Scribbles

Since hooked on the Olympics over the last weeks, reading this recent Economist article on the business of global sports put me in a pensive mood, about myself and the economics of sports, locally and worldwide. After all, the very nature of sports appeals to all people, regardless of ethnic lines. Compared to other forms of entertainment, sports offer drama with meaningful yet unpredictable outcomes. But differences do exist in the business world across national boundaries. I realize that in the US, people are constantly surrounded by sports related media, from live games to newspaper sports sections to fan blogs. My passion for professional basketball has fomented my voracious consumption of all things NBA. And while I may be considered obsessive, in the grand scheme of rabid sports fandom, I would probably rank a 7 out of 10 on an exponentially sliding scale. So how does that translate into something more measurable, something meaningful like money? And how is it different around the world?

Let’s begin with the US market. According to the aforementioned article, yearly broadcasting fees alone generated $3.7B of revenue for the NFL, and almost $1B respectively for both the NBA and MLB. That doesn’t even account for the rest of the long revenue tail of sports, such as merchandise and tickets, multiplied by the vector of sports diversity like the NCAA, Olympics, NASCAR, salsa championships, professional bowling, etc. This non-stop parade of sports bombards people in the US, like myself, everyday throughout every season of the year. There’s always something, even on Christmas day. And this has led to US to possess the most mature and diverse sports market in the world. By market, I mean the entire ecosystem that encompasses fans, media, sports leagues, athletes, advertisers (and more). Consumers used to all this choice force these professional leagues to step up their game and compete for attention. This Darwinian competitiveness bleeds into all other aspects of the business, from the marketing campaigns of the sports to the advertising agencies behind star athletes that endorse product xyz. And this incredible level of saturation has bred the most mature consumers, sports leagues, and advertisers that revolve around the never-ending cycle of sports entertainment. I can’t imagine any other country that bests the US in this regard.

My claim of the advanced development of the US market implies no disrespect to others. Just as it was a matter of time for other countries to catch up and surpass the US in other aspects such as education or broadband penetration, other countries – more accurately the entire food chain of sports consumption from leagues to broadcasters – are closing in rapidly. Take the two most populated countries in the world, China and India for example, as the average income rises, the potential for consumer exploitation has local and foreign businesses salivating more than Pavlov’s puppies at a jingle bells concert. The palpable hunger for more sports heroes and competitive entertainment has them foaming at the mouths. And luckily for them, the path to maximizing revenue is a short one. All they need is to look at the US market, replicate the successful models and avoid the expensive mistakes.

Let’s examine the state of professional basketball internationally, a subject often on my mind. For starters, the American brand of pro basketball continues to gain huge popularity overseas. A recent LA Times article headlined “Kobe Bryant Rules China,” portraying a US player’s immense popularity (beyond that of Chinese ones) in the world’s fastest growing market for basketball. Meanwhile, the NBA finds itself willing but unable to satiate the demand in these markets. Their commissioner David Stern voiced plans to expand into China and India, with regret that from a product perspective, the NBA can only offer a few exhibition games and establish affiliate leagues locally. But the international demand doesn’t care about the NBA’s inability to scale its product. This summer has been a prolific off-season of European leagues poaching NBA talent (see right sidebar of this Marc Stein article) to play all over Europe, from Greece to Russia. The pent up demand outside of the US is finally being let out, this time backed with hard Euros. It’s just a matter of years before we hear contracts signed in RMB. The NBA knows this and its options are limited. The question is can it execute fast enough before the window slams shut and local leagues establish an insurmountable barrier.

And that’s just the league. The marketing engines have already gotten a head start. While an endorsement deal with Nike or Adidas means global exposure, the local companies are getting involved too. The eponymous sports apparel company Li Ning, proudly suiting all Chinese Olympic athletes, is known to pay certain NBA players for local endorsements. The examples go on and on, but it’s clear that the monetary growth in this area is certain to follow that textbook hockey stick trajectory.

What does this all signify for the experts here? I don’t mean the established professional leagues or the apparel giants, but rather the individuals whose competitive advantage lies in the experience of being part of the saturated US sports market. How can one leverage talent and experience developed here to getting a piece of that pie? It’s tricky. We tend to underestimate cultural differences that must be addressed. And these differences aren’t limited to the way the sports are played or appreciated, they extend into the marketing and technology models as well. Nonetheless, the opportunities to learn in these new markets are enticing. Two years back in INSEAD I wasn’t aware of any sports business courses offered, and I only know of one classmate who got into the business. Today, I’m certain that entrepreneurial people are already there, getting their hands dirty and adapting their own talents to the local scene. While I may not be ready to get into the game myself, I think some due diligence for investment opportunities would be worthwhile. If you know of any, please share in the comments.