Every top administrator in the collegiate marketplace is tasked with the same burden… MAXIMIZING EXTERNAL REVENUE STREAMS. Regardless if you are at a major Division I 60,000-student campus, a rural Division II college or a small NAIA institution in the middle of the country, if you are leading an athletics unit, you are being pressured to find solutions to increase external support!
Every situation is going to be different, but for the most part ticket sales and fundraising are typically the first line of defense in this area. It does not matter if you go all the way down to high school booster clubs or ticket sales to the local Friday night match up, these have been the staple of what administrators have preached on ‘external revenue’ for years and years. But for today, we are not going to focus on these as there are many great articles on this topic and I recommend reading Dave Wakeman’s latest column on ticket sales if you need advice on this topic. (Your-New-Subscription-Tactic…) We will touch on these more in the future, but growth in these two areas is built on selling passion and building relationships!
Today we are going to focus on the third prong of external revenue growth…Corporate Sponsorship and Strategic Third-Party Relationships with Multimedia Rights Holders.
Getting external revenue growth right is hard! But, if you consider the basic nature of the most common questions I field from administrators of all levels, you quickly see how difficult this topic really is:
“What am I worth?” (I touched on this in my last post here… What are my Multimedia Rights Worth?)
“What options are available for me?”
“What is the difference between ‘selling my rights’ and hiring a ‘rights manager’?”
“Should I partner with someone or run this on my own?”
and most importantly…
“WHERE DO I START??”
These can be daunting questions, and unless you first know who you are, it is going to be very difficult to make the best decision for your department. Understand where you fit in terms of MARKET and ASSETS to determine what STRUCTURES are available for your organization. Having help in this process is essential in formulating a true vision of your department.
Typically, there are going to be three potential structures for administrators looking to maximize their corporate partnerships:
1. Selling your rights to a Multimedia Rights Holder
2. Partnering with a Multimedia and Sponsorship Rights ‘Manager’
3. Build an Internal Sales Structure
Each one of these is a very different structure and these options are not available for every one of the 4,000 plus colleges in the United States. That is why it is essential to know your place in the market before setting out to increase revenue in corporate partnerships. For example, if you are a 600-student small college in the south competing with SEC schools, the likelihood of you receiving an offer from someone to buy your rights is slim to none!
Now let’s take a moment to dive in to each one of these areas a little deeper to better help you understand what the pro’s and con’s are of each structure:
Option #1- Selling your rights to a Multimedia Rights Holder
In talking with many administrators across the country, this appears to represent the pinnacle of what every college or university desires! I mean, who wouldn’t want to sit back and receive a guarantee check and not worry about expenses…
LIVING THE DREAM, right? Well there are tremendous positives:
1. Knowledge is Power!
When the multimedia rights gold rush began, schools saw this as a great opportunity to generate new revenue as they weren’t setup to do this on their own. Having people who know what they are doing and have done it hundreds of schools is much better than a one-man band!
I give great credit to those pioneers of the industry: Jim Host, Clyde Lear, Ben Sutton, Doug Paschal and many others who saw an opportunity to grow revenues for their business structures by accumulating rights at colleges to build out external sales structures. I doubt if you ask any of them today they would admit they knew it would become the BILLION-dollar industry it is today.
2. Financial Guarantee
Having the ability to know what you are going to receive each week in the form of a paycheck is very comforting right?
This way schools can budget financially with their guaranteed check and know there still may be a little more coming if all goes well through revenue share thresholds. Safe and stable!
3. Less Stress
Having someone with a pipeline of sales people all around the country makes a great sell when administrators used to have to worry about losing the one person in their department. They also had to worry about budgeting, fulfilment, radio, print, etc., etc. This model allowed them to focus on the other areas of revenue generation and, oh yeah, most importantly on the student athlete!
As someone who lived in this world for most of my career, I understand there are other positives that are presented by these organizations and their model, and I am advocate that if the correct structure is in place it will work for many Division I schools. But in the words of the great Lee Corso…
“Not so fast my friend!” there are some issues with this model:
1. Only available to a small percentage of schools and conferences
This model was built on the backs of large Division I institutions and is only viable for 5-10% of colleges and universities throughout the country.
What about the rest?
How do they fit in the equation?
How do they generate revenue?
2. Loss of Control
When you sell something to someone, by definition, you are no longer the owner. This seems obvious, however…
Many athletic departments that agree to this model fail to see they are no longer in charge of their rights and have given up tremendous value. Many of the rights holders out there do a great job assimilating their culture in to that of the department in which they are representing, but at the end of the day they own the rights and can do as they please.
Don’t agree with me? Look at Learfield and IMG who both have been sold in the last few years to much larger strategic companies for pretty nice price tags!
Why were they bought? Because they OWN THE RIGHTS at over 180 schools between the two of them and have a strong perceived value in the venture capital world. Both also offer strategic partnerships in other areas (e.g. internet, signage, social media), which offer tremendous growth potential, based on their relationships and ownership stake.
They have the control and thus made money off these rights. It is that simple. That is why there are legal battles and definitions galore spelled out in contracts making sure they get what they paid for each year!
Kudos to them, and to other rights holders of yester-year, for seeing a pain-point and capitalizing on the market. I am just surprised that none of the major schools looking for a new rights holder agreement include in their contract the stipulation that they receive a percentage of any future sale!
In summary, this can be a very effective model, and one–if setup properly–that can drive tremendous value to an athletic department. However, one must understand what they are giving up in order to receive the check and ensure they protect themselves in contract negotiations.
Option #2- Partnering with a Multimedia and Sponsorship Rights ‘Manager’
I know many of you are reading this and wondering what the difference is between selling your rights and hiring a “Multimedia Rights Manager.” It’s the question I get asked every day from administrators throughout the country.
My response… the two could not be more different.
The best analogy I can give is think about your ‘Wealth Management Advisor’
Do they own your retirement assets?
Or are they just building a strategic plan for you to grow your savings and taking a small percentage fee?
You may not always agree with them, but you retain the right to make decisions on your own behalf with their guidance of risk vs reward. However, you retain control of your assets, you just pay a fee for someone to manage and help grow YOUR money.
This is the same approach that many are starting to discover in the multimedia rights world and is one that can be available to many more than just the top 5-10% of institutions. Some of the major multimedia rights holders offer this model as well, and it has helped them increase their offerings to schools they have acquired or targeted for growth. There are many other organizations out there that offer a different model of revenue-share agreements to help grow your corporate sponsorship base. The positives of this model are as follows:
1. Knowledgeable Partner
In this model, you are still receiving the knowledge base of an expert in the field, and pay a much smaller fee for their services, in the form of a revenue share agreement. This allows for both parties to work together in growing the brand and revenue, as there is a shared interest to optimize both.
2. Retain Control
Because no one is ‘buying rights’, the conversations of what is acceptable is less argumentative and more collaborative.
Since no one has ‘bought’ anything, the rights manager can act as a guide in increasing revenue to show the path for success.
In many models, expenses are controlled by both parties, creating a true partnership and joint business venture. This is the best way to increase the net revenue effect by controlling and limiting expenses.
3. Upside!
I mentioned in my last article about the school who passed on a guarantee to go with this management approach and increased their return by 4X!
This model offers the ability to have great gains in the future by forgoing the dollar today.
It is like your ‘Wealth Management Advisor’ playing the stock market rather than putting your money in bonds and savings accounts. The potential upside is much greater!
However, this also requires a willingness to assume greater financial risk. You must be willing and understand these risks before partnering in this category. Knowing the unique aspects of how these deals are structured can save athletic departments hundreds of thousands of dollars over the life of the contract, however there are a few other items to be aware of:
1. Loss of Financial Security
When partnering with a manager instead of selling your rights you lose the financial security of a guarantee check.
It is like going out and starting your own business, you give up the security of a weekly paycheck for the promise and hope of greater revenue. It is a scary feeling, as anyone who has ever done it can attest.
You need to examine your situation to know if this model works best and you can sustain the loss of guaranteed revenue for the potential growth model.
2. Costs being higher than projected
Developing a budget and working with a manager can be a great way to control costs for your group, however what happens when their projections are too low?
One college we worked with had over 3X the anticipated costs of developing the sales unit and it considerably ate into their bottom line.
Unless you examine the whole picture, unforeseen costs will come up and can eat away at your profits!
Fundamentally, this model can be a great hybrid between taking a guarantee check or building out your own sales unit. However, one must know what you are agreeing to in terms of budget and shared costs to ensure you maximize your bottom line revenue. If structured properly, this model can help schools of all sizes increase revenue and decrease costs.
Option #3- Building an Internal Sales Unit
The last model may be the only option for more than 50% of schools and universities if they are not involved with the greater university assets (to be discussed more in depth on a later date). However, many major universities are starting to explore this option. The University of Central Florida has done this in the last year by cancelling their deal with IMG College and bringing their rights back in-house. It will be interesting to see how the model is applied in-practice, but it has HUGE financial upside and growth potential. This is a very appealing model for the following two reasons:
1. Complete Control
In this model, you are your own boss and control the direction of the unit. You decide the organizational structure and the responsibilities of those in the unit.
If you want to structure a deal to be a joint fundraising and corporate sponsorship sale you can do so without having to engage with your rights holder and lose out on direct revenue.
2. GREATEST Upside!
When no one has bought your rights or manages them, you keep 100% of your net proceeds.
Once costs are accounted for properly, one can save money by utilizing campus assets for creation of proposals, office space, production, etc. You can save money and increase the bottom line by utilizing services across campus.
You can incorporate campus initiatives if you have engaged the proper parties to develop cohesive partnerships that better suit the needs of partners.
However, the greatest strengths of this model are also the greatest weaknesses. By having no partner, you are essentially selling your home without a realtor. You can be leaving an enormous amount of money on the table or even worse, not know where to start! The additional downsides are as follow:
1. Greatest Risk
Sponsorship sales always fall to the back burner. It is why multimedia rights holders were so successful as they brought in people who were focused on selling and selling only. If you have your sponsorship sales person handling more than revenue generating tasks you are doomed to fail!
2. Tied to an individual
In addition, even if you find a great revenue generation person, what happens when they leave? You do not have a pipeline or system in place to help increase revenues following their departure. This can be a scary situation and can cost time and money looking for a replacement.
3. On an Island!
The beauty of partnering with a multimedia rights holder or manager is you have someone in the foxhole with you! It can be a daunting prospect to go out on your own and a journey many just fail to begin.
Having access to their experience-based knowledge can help incorporate strategies that have been utilized at other properties to gain revenue.
These challenges are why for anyone who is currently using an internal structure, we recommend hiring a consultant to help build the structure and guide your revenue growth pattern. You can still retain the internal structure and benefits, but decrease the negative outcome by having a knowledgeable partner in your corner who has experience across multiple campus channels! Knowing how to minimize the negative effects and building a hybrid approach to a sales management structure can increase revenues 10X!
Summary
In summary, all three of these models are very different and require a deep internal examination before determining what course of action best fits your department and you goals. In general, not one is better than another, but for your specific situation, there is a right fit and finding that fit is essential in revenue growth.