any contract rules before they start ironing on the patches. Teams also are going to need time to approach potential sponsors, then reach deals with them. Adidas would then fasten the ad patch onto all retail jerseys.
Jersey advertisements would also be affected by all typical ad issues affecting how advertisers buy ad space. Other issues include how long would the jersey ad contracts last? Would a Red Bull logo appear for one week, then the next week that would be ripped off and a Gatorade logo would be plastered on? Would the contracts be weekly, monthly, yearly, etc.? What about team vs. player contracts? Would companies be allowed to buy space on a specific player’s jersey, or would it only be able to buy ad space for an entire team (like Europe)?
Bottom line: are NBA jersey advertisements a slam dunk? Financially, yes. For the fans, not so much. The NBA needs to iron out certain issues and be ready for the transition. Only time will tell whether or not these jersey advertisements are really feasible for an era of sports-advertising mania.
EvanBuck has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook. Motley Fool newsletter services recommend Nike. 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.If you have questions about this post or the Fool’s blog network, click here for information.