Source of Revenue: Sports Merchandising

In the previous few articles, we have already seen that sports leagues are able to generate a huge amount of revenue from various sources.

We are already aware of the sale of broadcasting rights, sponsorships, digital media rights, fantasy sports league rights, and so on. However, it is important to know that marketing and selling sports merchandise that has been licensed by a team or a league is one of the easiest and oldest ways to generate additional revenue for the league.

It is important for the league to have a plan in place to ensure that maximum revenue is being generated from this source as well.

Merchandising accounts for approximately 15% to 20% of all the revenues which are generated by sports leagues across the world. This number is particularly higher in North America. Approximately 60% of all revenues related to sports merchandising are generated in North America.

It is important to note that merchandising as well as the revenue generated from merchandising are both crucial for the fans as well as the league. This is because merchandising is generally considered to be an underutilized revenue category for the league whereas the same merchandising is a very important part of the user experience.

In this article, we will have a closer look at what merchandising is and how it is managed by sports leagues across the world.

What is Merchandising?

The teams which participate in sports leagues across the world have a significant fan following. It is common for these fans to want to differentiate themselves from others while watching the games and while going about their life in general. It is for this reason that these fans want to use products with the logo or insignia of the team that they associate themselves with.

It is common for fans of a particular team to wear the merchandise in order to separate themselves from the fans of rival teams.

Merchandising is the creation and marketing of products that bear the brand and logo of the team by the team itself. Since the team owns the intellectual property i.e. the logo as well as the insignia, they can generate a significant amount of revenue by the sale of such products.

Scope of Merchandising

Initially, the scope of merchandising was limited to sporting jerseys and products that could be worn on the day of the match itself. However, over a period of time, a lot of innovation has taken place in the domain of merchandising. As a result, sports leagues and teams are able to co-brand themselves with a wide variety of products which start from impulse purchases such as key chains and kitchen utensils to experiences such as bars and hotels.

There are many football clubs across Europe that have co-branded bars wherein it is common for fans to visit these bars in order to obtain a “stadium-like experience”.

It is true that with the passage of time, the scope of sports merchandising has increased a lot. However, it needs to be noted that the bulk of the revenue is still derived from the purchase of wearables as well as impulse items. With the passage of time, sports teams need to guide their customers toward purchasing higher-value items.

How Sports Leagues Manage Merchandising?

The merchandising of sports leagues is generally controlled by the team. However, it is executed by a third party. This is because merchandising entails the creation of a wide variety of products and services. However, the management of the team is focused on sports and hence cannot divert its attention and resources towards the creation of t-shirts, keychains, and other such products.

Hence, it is common for the team i.e. the owner of the intellectual property to provide a license to a third party to manufacture and sell these products. If this process is used, then the team does not need to get associated with the nitty-gritty of manufacturing as well as sales.

The licensor may either charge a flat licensing fee while outsourcing the process or they may decide to take a variable percentage based on the sales of the product.

It is also important to know that in many parts of the world, merchandising is not completely controlled by the sports team. In such cases, the decisions related to licensing may be taken by the sports league with or without consultation with the team itself. This is because, in many parts of the world, the franchise contracts are drawn up in such a way that the intellectual property is jointly owned by the league as well as the franchises. In such cases, the revenue generated from merchandising may have to be shared with the league as well.

However, the leagues generally do not want to interfere with the merchandising revenue. The only reason that the league interferes with this process is to ensure that there is some kind of uniformity between the merchandise of different teams that are being sold.

If the merchandise of one time is priced exceptionally lower or is made of very poor quality, then it may have a negative impact on the league as a whole.

Hence, the bottom line is that sports merchandising is one of the oldest, most reliable, and consistent sources of revenue for any sporting team. There are still a lot of issues related to sports merchandising which need to be resolved. Such issues will be discussed in the next article.