BACKGROUND
“I really think we’re on a path to building an incredible company that is truly national in scope and is one of the only portals of entry for national sponsorship and advertising in college sports.”
IMG College President, Ben Sutton in Sports Business Journal, October 25, 2010.
“[IMG College] represent[s] the multimedia marketing interests of 80 schools, including 34 of the 65 in conferences whose champions make football’s Bowl Championship Series, plus Notre Dame football. That triples IMG’s current roster. IMG could present its schools as a national unit for prospective sponsors, which could mean more revenue for the schools and IMG.”
USA Today, July 29, 2010.
WHY?
There are two reasons the IMG College transaction is good news for ADs:
1. Better pricing for schools with existing multi-media rights (MMR) deals on renewal or via extension (Category 1s); and
2. More interest in engaging the schools which have not outsourced MMR previously (Category 2s).
For Category 1s, incumbent MMR providers should be extremely motivated to retain schools – on renewal or in advance of renewal by long term extensions – through favorable economic and business terms. Given the market saturation for Category 1s, while revenue splits and guaranteed payments may be fairly priced, it is reasonable to expect increased price pressure on IMG College and its competitors to deliver the best deal terms.
For Category 2s, increased momentum and value for MMR should increase as IMG College and its competitors bid for new MMR properties. ADs at Category 2s should anticipate – and consider proactively seeking – opportunities for improved MMR revenue and efficiency in sales/marketing. Those ADs may enjoy and be able to stimulate via RFPs/RFQs favorable market value conditions to the extent that IMG College and its competitors race to lock up the Category 2s (e.g., IMG College announces its signing of Florida A&M University on October 28, 2010, the same day Sports Business Journal reported IMG’s closing of the ISP acquisition). This assumes that competition for remaining MMR properties motivates bidders to make offers to Category 2s that represent more than just “take it or leave it” terms. Where multiple schools, such as conference or regional based groupings of programs, can package their MMR into a single offering, negotiating leverage for Category 2s should be enhanced.
HOW?
For Category 1s whose deals are not expiring in the near term (> 36 months remaining), it is a great time to explore maximum value as part of a long term negotiation strategy. In certain situations, incumbent MMR firms should be eager to add years to existing deals, while competitors may be equally eager to exceed last best offers made by incumbents. After all, a right to match can be analogous to negotiating with the buyer’s checkbook, or its competitors’, depending on who wins your business.
For Category 1s whose deals are approaching expiry (< 36 months remaining), it is the perfect time to keep the current MMR provider honest and measure how the relationship is valued through the same market approach. More than ever, and despite the current economy, risk sharing mechanisms through business terms such as guarantees, split levels, opt-outs and scaling thresholds should all favor the schools. In addition, new incremental revenue opportunities, like monetizing advertising opportunities to audiences in social media channels, should be exploited with firm revenue minimums and measurable marketing deliverables.
Among MMR companies, Category 2s represent the remaining land grab opportunity in a finite market. This should translate into two advantages: increased revenue for MMR and staffing efficiency through outsourced third-party sales arrangements. Capital investment (e.g., scoreboards with an earn out and revenue split) paid by the MMR firm – not the school – may be a third area of value for Category 2s to seek. That’s one example of the potential application of creative terms in Category 1 contracts. While cost per unit values for Category 2s inventory may not have as much value as Category 1s, aggregating that inventory should have considerable intangible value characteristics to the winning MMR bidder: increased / defended market share; more total advertising inventory; larger geography to sell into; and economies of scale across a sales force.
In some cases, a starting point for those nascent relationships may be consultative partnerships, especially for smaller media market / attendance programs. These entry points enable ADs to assess value before long term commitments – and of course, they provide a great foundation for the MMR provider as well, which is another example of intangible value that should afford ADs leverage in negotiations, especially in a multi-school bundle.
CONCLUSION
The MMR market is ripe for new and incremental revenue opportunities for many ADs in D-I. Whatever the pace of market evolution for MMR among individual D-I programs, ADs should enjoy very favorable negotiating conditions. Only one resource provides ADs with the ideas and the insight to optimize MMR income stream: Win AD.
