1. The Sporting Goods and Licensed Products Industries Chapter 18

2. Introduction Triple commodity nature –The activity or game form –The service –The goods Encompasses equipment, apparel, and footwear. Licensed products are specialized subset of industry. Sales revenues in the billions of dollars worldwide.

3. History: Sporting Goods Early entrepreneurs in the sport industry created ideas for better uses of existing technology. 1811: George Tryon, gunsmith, carved out niche with people interested in sports; expanded into fishing tackle business. Tyron became major sporting good wholesaler east of the Mississippi River. 1840–1850s: Michael Phelan and John Brunswick established production of billiards equipment. 1888: Rawlings began operations in St. Louis.

4. History: Sporting Goods (cont.) A. J. Spalding –Created sporting goods manufacturing giant based on selling to expanding American middle class –Adopted technological advances for manufacturing –Created and fostered markets for products –Produced guides on how to play/exercise and promoted grassroots sport competitions

5. History: Sporting Goods (cont.) –Gained credibility with consumers by claiming official supplier status with baseball’s National League –Created profitable distribution system Company sold directly to retailers at a set price with the guarantee that retailers would sell at a price that Spalding set. –Created stable markets for Spalding goods and eliminated price cutting at the retail level

6. History: Sporting Goods (cont.) 1906: The Sports and Fitness Industry Association (SFIA, formerly the Sporting Goods Manufacturers Association) was founded as intercollegiate football leaders and athletic equipment manufacturers sought to make the sport safer. 1920s: Knute Rockne, Honus Wagner, and Nap Lajoie began to endorse sporting goods products. 1950s: After Korean War, spending on sporting goods increased. 1960s: Imported products arrived in greater numbers in American market. 1970s: Increased recognition of product liability and injuries associated with sports equipment. 1980s–1990s: Growth as products and consumer demographics became more diverse.

7. History: Sporting Goods (cont.) Adidas and Puma –Founded in the 1920s by Adolph “Adi” Dassler (from whose name the company’s would derive) from a family shoe business. –Success through production of soccer cleats and track spikes. –Dassler established brand equity by convincing U.S. track star Jesse Owens to wear his spikes in the 1936 Berlin Summer Games. –Rudolf Dassler (Adi’s brother) founded Puma after a falling out between the two brothers. –The two companies compete for international market share, with Adidas holding an advantage because of its relationship with FIFA.

8. History: Sporting Goods (cont.) Nike and Reebok –Nike began as an offshoot of Blue Ribbon Sports. –1980: Nike revenue reaches $269 million a year, and replaced Adidas as the United States’ top sneaker. –1986: Nike temporarily lost its top ranking to Reebok. –Late 1980s: The advent of the “Air Jordan” and “Bo Knows” marketing campaigns propelled Nike back to the top of the industry. –2005: Competition trying to catch up Adidas bought Reebok for $3.8 billion in 2005. –2012: Fiscal Revenues = $24.1 billion

9. History: Sporting Goods (cont.) Licensed products –Licensed apparel Based on notion that fans will purchase goods to draw them closer to their beloved organizations and athletes –1947: University of Oregon allowed to use Disney’s Donald Duck image for the university’s mascot. –1973: UCLA credited with being first school to enter into a licensing agreement. –1975: NCAA formed its properties division to license championship merchandise. –1983: Notre Dame creates licensing program.

10. History: Sporting Goods (cont.) –Pro sports licensing For-profit branch of the league is referred to as a properties division. –1963: NFL was the first professional league to develop a properties component under Commissioner Pete Rozelle. –1966: MLB creates properties division. –1969: NHL creates properties division. –1982: NBA creates properties division. –Properties divisions approve licensees, police trademark infringement, and distribute licensing revenues equally among league franchises. –Players’ associations also administer licensing programs.

11. Industry Structure Sporting goods –Industry: Manufacturers of sporting goods equipment, athletic footwear, sports apparel, and accessory items to the sport and recreation market Trade associations –SFIA: Trade association for manufacturers, producers, and distributors of sport apparel, athletic footwear, and sporting goods equipment –The industry employs more than 375,000 people and generates $77 billion in domestic revenue wholesale sales (SFIA, 2013)

12. Industry Structure: Licensing Manufacturers of licensed products (licensees) pay teams and leagues (licensors) for the right to manufacture products bearing team and school names, nicknames, colors, and logos. Enables schools and teams to generate brand recognition and interest and to increase revenues with very little financial risk. Licensees assume the risk by manufacturing the product and paying fee to the licensor (royalty) for the use of trademarks on products.

13. Industry Structure: Trademarks What is a trademark? –A trademark is defined under the Federal Trademark Act of 1946, commonly referred to as the Lanham Act, as “any word, name, symbol, or device or combination thereof adopted and used by a manufacturer or merchant to identify his goods and distinguish them from those manufactured or sold by others” (Lanham Act, 15 U.S.C. § 1051–1127, 1946, p. 1).

14. Industry Structure: Royalty Fees Royalty fees generally range from 4% (for toys and games) to 20% (for trading cards and video games) and are based on gross sales at wholesale costs. The royalty rates for teams and leagues vary, ranging from 8% to 20%, with the majority at around 12% (“Licensed Sports,” 2012).

15. Industry Structure: Collegiate Sport Some NCAA Division I-A schools administer their own licensing programs. –Schools can retain a greater portion of sales revenues. The Collegiate Licensing Company (CLC), was formed in 1981, and was recently purchased by sport marketing company IMG. Now known as IMG College, it articulates licensing agreements on behalf of approximately 200 colleges and universities, bowls, conferences, the Heisman Trophy, and the NCAA. Client colleges pay a portion of the royalties (usually 50%) to CLC for its efforts.

16. Career Opportunities Opportunities range from entrepreneurs with an idea for a specific product or store to employment with firms such as Callaway, Russell, UnderArmour, or New Balance, as well as sporting goods stores, such as Champs Sports or Dick’s. Within large companies, such as footwear and apparel manufacturer New Balance, there are divisions for each product line, such as basketball, tennis, cross- training/fitness, and children. Licensing industry: Employment with league licensing departments, collegiate licensing offices, and licensees, as well as with retail sales outlets and product manufacturers.

17. Management Rapid change is the rule in the sporting goods and licensed products industries. Intense competition and new performance standards. –Quality, speed and flexibility, innovation, and sustainable growth Innovation is a key performance standard affecting sporting goods and licensed products. –Topps digital initiatives –Under Armour Dri Fit products

18. Marketing Expert usage helps overcome the risk factors customers assess when deciding on a purchase. Huge investments into star athletes. Endorsement relationships work for lower-profile players. –Professional golfers and their selection of on- course apparel for competitions.

19. Challenges of Creating Brand A brand’s image is the cumulative impact of all the associations with a particular brand. Creating a distinct identity Includes logos, players, traditions, facilities, rivalries and ownerships Difficult when in an industry with established brands, like Nike or Adidas –Li-Ning in China: Battling Nike and Adidas for market share, and using American athletes such as Dwayne Wade to endorse products

20. Ethics One of the most basic forms of global involvement occurs when a business turns to a foreign company to manufacture one or more of its products, called global sourcing. –Takes advantage of manufacturing expertise or lower wage rates in foreign countries. Sport apparel and shoe manufacturers have come under fire for paying unfair low wages and supplying unsafe working conditions in their overseas operations. Industry giants Adidas, Nike, and Puma have been universally and repeatedly criticized for paying low wages and treating workers poorly.

21. Finance: NFL and Nike In 2012, the NFL chose to work with Nike to produce its uniforms and on-field apparel for the next 5 years. The NFL is looking to capitalize on Nike’s position as a market leader to help promote its brand. Nike is looking to capitalize on the most popular professional sport league in the United States. 2012: New uniforms did not create significant “buzz”.

22. Legal 2000: American Needle sued NFL on antitrust grounds after NFL signed exclusive deal with Reebok and immediately raised prices. 2008: Court found in favor of NFL as single entity but both sides appealed to Supreme Court. 2010: Supreme Court ruled NFL was not single entity and case must be remanded in lower courts. Still to be determined: Whether the NFL’s licensing practices harmed competition.

23. Summary Sporting goods and licensed products represent two growing and expanding segments of the sport industry. Individuals are needed to work in many capacities in both the sporting goods and licensed products industries.