Part 2 of 2014 Series: The University Side of the Equation
In a previous post, I began a discussion of the Ed O’Bannon lawsuit. In part two (of the 2014 series), we delve deeper into the nature of sports brands and how these “brands” are related to the case’s antitrust concepts.
In this post, we will take the perspective of the university. Our next post will examine the issue from the individual athlete viewpoint. The original issue in the O’Bannon lawsuit is that the structure of college sports, where athletes are unable to sell their images violates the Sherman act. Michael McCann, discussed the antitrust elements of the lawsuit in Sports Illustrated, and describes the suit's two main claims:
“First, by requiring student-athletes to forgo their identity rights in perpetuity, the NCAA has allegedly restrained trade in violation of the Sherman Act, a core source of federal antitrust law. Here's why: student-athletes, but for their authorization of the NCAA to license their images and likenesses, would be able to negotiate their own licensing deals after leaving college. If they could do so, more licenses would be sold, which would theoretically produce a more competitive market for those licenses. A more competitive market normally means more choices and better prices for consumers. For example, if former student-athletes could negotiate their own licensing deals, multiple video game publishers could publish games featuring ex-players. More games could enhance technological innovation and lower prices for video game consumers.
Second, according to the plaintiffs, the NCAA has deprived them of their "right of publicity." The right of publicity refers to the property interest of a person's name or likeness, i.e. one's image, voice or even signature. Last year, when explaining why the NCAA has refrained from suing CBS over its use of player information in its fantasy sports game on CBS Sportsline.com, NCAA officials acknowledged that players' rights of publicity belong to the players, and not to the NCAA.”
Viewed collectively, these two issues speak to the concept of brand equity, and about whether players should have the ability to “monetize” their individual brands while student athletes.
Branding issues in sports are fairly complex due to the nature of the sports product. The key point is that sports products and brands are co-created by a collection of players, teams and leagues. I mean that while sports are inherently about competition, they also require cooperation between multiple entities.
Furthermore, while it is obvious that athletic success is correlated with an athlete’s or team’s brand equity (think LeBron, Michael or the Yankees) this equity is created through competition with other players and teams. This co-creation is important because while fans may gravitate to star players, it is also obvious that league and team structures are needed for individual athletes to become valuable brands. It is probably only the rare athlete, such as Michael Jordan, that can grow a league’s overall revenues or fan base. The vast majority of athletes only temporarily capture some share of the teams' overall brand equity and leagues with which they are involved.
This is particularly true in the case of college sports. With a few exceptions, student-athletes are relatively unknown prior to joining college football and basketball teams. When a player puts on a college jersey, they immediately acquire a devoted fan base. To take an obvious example, a Notre Dame Football player such as Manti Te’o (neglecting the strangeness that became public at the end of his college career) was the focus of a great deal of attention during his senior year. Manti could have made money by endorsing products or licensing his image during his time at Notre Dame (again, lets clarify that we mean before December 2012).
However, Manti’s fame and marketability was, undoubtedly, largely a function of his playing at Notre Dame. An argument could be made that Manti had minimal impact on the revenues of the Notre Dame Football program. Notre Dame has a long and storied history, and already possessed a devoted fan base along with a lucrative television contract. Notre Dame has a record of consecutive sellouts dating back to the late 1960s.
Tim Tebow is another, and more extreme, example of a high profile college player that could easily have made significant dollars while at Florida. And again we could argue whether Tebow’s presence on the Gators actually increased Florida’s revenues. This table shows that Florida’s home attendance increased slightly during the time that Tebow was on campus. A comparison between 2009 and 2011 shows that attendance dropped by about 1,500 people or 1.7% per game. At a ticket price of $25 multiplied by 7 home games, this would equate to an incremental $250,000 in revenue.
Of course, it is not entirely clear what these numbers mean, as Florida reported attendance that exceeded stadium capacity in every year (capacity = 88,548). Also, we are not considering incremental merchandise sales. Furthermore, given Tebow’s lack of success in the NFL, and his continuing marketability, a claim could be made that Tebow’s brand equity was entirely built at Florida.
Given that Tebow had little effect on Florida’s football revenues, it could be argued that Florida provided an opportunity for Tebow to build his brand while only slightly benefitting them. Could Tebow have had similar success at another university? Of course, this is an incomplete example, as Florida may have benefited from increased donations from alumni or seen an increase in applications from prospective students.
Another easy objection to the preceding argument is that it is based on marginal revenues generated by Tebow’s presence. The distinction between marginal revenues and total revenues is important if one is truly concerned with fairness. College athletic programs have significant and valuable brand equity. This brand equity is maintained by current players. If a team stopped fielding competitive teams, its brand equity would diminish over time. In a perfectly fair world, players would enjoy rewards equal in value of how well they maintain and grow the school’s brand. This would, however, be a difficult quantity to measure, as college teams’ brand equities have been built through extensive histories.
In the case of UCLA basketball, I think most would agree that the Bruin brand was primarily built by John Wooden, Kareem Abdul Jabber, Bill Walton and others. If this is the case, then players like O’Bannon are merely temporary caretakers of the school’s brand. Would Mr. O’Bannon have been on the cover of the EA sports game if he could not have been pictured wearing a UCLA jersey?
From this perspective, allowing current individual players to market themselves to the highest bidder could be viewed as unfair to past athletes. If college athletes were suddenly allowed to pursue endorsement deals, I would expect that current high school players like Andrew Wiggins could become instantly wealthy (the fairness of Wiggins not being allowed to go directly to the pros is beyond the scope of this post). And while many might view this as a fair outcome, I would have to ask the question as to how valuable the Wiggins’ brand would be in the absence of Kansas, the Big Twelve and the NCAA Tournament. Consider for a moment that the MLB draft takes place in early June. How well known are the players that are likely to be taken in the first few picks? Would not a more equitable solution involve compensating past athletes that helped create the pre-existing fan interest that the next generation of athletes would be able to exploit?
Sports and antitrust laws have a long history, and likely will generate controversy long into the future. While competition between firms is typically the best way to improve consumer welfare, in the case of sports, sometimes pure competition may not be feasible. All the major professional leagues now use some form of revenue sharing or salary caps to maintain some level of competitive balance. As sports continue to morph into an entertainment product (remember the O’Bannon case began with a video game), it will be necessary to include greater consideration of the role of marketing assets such as a player’s brand equity and a college team’s fan equity to moderate future disputes.
