We were over-leveraged in sports and the pandemic exposed it…here’s how we can diversify

‘It is not the strongest of the species that survives, not the most intelligent that survives. It is the one that is most adaptable to change’.

Commonly misquoted to Charles Darwin, it was actually written by Leon C. Megginson in a 1963 issue of the Southwestern Social Sciences Quarterly when he was paraphrasing Darwin’s finding.

Either way, the quote holds strong here today in the sports industry.

We have seen change over the last 3 years in how fans consume and connect with our games. Technology has become a tool (and to some a scapegoat) for fans to keep up with our games & team.

We were making the change, in my opinion too slowly, but we were making the change. Then…the pandemic hit, change hit us at an alarming rate.

We never expected this would happen so quickly, heck I thought we had more time. I thought it would be a recession that would have exposed us.

The problems we are seeing are because we are over-leveraged in the physical with how we make our dollars.

Much like a portfolio heavy in one stock or industry, we did not diversify our offerings well enough to off-set the risk of an eventual reliance on digital means to make money and reach our fans.

There are a couple of items here I want to go over to understand where we are, how we got here, and how we can adapt to make sure it never happens again in our industry.

The first step in change is recognizing you have a problem.

The first step to all of this is recognizing how we got here.

The obvious answer is the pandemic, but that is honestly an excuse that buries a lot of history of ignoring a trend that was exposed to the effects of the pandemic.

I dove into this about a year ago with a few articles:

I wrote about how social media ads were sponsorships biggest competitor HERE

I wrote about how brands began to see our physical assets as commoditized products HERE

I laid out a doomsday scenario for sponsorship HERE that saw a recession being the accelerant

And last, I wrote a warning that we should be doing everything we can to be building digital assets in sponsorship

I don’t bring these up to say “I told you so.”

I bring them up to try and show the fact that this problem wasn’t sprung on us in this pandemic. We were pushing toward a long and slow death by not making these shifts toward digital.

And there are really two main stats that foreshadowed these issues on a macro level (many more including spending on digital…but let’s start with the ones that were staring us in the face).

In 2017 our sponsors literally told us what they wanted. In this 2017 IEG poll digital presence was the 2nd most valuable benefit to our sponsorship packages.

I can’t stress this enough…our customers were telling us directly and through polls like this that they wanted more digital assets. They wanted more ways to connect with our fans digitally.

How did we respond? We kept selling the physical, which landed at the #5 & below most valuable.

We refused to shift our assets at a high enough rate to what our clients wanted. Sure, we offered to slap a logo on a sponsored tweet thinking that would solve their needs…but it wasn’t enough.

The results in being over-leveraged in the physical were brands starting to shift their dollars to digital assets that were more efficient for their ad spend.

Even though sponsorship revenues were increasing, when you look at the investment of ad dollars from out-of-home ads (billboards) to digital ads the growth was insane.

The second way brands were telling us this was through how they actually were spending their dollars.

Liberty Mutual, a brand well within our sponsorship category for sports, has spent $66M in YouTube Ads in 90 days.

$66M…yeah, that could have been money in our pocket if we weren’t so leveraged in the physical.

These brands were telling us exactly what they saw as valuable…video content in this case…and where they feel the best platforms are for reaching their customers.

Yet, we still didn’t change…

Last, the sheer fact that most of our assets were physical made absolutely no sense when you look at where our true attention lies.

90% of our assets are set up to only connect with 10% of our reach. In a game like advertising (which is what sponsorship is) this is mind-blowing.

We spent money, time, and resources to build HUGE followings…but then we didn’t shift the assets we have to monetize them.

We made the decision, whether known or unknown, to only monetize 10% of our eyeballs. If we were in any other industry…one that didn’t have the excitement that sports have to draw emotional decisions by buyers…we would be dead.

Imagine in the Kardashians ONLY lived off their TV money. Would they be rich still?…yes…but would they be the media empire they are today with the ability to monetize their social following?

Not at all.

In short, to see why we are here, it’s a combination of a misunderstanding of where our leverage was AND what our customers wanted.

We had the data all in front of us…we still do…but we failed to make drastic changes. Instead, companies like Barstool jumped in and filled that void.

In essence, we failed as an industry. It may sound harsh, but the opportunity of dollars missed by not changing is astounding.

So if we had all this data, why did we stay overleveraged?

Honestly, it’s because our profits are not made for digital assets yet. A lot of the time our digital assets and inventory aren’t built up enough

Why haven’t we leveraged the digital side? We have too much invested in our physical space. We’ve spent money building our stadiums, adding signage, etc., and need to see a return on it every year.

If we don’t have ALL the signage sold in our stadium, no matter what our customers want, we lose money (or at least the potential of money toward our sales goals). It is in our organization’s best interest to sell those spots because the initial investment into them has been covered.

On the flip side, building our digital assets takes time. It’s costly and will bring in money in the next year or two…not today.

We began to focus on short-term revenue over long-term success. We stayed and sold to 10% of our reach (in our stadiums) compared to the long term of building the assets that our client’s dollars are shifting to.

And it worked because we were good at our jobs. On the micro-level, we won deals because we as salespeople in the industry are great at selling the emotion of the sports. We are great at pulling the emotion of fandom out and forming a story for why they should spend more inefficiently on our assets.

We even have put together studies that show things like “millennials prefer print and physical advertising”. Self-fulfilling reports that were skewed to the reality we want to show.

The reason we haven’t fully died as an industry is we are great at selling our assets.

But, this will not last. Eventually, the forces will be too strong and brands will be shifting too many dollars here for our sales stories to win at a consistent level.

We saw the first stage of this with the pandemic. We’ll see it only accelerate as we move forward.

You HAVE to diversify your assets as a team, in 36 months you will wish you had.

Let me be clear here. I am not saying there is not a place for signage and physical assets…there always will be. The attributes of these physical assets will fit your sponsor’s marketing goals.

There are though more efficient ways out there to drive customer sales for your brands. There are better ROI options out in the market.

My concern here is we are OVER-leveraged in these physical assets. We do not have enough assets to fulfill the demand for them. When you don’t have enough supply for demand, you lose market share to those that have the supply.

My concern is if we don’t diversify we’ll lose too much market share (ad dollars) and won’t have time or resources to recover.

There are three stages that will really accelerate and define this in my mind. We’ve seen the first wave of being exposed to having too many physical assets…this pandemic.

The next wave, which was my original prediction, comes in the recession that will hit our country. Ad dollars will be directed and under a microscope. No longer will you see money thrown at items that can’t prove ROI efficiently.

This means signs, print ads on programs, any of those items will see a massive cut in spending.

The last wave…the natural progression and path we were on pre-pandemic. Digital advertising is just a better way to spend our dollars as brands. If there is a digital option that can prove ROI, dollars will be shited here.

In about 36 months, the cat will be totally out of the bag. The secret of the efficiencies of digital ads & assets will be well known by big brands and 55–85% of ad spend will go there.

When they are, dollars will shift. If you aren’t diversified here, it will be game over for your team.

How can you diversify? Build new assets into your digital following

The goal for your team over the next 3 years should be to build digital assets up into your portfolio of sponsorship assets.

Just like your stock portfolio, you have to start looking at other stocks that will bring a return to offset any losses should your other stocks tank.

These assets cannot be whack. By this, I mean slapping a sponsor logo on a Player of the game tweet is not a diversified digital asset. Things like this are too commoditized.

Every team does it…every team is trying to sell them to their sponsors. If an asset is commoditized it becomes a pricing war.

Diversifying your assets mean building unique content on the following platforms to pull in a REAL following & engagement:

-Facebook (especially LIVE right now)

-Instagram

-YouTube

-Snapchat

-OTT

Your content has to be diverse on these and unique. You can’t just make another Hard Knocks and put it on Facebook. You can’t just do another

How does this come back to sponsorship? If you build the content in, you can authentically add sponsors.

For example, what if before every game you did a Facebook and YouTube live segment that basically was a Home Shopping Network show. You mainly showed merchandise deals that fans could buy and get crazy good deals on…but then you started to mix in sponsor products.

If you could build this up to 1,000 viewers per show, you have just built a powerful digital asset that a TON of D2C brands will buy.

Further than that, if fans actually make purchases here on sponsor products…you can prove ROI. You have a digital product that can prove ROI and efficiency.

If I am a brand, and I am spending heavily on YouTube (which means I believe in that platform as a tool to reach my customers), I would gladly shift dollars here.

By diversifying, this is what I mean. Coming up with new digital content that will bring value to our sponsors. With assets like this, we can still sell signage…but it opens so much more revenue for us.

If we don’t diversify, we will die as an industry

I honestly believe this. It is what I spend most of my time thinking through in the industry. Just as retail giants have been brought to their knees with the rise of Amazon & e-commerce companies. Just as Taxis all but disappeared with the rise of Uber & ridesharing.

We are fated to the same result unless we see the writing on the wall and diversify our assets.

Make no mistake, we will lose teams because they don’t diversify our assets. By that I mean some teams will go under because they aren’t diversified enough in their sponsorship assets.

Beyond the pandemic pushing us this way to almost all digital, we can’t get back to business as usual when we get through this. There is no going back. If you don’t have the assets you will slowly (but not as slow as you think) lose a massive amount of revenue.

This is a callout to the industry. Somewhat of a plea. You have to make the shift to diversify.

We cannot stay over-leveraged in the physical.

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