Under the Influence with Terry O'Reilly - S6E22 - The Lean Mean Money Machine: How Marketing Affects Sports

Episode Date: June 1, 2017

This week, we analyze how marketing affects the sports world. We’ll look at the massive influence that comes with owning the rights to the Olympic games, how the recent uptick in gambling sponsorships affects athletes and what happens when major advertisers threaten sports leagues. It’s a lucrative, but tricky business.   Hosted on Acast. See acast.com/privacy for more information.

Hi, it's Terry O'Reilly. As you may know, we've been producing a lot of bonus episodes while under the influences on hiatus. They're called the Beatleology Interviews, where I talk to people who knew the Beatles, work with them, love them, and the authors who write about them. Well, the Beatleology Interviews have become a hit, so we are spinning it out to be a standalone podcast series. You've already heard conversations with people like actors Mark Hamill, Malcolm McDowell, and Beatles confidant Astrid Kershaw. But coming up, I talk to May Pang, who dated John Lennon in the mid-70s. I talk to double fantasy guitarist Earl Slick, Apple Records creative director John Kosh. I'll be talking to Jan Hayworth,

who designed the Sgt. Pepper album cover. Very cool. And I'll talk to singer Dion, who is one of only five people still alive who were on the Sgt. Pepper cover. And two of those people were Beatles. The stories they tell are amazing. So thank you for making this series such a success. And please, do me a favor, follow the Beatleology interviews on your podcast app. You don't even have to be a huge Beatles fan, you just have to love storytelling.

Subscribe now, and don't miss a single beat. From the Under the Influence digital box set, this episode is from Season 6, 2017. You're so king in it. Scores of it in an instant. Your teeth look whiter than noon, noon, noon. You're not you when you're hungry.

You're a good hand with all the teeth. You're under the influence with Terry O'Reilly. One day, George Foreman was walking down the street when he passed a group of schoolchildren. Their teacher told the kids that George was once the heavyweight champion of the world. No, he's not, one boy shouted out. He's the cooking man. Such is the fate of George Foreman, a legendary heavyweight fighter who won the title not once, but twice,

at 24 and again at the astounding age of 45. But he just may be better remembered for his lean, mean, fat-reducing grilling machine. When Foreman was making a comeback in his 40s, the press joked that he was sporting a few, mmm, extra pounds. Foreman took it all in stride, saying he had to keep fighting because

it was the only thing that kept him out of hamburger joints. One day, he got a call from his lawyer asking if he had ever thought of pitching his own product. A company had a cooking grill they wanted to name after him. George asked how much cooking grill they wanted to name after him. George asked how much the company was willing to pay.

His attorney said, they aren't going to pay you anything, but you will make 40% on every grill sold. George said, not interested if they won't pay me up front. His attorney said he was sending the grill over anyway

and begged George to take a look at it. When it arrived, George took a quick look at the grill, then forgot about it for a few months. When his lawyer called to ask how he liked the grill, George said he hadn't tried it. He was just about to turn the offer down again when his wife, who overheard the call, said she loved the grill. She said it eliminated grease and was easy to clean up. She sold George on it. So, he agreed to pitch the grill. She said it eliminated grease and was easy to clean up. She sold George on it.

So, he agreed to pitch the grill. George said he only did it to get 16 free grills for his family and friends. He didn't hold out much hope for making any money. Then, he made commercials and infomercials. Hi, I'm George Foreman, and this is my lean, mean, fat-reducing grilling machine. It grills delicious food in a healthy way, fast. It was an immediate hit, selling one million grills, then two million, then ten million. His first royalty check was for $3,000. The second one dropped to $2,500. The third one jumped to $1 million.

Meanwhile, George was still fighting. When he was beaten in a close match with heavyweight Shannon Briggs, he was interviewed in the ring about his loss. This is what he had to say. George, your reaction to the decision? Well, Larry, I want you to see something. Look, that's about eight weeks I spent on that George Foreman lean, mean, fat-reducing grilling machine. I would grill right in the bedroom, steaks and salmon steaks,

and I was able to lose a lot of weight, and I'd use it. The thing really works. And what has that got to do with the price of tea in China or the result of this fight? Trying to sell my grill, Larry. It would turn out to be his last fight, because George didn't need the money anymore. He was now getting $5 million royalty checks in the mail every month. After five years of royalty checks, the grill manufacturer offered George $137 million to buy out the rights to use his name. Over 100 million George Foreman grills have been sold.

Foreman eventually made three times more money from grilling than he ever did from boxing. It was a very lucrative mix of sports and marketing. But sometimes sports and marketing isn't a great mix. When advertisers spend big money on sports, the package also comes with big influence. And the influence marketing exerts on sports can have a massive impact. It can change the jerseys, it can change the rules, and it can even put the athletes in harm's way. But one thing is for sure, sports marketing is a lean, mean, money-making machine.

You're under the influence. Brands are always in search of big audiences. And they're always looking for opportunities to associate themselves with iconic sports and elite athletes. But while the luster of sports rubs off on advertisers, the influence of advertisers rubs off on sports, too. In some leagues, rules were actually changed to keep marketers happy. Take Major League Baseball's All-Star Game, for example. In the years before multi-million dollar salaries, players took the All-Star Game, for example. In the years before multi-million dollar salaries, players took the All-Star game seriously for two reasons. First, it was a rivalry between the American and National League.

And second, winners took home a much-needed bonus check. But after free agency, players moved between the American and National Leagues often, so there was less of a rivalry. And big salaries diminished the importance of All-Star bonuses. moved between the American and National Leagues often, so there was less of a rivalry. And big salaries diminished the importance of All-Star bonuses. As a result, the playing lacked intensity. That had an effect on ratings.

By 1991, the viewing audience had dropped by over 30%. After a particularly lackluster All-Star game in 2002, the Fox television network put pressure on Major League Baseball to make the All-Star game more interesting. Fox was paying a lot of money to broadcast the event, and their sponsors were complaining about the quality of the game. So the Commissioner of Baseball instituted a new rule, stating that the winner of the All-Star game would get home field advantage in the World Series. That was no small announcement, because home field advantage in the World Series is critical.

As a matter of fact, from that point until 2011, teams with home field advantage won the World Series six out of nine times. More than anything, it demonstrated the power of advertisers. They could even get the Olympic Games. The network holds those broadcast rights until the year 2032. And he who pays the piper calls the tune. At the 2000 Olympics held in Sydney, Australia, NBC insisted overhead power lines be buried and that 48 electrical towers be removed to improve their television images. The Australian government spent $20 million to keep NBC happy. NBC also insisted that the positioning of the running track be changed

in order to have a shadow-free area that didn't face the afternoon sun. That repositioning of the track resulted in wins that seriously impeded the athletes' performances. At the Beijing Olympics in 2008, China suggested a September start date. NBC protested, saying it was football season. So Beijing moved the start of the games back to mid-August. But NBC didn't like that either because it conflicted with the U.S. Open tennis broadcast.

Beijing then moved the start of the games all the way back to August 8th. People thought the 080808 date was chosen because 8 is a mystical number in Chinese culture. But it had nothing to do with spiritual significance. It was all about ratings and sponsor significance. NBC also exerted its influence to affect the scheduling of the most popular sports to maximize the largest American viewing audiences. Those scheduling changes impacted a large number of athletes.

First, NBC insisted swimming and gymnastic events be moved to early morning hours in China so those events could be broadcast during the evening primetime hours in the U.S. Because swimming superstar Michael Phelps' success was so tied to NBC's success, the network actually asked Phelps for his permission to move the event to the morning. They wanted to make sure competing in the morning wouldn't harm his performance. Phelps gave his blessing. No other athletes were consulted when their events were moved to accommodate bigger audiences or moved out of the way to accommodate more popular events. Athletic performance can be greatly affected by schedule changes.

Depending on the time of day, performance can vary by as much as 11%. That's significant, considering the difference between last place and a gold medal in the 100-meter freestyle swimming race was typically 2%. One prominent swimming coach called the changes irresponsible. At the Games in Rio, NBC insisted the popular swimming events start at 10 p.m., four hours later than swimmers are used to.

Again, NBC consulted Michael Phelps first. He agreed to the schedule change. These changes placed swimming in the perfect U.S. primetime viewing window. It suited Asia because they could watch in the morning, but audiences in Europe were virtually shut out. While many coaches understand that the Olympics is a business, they also point out that

if events were scheduled around the athletes, many more records would be broken. But the International Olympic Committee has a vested interest in keeping NBC sponsors happy, because American television money accounts for more cash for the IOC

than all the other world's broadcasters combined. When professional tennis replaced white balls with yellow ones in 1972, it was to help TV viewers see the ball easier. When electronic line call technology began, it too was implemented primarily to attract more viewers to the game. The more people that watched, the more sponsorship dollars tennis could attract. In 2015, the International Tennis Federation, or ITF, announced it was partnering with gambling company Betway for

a three-year sponsorship deal. The Australian Open confirmed a similar deal with online betting company William Hill. That same year, a sports data company called Sport Radar paid $70 million to be the exclusive data partner to the ITF. That gave Sport Radar the rights to collect and share tennis data with over 800 companies around the world, including betting operations. It's just part of our visionary business model

that connects and provides services to media companies, sports betting operators, federations and sponsors. Sportradar. Driven by facts. Tennis is a year-round game. Between all the matches played internationally at various levels, tennis provides an endless stream of data. And who loves real-time data more than gamblers? Every year, over 1,500 ITF tournaments are played. Over 114,000 games were played last year alone. That means there is always a game, set, or match that can be bet on.

Gamblers can even wager point by point. SportRadar's algorithms recalculate odds with every point, giving customers a bevy of betting options. Plus, advances in technology enables betting companies to provide live scores from obscure, far-flung locations in tournaments. Now, you may think betting doesn't affect the tennis players, that it all happens outside the game. You would be wrong. When the gamblers around the world lose money on a game,

many take their rage out on the players via social media threats. For many players, the threats can be very unsettling. When American player Nicole Gibbs lost straight sets in the first round of the Moscow Open in 2016, she received dozens of death threats. Fabrice Martin, a doubles player, lost a match in three sets at the Montpellier Open in France last year. It was a first-round match in a fairly small tournament.

His Facebook Messenger app quickly filled up with a torrent of abuse that threatened his family, his friends, and Martin himself. Guido Pella, an Argentine player, says he receives about 100 threatening messages every time he loses. World No. 12 Carla Suarez Navarro quit using social media because of death threats from gamblers. The Twitter abuse got so bad for Canadian tennis player Rebecca Marino that she quit professional tennis altogether

in 2012. Even players at the bottom of the lists, ranked in the 800s and the 1000s, get death threats. It's a conundrum for the tennis world. Wagering companies offer lucrative sponsorship dollars, and partnerships with companies like Sport Radar offer the ITF tens of millions of dollars

for the exclusive right to provide data to betting operations. Many players are angered when they go to a tennis tournament and discover it's sponsored by a betting site because they begin to anticipate the social media abuse that will follow. It affects their mental state and therefore their game. As a result of online harassment, the ITF nixed its three-year deal with Betway before the contract was up. And the Australian Open took all the William Hill signage off the courts. But gambling on tennis continues to grow. Estimates put it at $5 billion worldwide. Because it offers endless data, it has overtaken horse racing.

And it looks like other sports are bouncing in the same direction. We'll be right back to our show. If you're looking for flexible workouts, Peloton's got you covered. Summer runs or playoff season meditations, whatever your vibe, Peloton has thousands of classes built to push you. We know how life goes. New father, new routines, new locations. What matters is that you have something there to adapt with you,

whether you need a challenge or rest. And Peloton has everything you need, whenever you need it. Find your push. Find your power. Peloton. Visit Peloton at onepeloton.ca. If you're enjoying this episode, why not dip into our archives, available wherever you download your pods. Go to terryoreilly.ca for a master episode list. It's interesting to note that the four major North American sports leagues

are partnering with oddsmakers and data providers. Major League Baseball sold its data rights to a company called Stats recently. The NBA became a part owner of NumberFire, a firm that offers sophisticated analysis for sports wagering. The NFL recently became a partner of SportRadar. Three NBA owners, including Mark Cuban and Michael Jordan, have invested $44 million in SportRadar and sit on the company's U.S. advisory board.

Clearly, the leagues all want to get a foothold in the lucrative wagering world because many believe that legalized and federally regulated sports betting is on the horizon, all of which will affect athletes profoundly. The marketing world is seeing a lot of upheaval these days. In sports, we're starting to see athletes

clash with their sponsors. Historically, brands have written clauses into contracts to protect them from the bad behavior of athletes. But now we're starting to see athletes pushing back at their sponsors because they're worried about the damage to their reputations due to brand behavior. Under Armour-sponsored athletes Misty Copeland, Dwayne Johnson, and Steph Curry all spoke out against Under Armour's CEO

when he said Trump's presidency was a real asset to the country. Curry was particularly outspoken about that statement, saying the CEO was correct if you remove the E.T. from asset. The basketball superstar also said no amount of endorsement money could convince him to align with those values. NFL quarterback Colin Kaepernick decided not to stand for the national anthem in support

of the Black Lives Matter movement. He said he would continue to take a knee even if it meant risking all his endorsement money. As it turned out, sales of his jersey went from 120th on the NFL list to number one. Sponsors stuck with him. Some players from the Super Bowl-winning New England Patriots declined to go to the White House in resistance to the Trump administration. It's a complete reversal of the brand-endorser relationship. These days, the players are protecting their own brands, and they're doing it by declaring their values. As one writer noted, neutrality died on November 8, 2016. In this topsy-turvy marketing world, another new fault line has appeared.

Sponsors are threatening sports leagues. On March 9th, Air Canada sent a letter to NHL Commissioner Gary Bettman. It warned that the airline would pull its reported $6 million annual sponsorship from the NHL unless the league took immediate action to curtail life-threatening concussion injuries. Air Canada saw it as a clash of values. Safety first is at the core of the airline's business, and it found itself sponsoring a sport where players risk serious injury every game. The airline felt the NHL wasn't doing enough about it. The Toronto Star called it an unprecedented move from a sponsor.

It was the first instance where a sponsor was threatening to leave because of the non-action of a league. NHL Commissioner Bettman lashed back at Air Canada, suggesting that the 11 teams that fly the airline might exercise their prerogative to, quote, make other arrangements. Air Canada had a lot to lose by taking this stand. Corporate boxes are filled with the kind of lucrative business travelers

the airline needs to stay profitable. Other NHL sponsors voiced support for the issue, but stopped short of threatening a pullout. Some felt Air Canada had overstepped its bounds. Like the anti-Trump movement, others felt it's a sponsor's duty to take a stand. Neutrality is becoming risky business. The intrusion of advertising into sports has hit unprecedented levels.

Virtually every inch of stadiums and arenas are covered with ads. Instant replays are branded. Net cams are sponsored. There are ads inside golf holes. The one place that has remained ad-free in most North American leagues is the jersey. But that space is no longer sacred. NASCAR welcomed sponsor patches

a long time ago. Curling has allowed them on team jackets since the 80s. In 2006, Major League Soccer's Real Salt Lake became the first major professional team in the United States to wear a sponsor's logo on the front of their jerseys by accepting a sponsorship from Zango, a nutritional supplement company. Shortly after, the WNBA authorized its teams to feature logos on their uniforms. The Phoenix Mercury was the first team to do it, and ironically replaced their team logo with that of LifeLock,

an identity theft protection company. In 2009, the NFL allowed teams to sell sponsorship patches on their practice jerseys. The NHL followed shortly after. In 2010, the NBA Development League's Rio Grande Valley Vipers put a Lone Star National Bank logo on the front of their game jerseys. The minor D-League has long been a testing lab for the NBA. When the NBA gauged the fan response to the Vipers sponsorship patch, the owners approved a three-year jersey sponsorship

trial. With that, the Philadelphia 76ers became the first NBA team to announce a sponsorship on a game jersey by inking a deal with ticket giant StubHub. ESPN says the 2.5 inch by 2.5 inch logo is

worth $5 million per year. Other NBA teams struck deals immediately after. As of this writing, the Raptors are shopping their jerseys around for $5 mil per year. The NHL, meanwhile, only allows advertising on practice sweaters, but did allow sponsorship on the World Cup jerseys. Bettman has said NHL jerseys are iconic, that he understands fans have reverence for team sweaters, which suggested that logos on NHL jerseys were not coming.

But then he said it would take, quote, a lot, a lot, a lot of money, which means it is coming. Logos on team jerseys raises three interesting questions. First, individual teams will surely not be able to accept a sponsor that is in direct competition with league sponsors. So, if Scotiabank is the official bank of the NHL, then BMO won't be able to sponsor the Montreal Canadiens. And here's question 1b. What happens when a team sponsor is in direct competition to a player's personal endorsement? The UFC, for example, requires its fighters to wear Reebok apparel during weigh-ins and fights. That prohibits fighters from wearing their own sponsors, costing them up to $70,000 per fight in lost sponsorship revenue.

Question 2. Teams have to be careful which sponsors they accept. What happens when a sponsor is having a public relations disaster like United Airlines had not long ago? How would it reflect on the team? Professional soccer team Philadelphia Union is sponsored by a Mexican-based bakery called Bimbo, but it's spelled Bimbo. AC Milan was sponsored by Poo Jeans, sporting the word POO across their chests. In other words, is a team willing to proudly sport a questionable logo on their jerseys? Lastly, sports fuels intense rivalries.

Think the Bruins and Canadians or the Blue Jays and Texas Rangers. If fans despise the rival team, is there not a chance they will despise rival sponsors too? Teams are used to getting booed. But can brands get used to it? Business and sports has always been a rocky marriage. And it's too late to ask for separate beds. The Olympics are the poster child for the tension that is created between

sponsors, broadcasters, and the sports they support. When broadcast schedules are given priority over athletes, you know where the power lies. Sport is an expensive proposition. It needs a huge revenue base.

But every action has an equal and opposite reaction. The game of tennis has accepted deep-pocketed gambling sites as sponsors, but it has resulted in death threats to its players. Sponsors are now being forced to declare their political leanings. That has resulted in a backlash from their athlete endorsers who balk at the association. And now sponsors are beginning to threaten leagues if their values don't align.

Then there's the other rule of marketing. Sponsorship always tiptoes, then runs. First, corporate logos made their way onto practice jerseys. It was only a matter of time before they made their way onto practice jerseys. It was only a matter of time before they made their way onto game jerseys. The NBA D-League recently changed its name to the G-League thanks to a big Gatorade sponsorship. Could league naming rights be next? Well, there's always something cooking with sports and marketing.

Just ask George Foreman. you're Under the Influence. I'm Terry O'Reilly. Under the Influence was recorded at Pirate Toronto. Series producer Debbie O'Reilly. Sound engineer, Keith Oman. Theme music by Ari Posner and Ian Lefevre. Research, Jillian Gora. Digital content producer, Sydney O'Reilly.

Follow us on Twitter at Terry O'Influence. See you next week. This episode brought to you by... George Foreman's Lean Mean Fat Reducing Grilling Machine. I'm so proud of it, I'll put my name on it. Hey, I like your style. I'd like your style even more if you were wearing an Under the Influence t-shirt. Just saying.

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