The NBA has decided to test out selling 2 ½ by 2 ½ inch advertising space on NBA jerseys to corporate sponsors. This experiment will begin during the 2017-18 NBA season and will last for three years. Only jerseys sold in the team’s local market will include the corporate logo, which excludes jerseys sold nationally through the NBA.
To date, only 5 teams have sold jersey advertising space. With the 2017-18 season right around the corner, the question remains, “Why haven’t more teams sold their ad space?” This seems like a great opportunity for a company to strategically align their brand with an NBA franchise. However, it appears the main reason there has been little movement on this front is that the concept of jersey sponsorship is new to the top four American sports. Teams and companies are having a hard time valuing such inventory.
The following piece will value select teams’ jersey sponsorship, relative to the deals already signed, by analyzing the key influential factors.
Market Business Landscape
As evidenced by teams that have already sold advertisement space, companies prefer to stay local. This provides two great benefits for the company: (1) it makes communication easier between the team and company and (2) it builds a stronger presence in the company’s headquartered region. GE signing a deal with the Celtics is a perfect example because its headquarters were recently moved to Boston. This will help solidify the company as an official Bostonian.
Therefore, a market with a strong business landscape creates a higher valuation due to increased demand. As a proxy, the number of Fortune 500 companies per market was chosen. Below shows select markets compared to the league average of 15.4.
Figure 1 Number of Fortune 500 companies in select NBA markets
Table 1 NBA teams that have jersey sponsorship deals, estimated annual value, the company and the company’s Headquarter location
Corporate sponsors always like to get the most bang for their buck. One way to ensure this is to invest in teams in bigger markets. Market size has more of a multiplier effect on valuation because jerseys sold in that market will include the corporate logo. Thus, every jersey purchased and worn by a fan becomes a walking billboard receiving countless impressions.
While most companies value having a strong presence in their hometown, national exposure could be more in line with a company’s marketing objective of growing national awareness. Therefore, a premium will be placed on teams that receive more nationally televised games. The metric used – the number of nationally televised games – includes another component in addition to visibility. The NBA will showcase the most popular teams the most; therefore, this metric also includes popularity.
Figure 2 Select team’s social media followers (mid 2016) and Nationally televised games for 2016-17 season
People are spending more and more time every day on social media. In fact, the average person spends 118 minutes a day on social media, up from 96 minutes just four years ago. This is particularly relevant for young people between the ages of 13 and 34, a demographic often targeted by companies. Therefore, this metric is quite influential in the valuation of sponsorship. A team that dedicates more time to grow its social media fan base will have more opportunity to engage and influence its fans. The greater the social media presence, the higher the premium for advertising space. Additionally, social media easily spans countries thereby increasing presence internationally, if that is an objective of a company.
While there are other variables to consider, my predictive modeling suggests that the before mentioned factors have the highest influence on the valuation of sponsorship, particularly for jersey advertisement.
Given the influential factors stated – and the reported range of $5 to $10 million that 5 teams have already received (see Table 1) – the maximum a team will receive looks to be between $12 and $15 million. And the only team that ranks high enough on all factors to receive that type of valuation is the Golden State Warriors. Predictive modeling also suggests teams like the Lakers and Knicks should receive valuations between $8 and $12 million based on their rankings in the influential factors.
Moving forward, I envision the other major sports in America following suit, especially if this experiment works well for the NBA.