The NBA’s three-year trial program for jersey patch sponsorships (since extended indefinitely) will conclude at the end of the 2019-2020 season. The pilot has been an overwhelming success for both the league (think: $150 million in incremental revenue, 20/30 are first-time sponsors) and its corporate partners (Navigate Research indicated patch sponsors received 25%-50% more exposure than they would have on a comparable advertising spend), so it’s no surprise to hear that teams are seeking more money for the asset (currently between +/-$4.5 million and $20 million annually). Scout Sports & Entertainment Managing Partner Michael Neuman said that teams who have substantially enhanced their marketability over the last three seasons are looking for as much as a 30%-50% increase in the value of their patch 2.0 deal. But with the league’s April 1st deadline fast approaching (in place to ensure branded merchandise is in stores in time for the start of the 2020-2021 season), JohnWallStreet hears that there are still “a decent number” of clubs searching for a corporate partner willing to meet their asking price.
Howie Long-Short: The patch program has over delivered on expectations for corporate parters because of the viral nature of NBA game highlights. Neuman explained that “video shared across mobile, social and digital channels has driven impressions, exposure and ultimately the value of patch placement on jerseys” (+/- 75% of the value in a jersey patch deal comes from non-live content). The fact that brand partners are experiencing a 3-5x return in media exposure alone is particularly noteworthy considering many patch 1.0 deals included assets beyond logo placement (think: in-arena signage). In other words, existing patch partners have almost certainly seen an even greater ROI than has been suggested.
The Hornets are among the teams that have agreed to an extension with their existing patch partner. The team announced a new deal worth $5 million/year. On the surface, the +10% incremental increase received appears underwhelming – at least relative to what some other teams are seeking – but Neuman says that the Charlotte franchise is “in a favorable position.” While many organizations remain in the market for a partner, the Hornets are moving forward with a “homegrown company [that maintains] a national audience” (i.e. the ideal partner). A recent YouGov study (commissioned by SBJ) indicated that team-patch recognition rates were highest when the basketball organization aligned with a local company (see: Orlando/Disney, Milwaukee/Harley Davidson and New Orleans/Zatarain’s).
NBA teams won’t just struggle to meet the April 1st deadline (they can ink deals after, the cutoff is just for merchandising purposes), Neuman says that as many as six of the league’s franchises could open next season without a corporate logo sewn into their jersey. He explained “there’s just a tremendous amount of data that needs to be analyzed and predictive modeling formulas that need to be done to determine the true value of some of these opportunities” (think: projected number of national TV appearances, iconic player transfers, how teams will perform in playoffs). Remember, some teams will also look drastically different next year than they do this season; never mind when the last deal was signed (see: Brooklyn Nets).
The success of the patch program “inspired” the NBA to grant teams permission to expand their advertising efforts outside of the U.S. and Canada (with up to two sponsors). While some might assume the rule change would result in an increase in the number of teams wearing the logo of an international business next season, Neuman doesn’t believe that will be the case. “The majority of deals – save perhaps one or two – should still be with local market brands that want to attach themselves to the NBA team in their city.” The league’s existing issues in China all but guarantee there won’t be any Chinese brands joining the fray.
It has been suggested that the league’s decision to make replica jerseys with sponsor logos more widely available would grow advertisers’ reach exponentially, thus increasing the value of the sponsorship program, but with the Coronavirus spreading rapidly “it’s feasible that there will be little or no branded merchandise available – at all – in time for next season” (even for the teams that meet the April 1 deadline). Neuman says that even if the global pandemic impacts manufacturing and supply chain timelines it shouldn’t negatively impact deal values. “Brands are more focused on the global media exposure they’ll receive than the exposure from walking billboards.”
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