Sunday, August 3, 2014

How "sponsorship" works!

McDonalds is in the business of what? The vast majority of people will say the obvious, hamburgers. Fast food, happy meals, chicken nuggets, etc. Wise investors realize that McDonalds sells franchises that sell hamburgers in order to conduct its true business, real estate acquisitions. McDonalds is a one of the world's richest real estate companies. While individuals can "own" a McDonald's  by being approved for a franchise, the real estate under every McDonalds in the country is owned by the McDonalds corporation. Owning commercial property on the corners of pretty much every well populated city in the country is masterful! Not burgers but land. This brilliant and misunderstood business concept repeats itself in grassroots girls basketball.

The club I co-founded was  "sponsored"  by a shoe company last year.  Here is how most "sponsorships" work in girls basketball. A club becomes good enough to earn free shoe company product ranging between $2000-$8000. In some cases, some well performing clubs can get $10,000-$15,00 in product. Unlike the boys side of the game, where free product and money can reach six figures, girls programs do not get actual financial sponsorship from shoe companies. Being that girls basketball is not an affluent sport, any free product given to girls to help celebrate the girls game is a good thing. The negativity surrounding the "sponsorships" comes through the misleading perceptions spewed by "sponsored" teams and parents.  Mind you, I was one and in full disclosure, chose not to continue to be one PARTLY  because...... I can count!

Sponsored teams are required to attend a particular number of events. Let's do some math. Lets say Team Blue is "sponsored" by a shoe entity for $6000 in product. With major discount in shoes, uniforms, bags etc., we will assume they can outfit four teams of 10 players with the $6000 in product. Hamburgers right? But further inspection shows that the "sponsored"  team now must attend 2-3  required events. Now, please take two of the four teams and buy plane tickets for the 20 players at a discounted price of $300 a ticket, a total of....$6000. Cool, a break even right? No! The two teams still have not paid tournament registration fees, hotels, car rental, food , and gas. Assuming that 20 girls will share 5 rooms at $100 a day for 6-9 days is an easy $3000-$4500, just for hotels. Add tournament fees and the other expenses and Team Blue is easily  $10,000 in the RED! As you can see, "sponsored" does not mean free.

Are girls shoe sponsors selling hamburgers or are they in the real estate game? The answer should be obvious. Team Blue outfits 4 teams with "free" product. However, the club director sells his/her additional 5 teams shoes and uniforms. A "sponsored" discount allows Team Blue to buy a shoe and uniform combo for $120 instead of the $240 retail price. Team Blue goes to the affiliated 5 teams, or 50 players, and sells them the combo of uniform and shoes for a $150, a $30 markup, yet still a 33% discount from the retail costs. A win win. The kids needed shoes and uniforms anyway, they received them cheaper than retail and are part of a "sponsored" club and all the prestige that come with it. It's a win for Team Blue since now they have offset the previously mentioned $10,000 debt by $1500, now only down $8,500. If they can duplicate this to bring that down even further, great, if not,  that's a pretty expensive trophy or title to be chasing.

Shoe companies are doing a terrific thing by "sponsoring" girls basketball clubs. Girls basketball is hardly a lucrative market in terms of brand enhancement, unfortunately. I truly hope this changes. Shoe brand enhancements to the bottom line comes with the Derrick Rose's, Lebron James' and Steph Curry's. "Sponsored" teams are the franchise owners selling real estate, in the form of product  for shoe companies. That is what the business is all about. Elite, Best, Circuits, National Championships etc, all are the chicken nuggets and hamburgers of the true business, selling product.  For this reason,  a lot of "sponsored" franchise owners sell elitist proclamations in order to enhance their personal club brands. They know that they better keep  slanging those happy meals( acquiring the best players) because the land under their businesses ain't theirs!