Author: Sean Pavlidis, Manager, LEVEL5 Strategy Group
In September 2015 the Dallas Cowboys overtook Real Madrid for the title of ‘World’s Most Valuable Sports Team’ at a whopping $4 billion valuation – a pretty impressive feat for a team playing a sport that only has 16 regular season games.
Even more impressive is that the team hasn’t won a Super Bowl in 20 years.
When working with management teams of sports franchises across North America, we frequently hear that to succeed “all we need to do is win,” or “we just had a bad season” to justify poor financial performance. While winning is absolutely important – nobody is going to argue that – dependence on team performance is dangerous and often blinds management from the other efforts they can be making to ensure that their franchise is a financial success. Even with the best possible GM and Coaching Staff, only one team can win a championship each year.
Even if your team is incredibly successful, studies show that statistically a winning record only accounts for 20-40% of franchise value. [See below for a chart mapping out z-scores of the 10-year winning percentage of North American sports teams (x-axis) vs. franchise value (y-axis) – outliers such as Leafs, Cowboys, and Yankees have been removed for statistical purposes]:
When the broader organization and environment is taken into consideration, franchise and brand value is driven from 3 distinct drivers:
- The Team (Winning, Star Power);
- The Organization (Reputation/ Tradition, Entertainment Package/ Delivery); and,
- The Market (Media Coverage, Geographic Location, Competitive Forces).
For the most part, only one of these driver areas – organization (which holds brand and fan experience) – is in the direct control of the management of a sports franchise. However, relative to efforts around the team it is viewed as a cost center vs. revenue and loyalty driver – especially when the team is consistently performing well and the need to work for ticket sales diminishes. What the management of sports teams often don’t take into consideration is how powerful a strong brand and fan experience can be in building long-term franchise value.
In the general business world, brand is king. Apple’s high valuation isn’t because it makes the best products; it’s the brand and customer experience that allow Apple to drive retention and command such a high premium. Even when the product is inferior, its brand strength allows it to skate over hiccups without losing momentum. What’s so different about the sports world? Not much when you consider teams like the Toronto Maple Leafs, New York Knicks, or Washington Redskins who have incredible brand valuations without necessarily having the strongest performance in recent history.
On average, 50% of our behavior as consumers is based on an emotional response to a product or service. Our proprietary BrandMap™ Fan studies have indicated that in sports a strong brand is 60-70% driven by measurable emotional vs. tangible attributes, and once understood, defined, and consistently executed can help a sports team:
- Retain loyal fans and create new ones (even ones that may not like or ever attend the live sport itself!)
- Increase sponsorship/ partnership revenue and opportunities
- Maximize the value of winning seasons, and mitigate risk of losing ones
- Drive merchandise sales
- Increase media coverage and engagement
But building and maintaining a strong sports brand isn’t as simple as cultivating a stellar fan experience in the stadium. What really separates the good from the great sports brands is how they manage that brand and profitably engage their fans beyond of the confines of the game – “think outside the rink” as we like to tell our hockey clients. Sports revenues are naturally cyclical, and the ‘product’ itself [e.g., ticket sales] has limited scalability and geographic reach. Teams that over-focus on attendance as their primary performance measure will find their franchise value plateau once they consistently hit full capacity.
You don’t need to look any further than the $4B Dallas Cowboys franchise to see the latest initiative – a fan-accessible practice stadium outfit with a shopping model, office space, and distinct membership opportunities giving fans exclusive access to their heroes – that Jerry Jones and their Chief Brand Officer have undertaken to continue to build the brand far beyond the confines of the team and game itself.
Absent of environmental factors, what truly separates the most financially successful franchises from the pack is that they understand what they are selling is far bigger than just a sports team – it is an incredibly strong emotional connection. This connection creates an identity that a person attributes to themselves, and a deep bond to a community of like-minded others.
What makes the best franchises special is that they understand the unique emotional connection they own, and then they drive it throughout their entire organization from fan experience and engagement through to corporate and community partnerships.
LEVEL5 BrandMap™ Fan Studies,
Sport Marketing: Managing the Exchange Process