Motley Fool Hidden Gems Investing - Are College Bowl Sponsorships Worth It?

Episode Date: December 15, 2022

With 42 college bowl games on tap, are companies spending smart money to sponsor the event? (0:21) Jason Moser discusses: - The economics of bowl game sponsorship - Why local businesses may have an edge - Kellogg sponsoring three bowl games, two of them with their Cheez-It brand (12:45) Tim White and Tim Beyers take a closer look at user-interface design and which companies get it right (and wrong). Stocks mentioned: AZO, COF, SAM, K, LYFT, HUBS, CRM, SNAP, AAPL, WDAY Holiday Music: The Hanukkah Waltz by Bela Fleck and the Flecktones Host: Chris Hill Guests: Jason Moser, Tim White, Tim Beyers Producer: Ricky Mulvey Engineers: Rick Engdahl, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

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BetMGM operates pursuant to an operating agreement with iGaming Ontario. It's College Bowl season, which means it's also College Bowl sponsorship season. Motley Fool Money starts now. I'm Chris Hill, back by popular demand. Motley Fool Senior Analyst Jason Moser, thanks for being here. Thank you for having me. It's always nice to be backed by popular demand. I think that's just maybe your popular demand. I'll take whatever I get though. Right. You should start worrying

when I introduce you as begrudgingly, here's Jason Moser once again. Our e-mail address is podcastsatfool.com. Got a great question from Phil in California who writes, first of all, love the show. It's been such a help in my investing journey. Thank you, Phil. we're trying to help. So glad we're helping out on that. He goes on to write, I'm a big football fan. And with all the college bowl games coming up, I'm curious about what some of your top companies are in terms of bowl game sponsors. And he gave as an example, the Liberty Bowl game, which I believe is Kansas against Arkansas. And it's not just the Liberty Bowl, it's the AutoZone Liberty Bowl game. And before we get into specific sponsorships,

I am curious, Jason, this is a very specific type of marketing spend. This is not the naming rights to a stadium or that sort of thing. This is marketing around a specific event. And just in terms of that, do you think that's a good use of capital or when you see that a company you own shares of is sponsoring a college football game, does it pop up a little bit of a red flag? First and foremost, thank you, Phil. I think this is a great question. It's a fun question really to deliberate because I too am a football fan, a bit more of an NFL guy, but definitely enjoy college football and bowl season is always an exciting time of year. For the most part, I think it can be a wise use of dollars. Now, I think like stocks, price matters.

It's interesting to see the costs of these bowl sponsorships can really vary. I was looking at looking at this earlier, according to ESPN.com, there are 42 bowl games on the schedule this year. Typically, when you look at the numbers, the lowest cost you're going to pay for bowl rights is going to be around the $500,000 range. Now, with that said, that I don't think is indicative of the usual number you're going to see lobbed out there. These are typically millions and millions of dollars that are thrown at these games. When you look at why they do it, there are a number of expenses that come with sponsoring a bowl game. You're talking about TV and digital advertising placements. There's signage on the fields that relate to the bowl game and the brand. You've got

team and school accommodations. You've got licenses and permits related to all of the signage and advertisements. You're dealing with vendors. There are a lot of expenses that come with it. The bigger the game, I think you can safely assume the bigger the bill is going to be, but it's advertising. Most companies are spending dollars on advertising in one way or another. I think that with a bowl game, it's going to be a little bit more difficult to really fully track the return versus something like an internet-based campaign where you can measure clicks and really get firmer data. But that doesn't mean it's not going to be worth it. I mean, you're looking at 42 bowl games and you've got a lot of companies out there putting up a lot of money to sponsor

these bowl games. Generally speaking, I think it can be a good use of money. Again, though, I do think it boils down to really how much they're forking over to actually do it. Yeah, just like you've said plenty of times, price matters. And I think that in addition to the TV ad time and that sort of thing, done correctly, I think this is a great use of marketing dollars. And my assumption is, if you're putting aside the biggest, the football playoff games and really the more marquee games, if there's a local angle, it can be a really great use of marketing dollars because you're getting the brand out there. Presumably, you're getting tickets, luxury boxes, giveaways to partners or executives at the company or to reward employees. I think

about something like Duke's Mayonnaise, like the Duke's Mayo Bowl in Charlotte, North Carolina, that's a really great regional brand in the Carolinas and even into Virginia as well. well. That seems like it's probably a good use of their money. Also, the fact that they've done it before. It's always interesting to see the brand new sponsors that pop up here, but you get some of these others, maybe lesser-known brands, probably a decent number of people listening may not have even heard of Duke's Mayonnaise, but in our part of the country, brand you can easily find. It can work out, but I feel like there are always ones that are just one and done, and then you know that by their own internal metrics, this didn't really work out for

us. Yeah. I do like that. I love to see these companies with long track records, developing identities around that bowl sponsorship. As gross as it sounds, dumping a big vat of mayonnaise instead of Gatorade on someone for winning the Duke's Mail Bowl, it's pretty gross sounding, but you're also never going to forget it. I think from that angle, I do love to see the continuity in long-term relationships there. It does make sense, I think, from a local perspective. It can take something that has been somewhat limited locally and give them the opportunity at least to take that brand identity national. You certainly see plenty of very successful brands that just need to break out of that regional nature and become national,

and this is definitely one way to do it. Again, it's not cheap. If you look at back in 2017, Capital One Bank, most people know Capital One. I think a lot of people have Capital One accounts, a lot of people have Capital One credit cards. They paid $25 million to sponsor the Orange Bowl back in 2017. Now, Capital One is obviously a very large company, $37 billion market cap, brought in close to $30 billion in revenue over the last 12 months. So, $25 million is a drop in the bucket for a company like that, they can afford to do it. But that's also a very well-known national brand. You and I were talking earlier about the opportunity for a company like Boston Beer, Samuel Adams, to potentially sponsor, particularly one located in the New England area,

where they could really sort of tout the roots and the message and help take that. I think Boston Beer, Samuel Adams is a nationally known brand, but you look at the face of the beer business today, it's become just uber-competitive as craft beer has proliferated and Boston beer has fallen down several notches along the way. Being able to get in there and do something like that, they could probably get away with doing something like that without having to spend a whole ton of money to do it. Yeah, that could be another interesting way to look at it. Shares of Kellogg's are up 12% this year, well ahead of the overall market. I know these things get worked out well before

right now, but I'm assuming times are good at Kellogg's because we were talking about this earlier, they appear to be sponsoring three different bowl games. Yeah, I know. That really took me by surprise. Real quickly, I'm going to go through a list because I think Phil's question was a very thoughtful one, and I want to name some names. I want to give some names of publicly traded companies that are involved with bull season because it's not all 42, so I'm not going to take all day reading these off. But I think it's just interesting to listen to some of these bulls and some of the names that are involved. You get the Lockheed Martin Armed Forces Bull. You get the Vrbo Fiesta Bull. Remember,

Vrbo is part of Expedia and that's the publicly traded company there. You get the LendingTree Bull. You get Duluth Trading Cure Bull and that's part of Duluth Holdings. You get the Quicklane Bowl, and Quicklane is part of Ford. You've got the AutoZone Liberty Bowl, AutoZone. You've got the Cheez-It Bowl, Kellogg's. Valero Alamo Bowl, which is Valero Energy. You've got the Tony the Tiger Sun Bowl, that's your second Kellogg's Bowl right there. You've got Barstool Sports Arizona Bowl, Barstool, of course, owned by Penn Gaming. Hang in there, Mincy. You've got the Capital One Orange Bowl. You've got the Allstate Sugar Bowl. You've got the Cheez-It Citrus Bowl. There's your three, two Cheez-Its and a Tony the Tiger. Kellogg

really bringing the heat this year. Then you've got the Goodyear Cotton Bowl. That's a litany of ideas there. I think this is a fun exercise because you're going through and looking at all of these businesses. Some of them I think could actually be compelling investment ideas. you talked about Kellogg's, and Kellogg's is up, what? Kellogg's is up 12% this year. AutoZone, same thing, 12.6%, thumping the market. Of course, we don't invest on those timelines, but it's interesting to look at that stuff. It can make you want to dig into the business a little bit more and understand it better to see if there's an opportunity there. Also, remember that Kellogg is actually going to split into three companies by the end of 2023.

they're going to have the snacks, the cereal, and then a plant-based business. And so, we got two bowls that are covering the snack space, and we got one bowl that's covering the cereal. Chris, should we expect a fourth? Is there going to be some kind of a plant-based bowl in the future? I don't know, maybe. But it would certainly be a way for Kellogg to get that out there, right? I mean, that would be a way for them to really make it nationally known that this is a different story now and that they are doing three distinct things. Again, I did this many years ago with the Masters Golf Tournament actually, and I went through, I think, a week. I took Masters Week to go through, because the Masters keeps a very small and exclusive list

of sponsors. But I thought, hey, let's take a look at some of these companies that sponsor the Masters Golf Tournament, see, you know, do any of them represent investing ideas, opportunities that we ought to consider? And so, I think anytime you look at these sports events, these sporting events, the sponsorship is just part and parcel of the business. I don't think that's ever going to change, but it can be a really fun idea generation. Keep the emails coming, podcasts at fool.com, especially if you know the back story on how Kellogg's came to have not one, but two separate Cheez-It bowls. That's the one I'm looking for. Jason Moser, always great talking to you. Thanks for being here.

Jason Moser. Yeah, thank you. When it comes to technology updates, some are helpful at fixing bugs, while other updates, not so much. Tim White and Tim Beyers take a closer look at user interface design, which companies get it right, and which ones are giving customers unwanted questions. Let's talk about what a user interface is, Tim. And my simple definition of it is, if you have a piece of software, how you interact with that software and its functions is what we call the user interface. And it's typically just like a screen

and a series of buttons. Right. And I think that is contrasted with user experience, which is a little bit more comprehensive. So for example, with an app like Lyft, your user experience is everything from the moment that you open the app and interact with that user interface

to the fact that you get into a car, get delivered to your destination and get out and then interact with the app again, which is that entire user experience. So depending on the nature of the app, the interface may not be the entire user experience. Right. And it may be limited. Like in the case of Lyft, you may have, let's just stick with that for a minute. It may be two touch points.

I order a ride and then I conclude my ride, give a tip, give a rating, I'm done. So I want my user interface to allow for those simple interactions and not try to keep me around. I just want it to allow me to do the things I need to do so I can move on with my day. And so in the case of something like an iPhone, the user experience also includes the buttons, the weight of the phone, the way the screen works, right? The entire physical nature of it, as well as all the interactions you have with the app store, with buying music, opening apps, closing apps, right? All the operating system rolls together and combines user interface and user experience.

Right. So user interfaces are important because they are the first step to generating a positive user experience. And if your user experience is positive, it's much more likely that you're going to have engaged customers. And so the reason we focus on, and we've talked about user interfaces as being one of the things to really watch for, particularly in this coming year, Tim, in 2023, is that it's very easy if user interfaces change to introduce questions that you would rather your customers not ask. So for example, if you have a really good user interface, say you're a company like HubSpot, they're very well known for this very clean

interface, really functional, it's really well designed, it's elegant, it feels a little fancy, and it is a little fancy. It has good functions, but it's easy to use. It's very clean. And so if HubSpot were to change that, how that might affect the moat, I think we would say is that, wait a minute, I have a certain way of working with this tool that I have come to depend on. You've changed it. And now I don't exactly know how to work with this. And so suddenly you start asking questions about, well, should I keep working with this? And that's a dangerous question, It is. Making radical changes to your user interface almost always causes problems for companies. Snapchat notoriously changed their user interface very extremely and lost a whole bunch of customers. And I think when people complain about Apple making only incremental improvements to the iPhone, they need to look through it in the lens of this is something people use every day. if you made wild changes to this, even if they were for the better, it could seriously damage

the opinion of people as far as the iPhone goes, because they would be like, I don't know how to use this anymore. Right. And you don't want to, if you're talking about any tech tool that faces a user, a customer, and they have a way of working with it, they have what we typically would call a workflow. I know how to use my iPhone. I know how to use my HubSpot inbound marketing tool. I know how to use my Lyft app. If suddenly the way that you work with that app changes, you give somebody a reason to switch. Now, here's the flip side of that. If you have a really Byzantine user experience and you are struggling to gain share, maybe the best investment in R&D dollars that you can make, Tim, would be in improving the user interface as the first step

to improving user experience. Yeah, exactly. And oftentimes, venture capitalists will see potential in a tool that has a great business model, or maybe has great technology underlying it. And what they're investing in is that extra step to take it from, this is pretty good to look at this great user experience on top of this great underlying technology or business model. Yeah, I mean, I'm trying to think of companies that have done this, where they've made really great strides to improve their user interface on the way to improving the user experience. I would say, I'm going to take, maybe steal your iPhone example for a second here. There were smartphones before the iPhone, but I think the thing that really made the iPhone

stand out is all of the functions of a smartphone are interesting, but I don't really need one unless I have a really elegant way to interact with this thing and that I think the major innovation of the iPhone is that user interface design right the ability to type on a touch screen was a massive leap forward and definitely a killer you know a killer piece of functionality for the iPhone but even if you go back before that we'll talk about first a user interface the iPod right had that scroll wheel on the front right right and that really made it possible to manage a device with hundreds and hundreds of songs on it in an elegant way. And also you could run games like Peggle and such on it really well. And that was a game changer, right? It's like,

oh my gosh, we can actually go through all these songs in a reasonable way, whereas other MP3 players just could not do that at the time. And then from a user experience perspective, they coupled that with a built-in app store where you could actually go find music, buy it, pay for it, get it onto your iPod all in a quick and easy way. So that end-to-end user experience was a huge selling point for the iPod that really crushed all the other MP3 players at the time. Yeah. I want to go back to software for a minute here because I mentioned HubSpot and the elegance of its software. The other risk with user interfaces is if you have, let's say, some software tools that have really gained scale and you have very large customers and they have

invested a lot to learn your way of working. We've seen this, for example, with Salesforce. I don't think either you or I, we've both used it. I think Salesforce is highly functional, Tim. I don't think it's beautiful to use. I think it's kind of confusing in some spots. I really would not say that Salesforce has an elegant user interface, but I don't think I would recommend that Salesforce make a bunch of changes to its user interface because there are big customers that have invested in learning how to use that tool. And there's a huge ecosystem of partners that have built on top of the way Salesforce works right now to extend it and change the way that it works and the way that it looks. And if you made fundamental changes to that, it could break all

of those partners that you depend on to add functionality that you can't afford to develop. but it is a risk right if you let your user interface get too old or too out of fashion even if it was the bee's knees when it first came out it can definitely rot over time as people's expectations increase and i think we've absolutely seen the you know the apple effect in a lot of industries where an interface or a tool or user experience was totally fine and then apple made some moves in that particular area and now that thing is terrible and no one wants to work with that way even though it was completely fine previously right and we've seen it in how design has impacted some say incumbent industries the the best example i can think of here

to to other companies i mean i tim i had to enter timesheets i've been around long enough i had to enter timesheets in peoplesoft and that if you've never done that good for you i'm jealous because i had to do it and it is abysmal i hated it i mean talk about a horrible user interface i am convinced him that the people soft user interface helped give birth to workday i'm utterly convinced yeah for sure and the irony for me is that i was actually going to use people soft as an example of a much better user interface than oracle financials which preceded it and then oracle actually bought PeopleSoft because they're like, well, people like PeopleSoft's interface better. But both of them were, A, they shouldn't have been allowed to merge, as we've talked about

many times. But then it was like, wait a minute, this is just too gross. It's too ugly. We can crack the market open with a better user interface and thus Workday was born. So wrapping this up, user interfaces are something to pay attention to because a good user interface has some impact as if you are a software company or a hardware company, if you are interacting, whether you have enterprise developers or you have consumers that are using your consumer device, how they interact with your hardware or software, your tool is important. And if you change the way that they interact with it, you run some risk. You might be maybe letting some water or maybe maybe digging an unwanted sort of offshoot into your moat, or you could be creating some

decisions for customers to maybe want to switch. Conversely, if you have a bad user interface and you invest in it, it can be a way to capture new business. So user interfaces do have the capacity to impact how really interesting tech businesses grow. Tim, if you had to, I'll put you on the spot here and say, if you had to say the company that impresses you the most in terms of user interface design, I've heard you say Apple.

Is Apple your poster child or is there somebody else who's the poster child? Yeah, I think Apple's probably the easy answer poster child, right? I think over time, many user interfaces have impressed me the first time that I use them. I think the first time I went to medium.com, it was so beautiful and easy to read articles and so pleasant compared to other blog type sites. I think they really won out, you know, just contrasting themselves from Blogspot or whatever.

So I think that's always a good example. I do think that Gmail, same thing. First time you use Gmail, I think maybe that one is also now feeling a little dated, but also has that risk of if they change how Gmail works, right? a lot of people will be disrupted. So I think the key thing for me to take away here is that even big established businesses with good solid products can be disrupted if someone comes up with a better way to get people's hands on that thing, right? How to interact with it. As always, people on the program may have interest in the stocks they talk about,

and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow for the best and worst of 2022. Thank you. Thank you.