Diverging NIL Scenarios

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The Unexpected Implications of NIL

While antitrust cases involving the NCAA remain hung up in the courts, the NIL collectives continue to stockpile money under loose and ambiguous regulations. Imagining a world where there are no limits to what schools can pay their athletes makes some people excited for the new world and others sad at the passing of the old one. The interesting thing is the implications of an unregulated NIL could go in contrary directions depending on how athletes, schools, and fans react to an NIL-dominated world. Here are some examples of how throwing the NIL gates wide open could lead to very different outcomes.

Higher Athlete Turnover vs Lower Athlete Turnover

We’ve already seen the combined effects of NIL and the Transfer Portal accelerate the number of college athletes switching between programs. In an unregulated world, this trend could continue at an even greater rate. Athletes would increasingly seek out the highest bidder every year, with effectively every player becoming a free agent at the end of each season. But there is also a path in the opposite direction. If NCAA restrictions no longer apply, it would free up colleges to treat their players like any employee rather than the student-athletes they once classified as. Without the NCAA to regulate how and when a player can transfer, schools could negotiate the right to transfer as part of their terms. Contracts prevent professional players from becoming free agents every year, and the same could apply to college professionals. Payments could contain retention bonuses, clawback clauses, or non-compete clauses that contractually obligate athletes to stay for multiple years in return for NIL payments. Who’s to say vested options and payments, paid out only when an athlete graduates or gets drafted out of their respective colleges, don’t become the norm as it has in the business world?

Determining factor: The current situation is the result of an environment with only partial regulation. The NCAA controls some parts (e.g. transfer policy) and not others (e.g. NIL funding). If an antitrust action removes all NCAA regulations, will schools step in to protect their investments more aggressively than the current environment allows?

More Competitive vs Less Competitive Teams

One of the criticisms of the NIL world is that a smaller number of teams will come to dominate the major college sports as only the top programs can amass the NIL war chests required to compete at the very top level. In this scenario, the rich get richer. The contrary argument is that the NIL will democratize the top teams. When the only way college athletes could monetize their career was by playing professionally, established programs with a proven track record of turning out professional players had an insurmountable advantage. A new or unproven program had a disadvantage to high-profile programs that could justifiably argue to recruits that they were a better path to a payday. But for athletes looking to monetize their careers in college, a bigger check could beat a longer tradition. There are schools with large or wealthy alumni bases that can now buy their way into the top echelon. 

Determining Factor: How well and quickly can less-established programs monetize the base of supporters will determine whether NIL hurts or helps competition?

The End of the Student-Athlete vs the Return of the Student-Athlete

The old guard is especially critical of the new era in college sports because it effectively cuts the remaining thin thread still connected athletes to their academic institutions. For Division I schools, the athletes could potentially be merely temporary contracted employees with no emotional or academic connection to the school or its student body. Many, though, argue that any connection was only a manufactured illusion anyway, so the current situation is just being more honest about what was a poorly disguised reality meant for the fans. 

But consider for a moment that most Division I schools do not make money from their athletic programs. In 2022, only 28 D1 schools had athletic departments whose revenues exceeded their expenses. What might happen when these money-losing schools look at the costs of adding NIL payments to their budgets? They may opt out. It could make financial sense for these schools to establish a league that is a hybrid of the FCS and Division III model. They could still offer scholarships like FCS teams do. And they could still comply with NCAA rules making NIL available to their athletes. It would be a third-party NIL similar to what the D3 schools participate in, where students have to hustle to get real brands to back them. What the top D1 schools are doing is first-party NIL (“collectives”) where the schools are effectively paying the athletes directly from funds they set up themselves. Athletes who benefit from first-party NIL don’t have to find brands or sponsors or do much off the field besides cash the checks. Under this breakout scenario, the D1 FBS league would be reduced to about 30 teams who can afford to pay millions in first-party NIL. Would people still watch and attend games outside this limited FBS universe? The Army-Navy game is an indication that they might, as that game draws a disproportionate audience because it not only celebrates the service of our military but also the true student-athletes that represent them on the field.

Determining Factors: Will the majority of teams that don’t benefit from first-party NIL have the courage and cohesion to pursue an alternate model, and if they do, is there a paying audience that would prefer student-athletes over semi-pro teams?

What these competing scenarios show is that the full implications of an NIL universe are not completely understood or predictable. There are a lot of variables yet to play out. Many people assume college sports are too big to fail and that the trajectory can only be upward. It might be helpful to remember horse racing was the most attended sport in the 1950s and that NASCAR was on its way to becoming the most-watched sport in the 1990s. Not every development is a true step forward.

Competing to Win at the Business of Sport

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Soccer Pitch vs. Football Field

Understanding the marketplace structure in which your business operates is essential to unlocking the keys to success. That’s no easy task when it comes to sport brands. Professional sports represent a unique and fascinating market structure from an economics viewpoint. The leagues are close to a monopoly from a product perspective, the teams are an oligopsony from a labor perspective, but they operate somewhat like a competitive market from a fan perspective.

What this means in practice is that sports teams operate differently than almost any other marketplace. Think about a highly competitive market like QSR (quick service restaurants, aka fast food).  McDonald’s, Burger King, and Wendy’s are fighting with some smaller players for a greater share of the burger/fry market. If Wendy’s were to find some competitive advantage that allowed them to dominate the market, achieve 90% share, and drive McDonald’s out of business, their value would skyrocket. But if you look at the marketplace for professional football, if the Las Vegas Raiders were to capture 90% US market share, their value would likely collapse. Driving direct competitors out of the football market would ultimately hurt them.

But some would argue that’s taking the wrong perspective. You should look at it from a franchise perspective. After all, both the NFL and Wendy’s operate on a franchise model. In this model, franchisees aren’t competing against each other, they’re working together to make the sport more successful. In this context, the Dallas Cowboys and the San Fransico 49s aren’t like Wendys and McDonald’s, but more like two Wendy’s in differente towns. Much of that is accurate, but that analogy doesn’t entirely hold either. Chick-fil-A benefits from offering a common experience and consistent quality level across all their stores. Sports teams aggressively compete to be better than their fellow franchisees. They regularly work to take their fellow franchisees’ best employees (coaches and players) and seek to be a superior product rather than an equivalent product on the field of play. The leagues encourage this to some extent, but owners and league officials put guardrails in place (draft order, luxury tax, etc.) to avoid any franchise from being too superior for too long.

So how can a sports team understand their marketplace economics in a way that directs them to greater value? The first job of successful marketing is differentiation.  You must distinguish your product from all of the competitors in your customers’ consideration set. Whether it be price, quality, convenience or any other meaningful benefit for your audience, differentiation is the fundamental objective of brand building. Step one is to identify the competitive set you must differentiate from. That may seem obvious from the standings and the sports news. Your competition is all the teams trying to outperform you on the court, pitch, field or rink. To a great extent, that holds true from the perspective of the General Manager, coach, and players.

But for Team Presidents, CFOs, CMOs, and business managers, focusing on the “obvious competition” is wrong.  The team is competing for wins, but the brand is competing for fan engagement. If people don’t like engaging with Milwaukee Brewers games, only a few die-hard baseball aficionados might switch allegiances to other teams. Instead, most will direct their time, attention, and disposable income to other activities. From a long-term brand health and business value perspective, the Milwaukee Brewers compete more with Six Flags Great America than they do with the Chicago Cubs. For some portion of their audience, they may even be competing more with local golf courses than the Cubs. That competitive framework makes it easier in some ways. The Tennessee Titans, for example, don’t have to match the state-of-the-art stadium experiences in Dallas or Inglewood because that’s not a likely substitute for a greater Nashville sports fan. But it makes it harder in other ways. It won’t matter much if Nashville SC has the best experience in the MLS if they don’t offer a viable audience something unique versus a night on Broadway Street.

To bring this competitive framework to bear, team management can increase fan engagement and the financial value of the franchise by answering the following initial questions:

What is the team’s TAM (Total Addressable Market)?

  • How would you describe the team’s potential fan base geographically, demographically, and psychographically?
  • What is the approximate size of that defined audience?

Who are its most valuable audience segments (e.g., families, couples, corporations, etc.)?

  • Using ticket sales, merchandise sales, and media-viewing data, how do these sub-groups compare in terms of revenue contribution to the team?

What are the most likely competitive entertainment substitutes for the most valuable segments?

  • How does the team compare to these substitutes in terms of overall experience?
  • How does the team compare to these substitutes in terms of overall value?
  • How does the team compare to these substitutes in terms of engagement?
    • Quality (share of mind)
    • Quantity (number of engagements)

What levers can the team utilize to drive higher engagement via:

  • Attendance (games and team events)
  • Viewership (across all media)
  • Merchandise purchases
  • Other (e.g., gambling, fantasy teams)

With this framework in place, teams can develop targeted plans that succeed in the off-field competitive setting of professional sports.

The Blockchain and Tackling of Sports

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5 Ways StreamViral Enhances Sports Fan Engagement

While the buzz around cryptocurrency and blockchain-related technologies has had a roller coaster ride of ups and downs, the substance of the technology continues to gain ground across industries. The DeFi movement in particular is touted as a challenge to just about every facet of the financial service industry. But there are growing applications across all businesses, including the sports world. For forward-looking sports brands, there are opportunities worth pursuing so they can thrive in the evolving Web3 world.

Blockchain can be as complicated to explain as you want depending on the level of detail you go into. A gross simplification will suffice for the purposes of our discussion. By using advanced math and the decentralized nature of the internet, a blockchain provides a way for anyone to verify that a transaction happened between two parties without needing a trusted third-party to provide oversight. That doesn’t sound that remarkable until you think of all the third-party entities in the world that were created to verify transactions. Banks, credit card companies, credit bureaus, title companies, stock exchanges, and sometimes just blind trust.

As a practical example, think of a business like eBay. People buy merchandise from sellers they don’t know because they expect eBay to vet the sellers to make sure they’re reputable and to step in if there’s a problem. For eBay to provide that service, they built a large complex infrastructure, established a dozen bibles worth of operating procedures and policies, and hired thousands of people. And to use that service, buyers and sellers pay eBay billions of dollars in transaction fees. In theory, a blockchain system could achieve the same result at a fraction of the resources and expense.

All businesses have the potential to be affected negatively and positively by blockchain technology. Sports businesses are no exception. To be on the positive side of that equation, sport brands should be considering how to incorporate blockchain into their business models. Here are three use-case examples to consider:

Collectibles

This was the earliest application to rise and fall in the sports ecosystem. Many sports brands began offering collectibles via the blockchain enabled technology of NFTs (Non-Fungible Tokens). In the current environment, NFTs may seem so five minutes ago. But tech has a way of moving in fits and starts, so you shouldn’t entirely sleep on them. NFTs are a means to establish digital proof of ownership. In the traditional world, you’d use a receipt, a title, or a deed to prove you own an asset. NFTs provide a way to play that role using a blockchain. As opposed to being fungible like digital currency (i.e., every bitcoin is the same as the other), NFTs represent a unique, and therefore non-fungible, asset. In jargon of the collecting world, NFTs provide an incredibly strong record of provenance, which mostly means proof of authenticity and ownership. NFTs have been mostly associated with digital art collectibles, perhaps most infamously by the Bored Ape Yacht Club. The NBA, NFL and UFC introduced virtual collectibles early on, and many individual sports stars came out with their own NFT-based collections. NFTs have been used with digital trading cards, highlight clips, autographs, and other collectible forms.

Their initial enthusiasm for NFTs  was undercut by the crypto winter that drove the value of these and other digital assets and crypto currencies way down.  But those values will rebound, and NFTs provide a relatively low-risk ways for sport brands to get initial experience of working with these new tools.  That said, this is one of the least interesting applications of blockchain applications. There is a well-established market for sports collectibles, and while NFTs provide new and better ways to monetize and control them, it doesn’t solve a major problem or open a significant new opportunity in its current applications. Their short-term value is to provide a good Blockchain 101 for learning more about the space.

Ticketing

Using the blockchain to buy and sell tickets is a natural application for which it is only a matter of time until it is the industry standard. The reason is that blockchain has the power to drastically alter the resale market. Blockchain enables a variation on NFTs that create smart contracts. Smart contracts allow a transaction to occur only if certain verifiable conditions are met. It addresses a significant issue faced by both sports teams and event promoters regarding the secondary market for tickets. Scalpers scoop up tickets at face value and then resell them to the highest bidder. As the Taylor Swift concert fiasco and 2022 Champions League riot made clear, ticket resellers create a mountain of problems. For teams, these problems include:

  • Lack of control on pricing
  • Loss of revenue from high demand
  • Loss of control on how tickets are allocated
  • Incidents of ticket fraud
  • Negative fan experience

Teams have tried to address these by instituting policies that restrict or prohibit reselling. But they are largely ineffective, of dubious legality, and create additional costs to police effectively.

Using smart contracts, teams could attach certain conditions to their tickets that would automatically enforce who could use tickets and how they could use them. For example, a team could have tickets that:

  • Can’t be used by anyone but the original buyer
  • Can be resold but only once for a price no more than 20% over the original face value
  • Can be resold unlimited times at any price, but 15% of any secondary transaction price goes back to the team

The essential problem of scalping is that teams are creating billions of dollars in value that goes to others. Smart contracts present a powerful way to correct that. The technology exists to implement smart tickets today, though widespread social acceptance is likely a few years off. But teams could start putting the structure in place and experiment with small audiences to get a head start now on what is an inevitable future.

Loyalty Programs

The most exciting and comprehensive application to me is the potential to launch a new type of fan loyalty program that can build new connections and revenues for teams across their fanbase. As covered in other posts, there are two truths that drive the business of sports:

  1. The value of a sports brand is measured by a factor of its engaged fanbase
  2. The most effective means to create a new fan is via existing fans.

In that context, consider a world where you could recognize or reward your fans for:

  • Attending a game (home or away)
  • Watching a game stream
  • Sharing a team’s social media post
  • Buying licensed team merchandise
  • Buying the product/service of one of your team sponsors
  • Buying concessions within the stadium
  • Attending the team’s victory parade

In the current world, this would require sharing transaction data between the databases of hundreds of partners, which is too complicated technically, operationally and several other ways. Bu as digital tokens become more commonplace, this list is only a starting point.  Proof of Attendance tokens (using POAP) and Soulbound tokens (SBTs) expand the ways blockchains can be used to verify more than financial transactions. The technology and acronyms will evolve. But the point is these and other tools could be used for fans to share not just what they bought but what they did in support of their favorite teams in exchange for special recognition of benefits.  It could provide new ways for teams to weave fan engagement opportunities into their daily lives. These activities could be verified without requiring teams to technically integrate with anyone but the fans. This vision is the longest into the future, but it’s more dependent on adoption curves than it is on significant technological advances. In other words, it’s coming. It’s just a matter of how long.

Sports brands generally don’t operate in a business environment with a huge first mover advantage, especially older-skewing sports like MLB. But large brands like Budweiser and leagues like the NBA are already beginning to experiment with these technologies. These digital innovations represent powerful new tools to build and leverage the fan base in order to increase franchise values. Smart sports brands will move to at least be prepared for this coming world by crafting strategic plans for how to incorporate these tools into their team building efforts. I’m eager to hear ideas from other people on where there is either a major opportunity or threat for sports brands in the blockchain world.

Social Media for Sports: 5 Don’ts and Do’s

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Sports properties have an emotional pull that few other brands do. There are some exceptional brands that reach that level (e.g., Harley Davidson or Gucci), but not with the consistency and intensity of sports teams. Perhaps the most dramatic demonstration of that is how common it is to see a person’s favorite team listed in their obituary. You’re far less likely to come across a mention of their favorite movie or snack food. Nathan Cobb of the Boston Globe coined the term “Red Sox Nation” in 1986, and “nation” has become an apt synonym for a fanbase ever since. It speaks to the way we use teams as both a self-identifier and a means to connect to a larger community.

That unique emotional element makes the marketing of sports unique as well. While many standard branding practices apply, several don’t. This is especially true in the best practices surrounding social media. Social media provides sports brands with a powerful means to foster the emotional, human connection that is so vital to the brand health of a team. But many use it ineffectively by following a standard based on traditional product management rather than embracing the different expectations of sports brand engagement.

I reviewed social media postings for nearly 40 professional sports teams in the US across different leagues and social media platforms and gauged the level of engagement they secured relative to market size (large vs small DMA) and league popularity (e.g., fans and viewership). Individual sports like boxing, golf, and MMA were not included due to the foundational reliance on personality rather than community and collective identity. With those criteria, the common best practices among the higher engagement practitioners reflected these Don’ts and Do’s.

DON’TSDO’S
Rely mostly on game highlights
Fans love highlights, but there are plenty of places to see them. Social media sites shouldn’t try to compete with broadcasters or sports sites that major in highlights. If used, try to find a way to give it an exclusive feel. Show the view of the highlight from the stands, or focus on the reaction of teammates to give it a sense of special access. 		Major in experiences and behind-the-scenes content
Social media is a place to share a view of the team the fan can’t get anywhere else. Fans want to feel like they’ve been granted special insider access to the team. Views from the bullpen, locker room banter, or pranks pulled off in practice are all examples of building an insider view. Showing the players are fans of each other, the team, and the surrounding community goes a long way with a fanbase.
Assume you have a single fan base
People are drawn to a team for various reasons. Family tradition, community pride, sports nerd, etc. Assuming a homogenous fanbase leads to repetitive or irrelevant content. Constantly appealing to the generic average fan will leave the pockets of fandom seeing the team’s social media as bland background noise on their feeds.


Understand you have multiple fan bases
Make use of any data you have to understand the different groups that make up your fanbase: their size, their economic impact, and most importantly their content preferences. Your content calendar should reflect the timing and frequency with which you want to target those different audiences. For example, pre-game may be devoted to fans driven by community pride (“Let’s go Seattle”), post-game to the sports nerd (“Last night was the first time that four players scored in double digits”), and breaks to the nostalgia-seeker (“this happened 20 years ago this week”)
“Broadcast” over social media platforms
Just reformatting the aspect ratio on the same content to run across multiple channels fails to take advantage of what each channel offers and makes the content look repetitive.




Use platforms for what they’re best at
Social media platoforms differ by more than just format. Not only do people bring different expectations to TikTok than they do to Facebook, but they do to the post forms within a platform (e.g Reels vs Phot Posts). Demographic of users differs too. This can be incorporated into the content calendar referenced above. Taken together, the calendar can help organize “when what, and where” for your social postings.
Promote Discounts
Pricing is an art beyond the scope of this analysis. But leading with a discount message (“Get 20% off single game tickets in July”) undercuts what’s supposed to be a special occasion. It implies a lack of interest or demand, especially if they occur with regularity.
Promote Events
Framing discounts as part of a special event drives sales while feeding the aura of attending a game. Using some creativity, almost any deal can be packaged as something more than just a reduced price. “Little Laker Day” for young kids or “Teacher Tribute Night” for role models in the community gives license to discounts without demeaning the product. Just do better than “Fan Appreciation Night”.
Communicate from Team to Fan
There’s a natural desire to put your best foot forward in any communication, including social media. But the more your social media comes off as the “official” voice of the team, the less interesting it tends to become. Personality inspired by a team’s atmosphere or surrounding community is still important within a team’s social brand (e.g., “Grit and Grind Grizzlies”). A memo about last night’s score doesn’t spark engagement.		Communicate from Fan to Fan
At its best, social media interaction should feel like one fan talking to another. Embrace the fan perspective in tone and content. Don’t be afraid to say “ouch” after a tough loss, to repost user content, to have photos or videos that aren’t top quality. There’s often an assumed image of a low-ranking intern behind a team’s account, so don’t be scared to strike a more casual, humorous tone as part of the team voice.

Building on the last point, the critical underlying dynamic is that fandom is a positive feedback loop. Fans are created by other fans. There is no doubt that the strength and weakness of those bonds are linked to wins and losses. But there are numerous examples of winning teams with weak fan support and losing teams with strong fan support. Sports brands with strong emotional connections earn a loyalty that buffers the year-to-year swings in the standings that inevitably occur. A well-constructed social media program can maintain and even build those connections if managed with its strengths and failings in mind.

Cinderella Stories: Competence, Complexity or Conspiracy?

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This year’s NCAA Men’s Basketball tournament is the first in which none of the four #1 seeds made it to the Elite Eight. It seems a remarkable year for upsets. But looking closer, it’s actually part of a long-term trend.  If you look at the Final Four teams over the past 25 years, you can see that the average seed of a Final Four team has gone from about 2.3 to 4. In other words, fewer of the top-seeded teams are making it through to the end of the tournament.

Why is that? There are three possible explanations for the trend.

Competence

One explanation is that the NCAA selection committee is getting worse at its job. The committee consists of 12 members who are either college athletic directors or league commissioners. The committee goes through a multi-step process to select and seed the teams. 32 teams get into the tournament via auto bids based on winning the conference titles (unless the winner happens to be ineligible). The remaining 36 are chosen by the committee. All 68 teams are then seeded by the committee. As in any seeded tournament, the top-ranked teams get an easier path to the finals. So there is a self-confirming bias that makes it easier for better seeded teams to go further in the tournament. Even with that bias, there was only one year in this 25-year span when all the #1 seeds advanced to the final. With all the inherent uncertainty that makes the sport so compelling to begin with, it’s not surprising that it rarely goes exactly to plan. But it’s gone progressively less and less to plan over this time span. From that information alone, it’s not hard to conclude that the committee is getting progressively worse at what they do. Perhaps the committee members are too consumed with their full-time jobs to put the right time and focus on their duties. Perhaps they’ve failed to keep up with the changes in the game, bringing assumptions about teams, conferences, and performance metrics that no longer ring true. Much has been said in recent years regarding how the game of basketball has changed. Maybe that change requires a different perspective to see a team’s true value than those on the committee can offer.

Complexity

Another explanation is that it’s just getting harder to predict how teams will do. Between the one-and-done rule and the transfer portal, entire teams and their dynamics are changing between seasons. Decades ago, returning 4-year players gave more consistency to programs, and made it easier to gauge teams on the rise or fall. With teams consisting of more new recruits and transfers, there is more variability between seasons and even within them. Teams from typically less successful conferences who do manage to maintain consistency now have an advantage by the time certain classes are seniors thanks to their familiarity and comfort when playing together. Either because of this or independent of it, there also seems to be more parity in the game overall. Top teams from the so-called “mid-majors” are indistinguishable from those of the top conferences. Viewed from this perspective, the seeding process hasn’t gotten worse, it’s just gotten a lot harder to do.

Conspiracy

The cynical take is that this trend is neither the result of a bad job nor a harder job, but an intentional production. Think about what makes headlines in the media coverage and social media feeds during the tournament. Is it about the favorites winning as expected? Of course not. No one is surprised when a 4-seed beats a 13-seed. It’s the amazing upsets and Cinderella stories. March Madness has become such a cultural phenomenon because of the chaos it seemingly inspires, not because people love college  basketball. The Fairleigh Dickinson coach was the one featured on the Today Show the next morning, not the winning coach of #2 UCLA.  The NCAA made $1.14 billion in 2022 from the tournament, mostly from TV revenue. That is more than four times what they made in 1998. With so much of that money coming from TV revenue, is it really that crazy to think the committee does its best to script a cinderella underdog a la Hoosiers into reality? In the most extreme form of this explanation, the NCAA is deliberately manipulating the seedings to increase the number of upsets in order to boost viewership and revenues. In a less extreme form, the NCAA doesn’t care about accurate seedings and therefore has no vested interest in finding ways to improve it. If the product is simply good enough and keeps making the NCAA more and more money, then why mess with it?

Which of the three seems the most plausible to you?

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Griffin Ryan combines his training as an economist and experience as a D1 athelete to help sports brands develop marketing and business strategies.

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