College Athletics and Corporate Sponsorship: The Role of Intermediaries in Successful Fundraising Efforts

Julie Z. Sneath, Ph.D. (LaGrange College), R. Michael Hoch, M.B.A. (Northeastern University), Pamela A. Kennett, Ph.D. (University of South Alabama) and Joel W. Erdmann, Ph.D. (University of South Alabama)

INTRODUCTION

In recent years, collegiate athletics has developed into a multi-million dollar industry. However, its emergence into the world of big business has carried with it a large price tag. Increases in athletic department staffs and coaching salaries, enhanced facilities and equipment, and the costs of Title IX compliance have contributed to the escalating costs associated with collegiate athletic programs (Worth, 1993). Despite increases in revenues from rising enrollment, tuition, donor contributions and ticket sales, total expenses for collegiate athletic programs have increased at a proportionately greater rate. For example, although university revenues from tuition nearly doubled between 1985 and 1993, total expenses for NCAA Division 1-A football programs nearly tripled between 1985 and 1997 (Suggs, 1998). In 1992, only 25 of over 1000 colleges with football programs (including all NCAA divisions) had revenues exceeding expenses (Mullin, Hardy & Sutton, 1993). More recently, 84 percent of the 477 NCAA Division I and II athletic departments have been shown to be losing money (Suggs, 1998).

SOURCES OF FUNDING

Colleges and universities have begun to emphasize nontraditional funding sources (i.e., those other than tuition, alumni gifts, and government grants) to cover the costs of their athletic programs. At the heart of these efforts is the search for outside sources of funding. While the majority of funds are secured through ticket sales, a growing source of revenue is through corporate sponsorship of collegiate athletic programs in return for stadium signage or promotions. In 1993, for example, the University of New Mexico entered into a sponsorship agreement with a local bank, which contributed directly to the university as a sponsor of the athletic program and provided an estimated $75,000 in advertising through special bank-sponsored promotions (Ray, 1993). Sponsors of the school’s basketball and football programs also include Calmat of New Mexico, a construction materials company, Frost Mortgage Company, Cafe Oceana, 66 Diner, The Prairie Star Restaurant (Velasco, 1996), and Giant Industries, Inc. (Giant Industries ...., 1997).

For colleges and universities, whose overall competitive advantage is partly derived from a strong sports program, securing corporate sponsorships may not be difficult. However, soliciting and maintaining corporate sponsorships may be more difficult for small- and medium-size schools with limited commercial appeal. How does the institution appeal to potential corporate sponsors without a top-ten athletic program or some other prominent selling point? Further, a weaker economy is likely to affect even those schools which have high-profile sports programs. Regardless of the size or success of the program and department, the activities required to monitor and develop sponsorships often require that athletic departments expand their administrative and support staffs, which in turn increases costs (Erdmann, Kennett & Sneath, 1996).

Traditionally, a university athletic department pursues corporate sponsorships through a direct channel of distribution (i.e., the university is in direct contact with potential sponsoring companies). However, this approach to sponsorship requires a large, hard-working staff which can increase costs and take time away from other important duties. This same problem occurs in more traditional marketing channels. Many companies opt not to use direct channels of distribution whereby the manufacturer sells directly to the end consumer. Instead, these companies rely on marketing intermediaries, such as wholesalers and retailers, to aid in distribution. In more service-oriented industries, service agents are often used as channel intermediaries. An agent is "someone who acts on behalf of a principal who has the authority to create a legal relationship between the customer and service principal as if it were made directly between the two" (Palmer & Cole, 1995, p. 209).

A significant body of research has shown that a major benefit of intermediaries in a channel of distribution is reduced number of contacts between channel members, and when an intermediary represents numerous producers, reduced expenses associated with buying and selling (Boone & Kurtz, 1998). This, in turn, can help a channel be more effective while at the same time being more efficient. For instance, intermediaries often possess special skills and have well-established contacts that would be costly and require time to develop in-house. Further, using appropriate intermediaries reduces capital requirements which may allow for reinvestment in other areas of the operation (Palmer & Cole, 1995).

In response to these issues, several new forms of sponsorship have begun to emerge for collegiate athletic programs. Much like their counterparts in business, educational institutions have begun to join or form strategic alliances with suppliers and/or other educational institutions. For example, colleges have formed purchasing relationships with suppliers to decrease supply costs and the costs of monitoring suppliers. More recently, schools have begun to enter into inter-institutional alliances, to obtain benefits from the power of a large bargaining block. In 1990, the National Association of Collegiate Directors of Athletics (NACDA) Corporate Sponsorship Consortium was established in an effort to provide greater bargaining power to the 22 member schools and offer sponsors a large market of students (more than one million) and sports spectators (Dunnavant, 1989). Although this organization was later disbanded, the collegiate sports consortium concept has more recently been implemented by Host Communications.

To remain competitive with other forms of sports entertainment Host Communications began, in early 1997, to enlist collegiate athletic departments as members of its program called "The Power of One" (Powell, 1998; Waddell, 1998). Unlike the earlier NACDA model, which was never fully implemented, this program has several elements which contribute to its likelihood of success. First, Host Communications is motivated to make the venture succeed because it is paid on commission. Second, having experience in collegiate sports marketing, the firm has represented a number of the member schools independently before developing "The Power of One" concept. Finally, member athletic programs, which are classified into groups before potential sponsors are approached, are in a much weaker financial position than they were in 1990, and are more motivated to support unconventional methods of soliciting funds.

Evidence of "The Power of One’s" initial success is that, by June 1998, Host Communications represented both the NCAA and a number of schools with high-profile sports teams, including the University of Kentucky, University of South Carolina, Florida State University, and Notre Dame. In addition, the consortium members also include lesser-known schools such as the University of Tennessee in Knoxville. Through the sports consortium, these athletic programs, regardless of size or national reknown, are sponsored by international and local sponsors alike. For the University of Tennessee (Knoxville), membership in the consortium has translated into signage revenue of $500,000 annually from such sponsors as Coca Cola, Adidas, and Magnavox, as well as local sponsors such as First Tennessee Bank. Other sponsors signed by Host to support collegiate athletic programs include General Motors ($17.5 million over 5 years) and Nabisco ($10 million over 5 years) (Waddell, 1998).

ALLIANCES: BUILDING ON THE SUCCESS OF OTHER INDUSTRIES

With its’ "Power of One" program, Host Communications has applied a strategy used by other industries, such as health care and energy services, which have faced similar challenges of rising costs and decreased resources. For example, alliances between hospitals and health care providers were formed in the 1980s, during a period of rising costs, declining revenues and reduced support from outside foundations. Although many institutions and providers chose to focus on cost containment measures to remain competitive, some hospitals and care providers chose to focus instead on increased revenues through the formation of strategic alliances. Such alliances also served to increase the range of services offered while reducing the per-procedure cost. Health Star, a consortium of four hospitals in New York state which was formed in 1996, allows all members to use one hospital’s breast imagery center, another’s neonatology program, etc. (Singer, 1997). Hospitals have also lowered supply costs by joining purchasing alliances, such as the Premiere Health Care Alliance with its 1800-member hospitals and healthcare facilities in the United States. Currently, healthcare providers continue to look to third party providers "to design and execute the necessary transportation and consolidation links in the healthcare supply chain" (Saccomano, 1997).

The insurance industry has also undergone a transformation similar to that of colleges and universities. Rising costs and increased competition have resulted in a wave of mergers and acquisitions. In response, insurance companies have begun to encourage their agents to create purchasing alliances. Previously, insurance agents would visit hundreds of small businesses, personally selling insurance policies that were individually adapted to each company. With the purchasing alliance strategy, the agent approaches the carrier as a representative of blocks of small- and medium-sized companies. This strategy reduces acquisition and administrative costs for the carrier, provides costs saving and broader coverage to the companies, and leaves a commission for the distributor or wholesaler (Guthart, 1996).

COMPETITION OR COOPERATION?

While numerous examples of cooperation and alliances exist in the corporate arena, fewer instances occur in academia. However, groups have begun to form in recent years. Bargaining collectives and purchasing groups have been formed across schools in Massachusetts and California. "PowerOptions," a program of the Massachusetts Health and Educational Facilities Authority, has enlisted 460 institutions across the state, including Harvard University and the College of the Holy Cross. The purpose of this consortium is to provide bargaining power when negotiating energy supply and management contracts for member institutions. In 1997, the 31 campuses of the University of California and California State University system jointly solicited bids for electric power. In Texas, the 24-member Texas Higher Education Coalition was formed to lobby state agencies for funds to attract more minority students. The member schools, which consist of public and private universities and community colleges, cooperate to attract students to Texas schools. The coalition marks the first time many of the institutions had actively worked together with other colleges (Suhler, 1997).

One of the potential benefits of intermediaries in collegiate sports sponsorship is that the third party can provide the opportunities of a strategic alliance among schools without the schools having to enter into agreements with competing institutions. Further, while competition among schools for qualified students and faculty remains intense, the benefits of inter-institutional alliances are clear. Much like the insurance industry, it is likely that these benefits would occur without inter-institution conflict, since it is doubtful that a purchasing alliance could affect institutions’ relative competitive positions in attracting or retaining students or faculty members. These similarities are crucial because lack of funding may cause sports programs to decrease their offerings to prospective students, such as Boston University’s disbanding of its’ football program in 1997. Rising enrollment has increased the pressure on schools to contain costs to remain competitive, which translates into pressure on athletic programs to increase sources of outside funding and even contribute financially to the institution by funding sports scholarships. Unless athletic programs are able to overcome their funding deficits, the college or university’s competitive position for students and faculty may be diminished.

DISCUSSION

The success of purchasing groups, alliances, and consortiums in the for-profit sector -- as well as in non-profit settings -- suggests that colleges and potential sponsors should consider opportunities to form relationships with third-party sports sponsorship intermediaries. This system, which enables a third-party broker to perform activities that provide sponsorship opportunities for potential sponsors by creating packages to meet their specific needs, efficiently provides the means through which schools are able to enter into sponsorship agreements with sponsors whom they might not otherwise be able (e.g., they may not have a large enough audience to warrant the costs associated with developing and maintaining a sponsorship agreement). These institutions, individually, would not have had the resources or audience size to allow them to enter into such relationships.

With a third-party system, the sponsorship intermediary could create a process through which colleges are able to join the program, define objectives, specify target companies, and specific benefits to be achieved. Unlike professional sports, where cost savings for advertising and public relations are currently being realized through consolidation (Spiegel, 1998), the third-party system reduces costs for the intermediary through economies of scale and specialization; the college through reduced contacts and the financial rewards of numerous sponsors; and the sponsor through a single account with exposure benefits of a multi-college sponsorship. The third-party, in effect, acts as a distribution agent, providing efficient and effective channels between these two groups. As the buffer between institutions with potentially disparate orientations (or engaged in competitive maneuvering), colleges and sponsors, alike, do not have to align themselves with other institutions, since the third-party should join together only those schools and companies that share common goals and visions.

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