Managing the Athlete Endorsement
Million-dollar endorsement deals will be made and broken by how baseball players on the Boston Red Sox and Colorado Rockies performed in the just completed World Series. HBS professor Anita Elberse discusses her research on sports marketing and her recent case on tennis powerhouse Maria Sharapova. Key concepts include:
- On a global scale, total sports industry revenues are expected to be nearly $100 billion in 2007.
- The highest-paid athletes often make more money from endorsements and other commercial activities than from salary and winnings.
- Marketing executives value entertainment-related endorsements because of the difficulty of reaching a wide group of consumers using traditional advertising.
- Companies look to hire athletes whose image mirrors their own corporate brand.
- Sports agents and agencies must strategically manage these assets because their clients' professional careers are often short lived.
When Serena Williams took Centre Court at Wimbledon on July 3, 2004, few gave her opponent, 17-year-old Russian star Maria Sharapova, much of a chance. But Sharapova took the Ladies' Singles championship in straight sets, catapulting her into superstardom in the worlds of both tennis and sports marketing.
"That day, Maria's life changed forever, and so did mine," says Max Eisenbud, her agent at sports agency IMG, as quoted in the recent Harvard Business School case "Maria Sharapova: Marketing a Champion."
From a marketing perspective, star athletes can be made or broken over a course of a career or in the flash of an eye—just ask Atlanta Falcons quarterback Michael Vick, who was a top endorsement target of clients such as Coca-Cola until he was disgraced earlier this year in a dogfighting scandal.
Superstars throughout the entertainment world are of particular interest to Harvard Business School professor Anita Elberse, be they a movie legend or a third baseman. She wrote the Sharapova case with Margarita Golod (HBS MBA '07) to study and frame classroom discussions on a favorite field of research: the value created and captured by superstars.
With the baseball World Series just completed with a Boston Red Sox sweep of the Colorado Rockies, we asked Elberse to discuss the business of sports marketing and the unique case of Maria Sharapova.
Sarah Jane Gilbert: What is the growth rate of the sports marketing industry? Is it primarily in the United States, or is it a global business?
Anita Elberse: The sports marketing industry, covering everything from television rights to endorsements, sponsorships, and merchandising, is an important sector and growing rapidly. In its Global Entertainment and Media Outlook, PricewaterhouseCoopers estimated that the sports industry accounted for around $50 billion in revenues in the United States in 2007, up from just under $35 billion in 2001. On a global scale, total revenues are expected to be nearly $100 billion this year, compared with $70 billion in 2001.
As far as endorsements are concerned, marketers increasingly turn to athletes to promote their products. The marketing executives I spoke with told me they value these endorsements especially because it is getting more and more difficult to reach a wide group of consumers using traditional ways of advertising such as television commercials, and harder to gain credibility with commercial messages.
"The sports marketing industry is a global business."
As a result, many of the highest-paid athletes now make more money from endorsements and other commercial activities than from salary and winnings. The majority of top-paid athletes is American or, like Maria Sharapova, based in America. The list includes golfer Tiger Woods, basketball players Shaquille O'Neal and LeBron James, baseball players Derek Jeter and Alex Rodriguez, football quarterback Peyton Manning, and soccer player David Beckham.
However, the sports marketing industry is a global business, with international stars such as soccer players Ronaldinho and Thierry Henry as well as tennis star Roger Federer being particularly sought-after endorsers.
Q: What was the evolution of using athletes to promote commercial products? Was there a pioneer in sports promotion?
A: Mark McCormack, the founder of leading sports agency IMG, which counts Maria Sharapova as one of its clients, is widely seen as the catalyst behind what has become the sports marketing industry. Legend has it that in 1960, McCormack, a lawyer, approached Arnold Palmer, then a young golfer, and told him that he saw potential in sports endorsements in the television age. McCormack informed Palmer that he was planning to start up a business revolving around personal business managers or "agents" handling professional golfers' affairs. Palmer agreed to be his first client and to pay a commission on his marketing endorsements in exchange for McCormack's services.
Of course Palmer later emerged as one of the greatest players in the history of golf, and the agreement was an extremely lucrative one for both parties. Their handshake established the company that would evolve into IMG.
IMG now ranks among the world's largest private companies. It represents hundreds of athletes and other celebrities, and reportedly is commercially involved in an average of 10 major sports and cultural events around the world every day.
Q: What led you to write a case on Maria Sharapova?
A: Most of my research centers on the media, entertainment, and sports industries. One general question I try to answer in my research is what value is created by superstars in these sectors, and how much of that value these stars themselves capture. I was therefore keen to understand how athletes and their agents approach decisions regarding endorsements.
Similarly, because star athletes and other celebrities are "brands" that have certain meanings for consumers, companies can spend millions of dollars to align themselves with those celebrities. They hope those celebrities' brands "rub off" on the products they are trying to sell, be it apparel, cars, or beauty products. By conducting field research, I wanted to better grasp what has now become a key marketing instrument for many companies, and understand how and why they make these bets on athletes.
"Canon chose Sharapova because she possesses a number of qualities that fit with its PowerShot digital camera brand."
Fortunately, one of my students, Margarita Golod came to the rescue and connected me with Maria Sharapova. Sharapova was the ideal study subject in many respects. After her 2004 Wimbledon victory, she closed a range of highly lucrative endorsement deals, making her the highest-paid female athlete in the past few years. She is represented by IMG, which is widely regarded as having developed best practices in this area. And it turned out that Sharapova, her agent Max Eisenbud, and other IMG executives had very interesting ideas about what constitutes the best marketing strategy for a star athlete.
Q: Was there anything in your research that surprised you?
A: I am not sure surprised is the right word, but I was certainly impressed when I learned the ins and outs of Sharapova's endorsement strategy and the execution of that strategy. Considering the limited free time an athlete like Sharapova has in a year filled with training sessions and tournaments across the globe—less than 20 days remain for sponsorship commitments—I found it remarkable to learn how much value is generated.
Eisenbud and the other IMG people on "team Sharapova" are very selective when it comes to endorsement opportunities, and appear to give a great deal of thought to long-term endorsement portfolio management.
Q: Did you uncover any trends in your research? For instance, are athletic endorsements gender-based, and are some sports more lucrative than others?
A: I have not (yet) conducted any large-scale quantitative studies that provide conclusive evidence on these issues, but I did find it interesting to hear Eisenbud point to what appears to be a competitive advantage for female endorsers. If a company is looking for an endorser with global star appeal, it has a reasonably large group of male athletes to choose from, but only a select few female athletes. This likely has contributed to Sharapova's phenomenal marketing success.
Also, some sports certainly generate a disproportionate amount of athletic endorsers. Formula 1 racing, golf, tennis, and soccer account for the lion's share of endorsers with global appeal. In the United States, football, basketball, baseball, and NASCAR racing probably account for the largest share of endorsements.
Q: What role does an agent play in building an athlete's brand and ensuring his or her success?
A: The agent plays a critical role. Eisenbud is the liaison between Sharapova, the companies whose products she endorses, and any other interested parties. It's up to Eisenbud and his team to ensure the health of those relationships. Eisenbud also must effectively use the resources at his disposal within IMG, such as the sales division, which keeps in close contact with the corporate world; IMG's promotion and event marketing, which may feature Sharapova; and other divisions, like the Fashion group, that are relevant to her career as a celebrity.
Because athletes have relatively short careers compared to most other professionals, it is extremely important to strategically manage these assets and to make the right decisions at the right times.
Q: What makes for great appeal in athletic endorsements—is there a secret ingredient as to who will be a successful promoter?
A: I am not sure there is a secret ingredient. I think it is more about the entire "recipe" being right.
Companies try to find athletes with brand attributes that match those of the products the athlete is asked to endorse, or at least that match the attributes the company hopes to associate with those products. For example, Canon chose Sharapova to promote its PowerShot digital camera because she possesses a number of qualities that fit with the brand-being powerful but with precision, and having a sense of style.
Other companies that have enlisted Sharapova's services frequently point to her reputation as a winner who never gives up. Having the right combination of brand attributes thus is key.
Other aspects play a role too, such as good looks, public-speaking skills, and overall image. It does not hurt that Sharapova is regarded as one of the most beautiful athletes in the world. But when I had the opportunity to follow her for a day of sponsorship and other commitments in New York City, I also learned she is a business professional and comfortable speaking in front of various groups; it's easy to forget she is still only 20 years old.
Finally, scandals or legal troubles such as those for Michael Vick and Kobe Bryant can seriously limit an athlete's ability to attract and retain endorsements, so most companies look for endorsers with a clean image.