Table of Contents
- Winning Matters
- Evolving Fan Experiences
- Engagement Beyond Gameday
- The Bottom Line
From the outside, sports franchises appear to be able to print their own money. However, the fan economy dictates the revenue despite most revenue sources not being directly impacted by fan spending. In this article, we’ll discuss the fan economy and why delight becomes the prevalent measurement to ensure continued success.
Sports franchise values have continued to skyrocket. Most recently, the Denver Broncos Football Club was purchased by the Walton-Penner group for US$4.65 billion marking a record sale amount for a US sports franchise, only exceeded by the recent sale of Chelsea F.C. at US$5.4 billion1. At an initial investment of US$78 million back in 19842, the Denver Broncos had a nearly 60-fold increase in value over that time. While some may look at the annual rate of return of less than 12% and assume that the investment is only slightly above average, there were also likely many profitable years during that 38-year span that made the investments pay off even more.
As most sports franchises are privately held, there is not a lot of data on the profitability of those teams on an annual basis. However, one publicly held sports franchise, the Green Bay Packers of the NFL, are publicly held and therefore releases annual reports on profitability. In the most recent public report, that franchise reported a net income of US$77.73 million on revenue of US$579.0 million, a net return on revenue of 13%. This comes from a franchise in one of the smallest markets in the U.S.
The enthusiasm that fans have for their sports teams has made franchises – both large and small – profitable. Even if franchises have long stretches without winning seasons, they still tend to be profitable. When we talk about Fan Experiences, we would be negligent if we didn’t talk about the impact of winning. In most cases, when we discuss satisfaction and Delight as concepts, that usually corresponds to giving the customers what they pay for; notably, in this case, it would be mostly about winning. How can a league which will average a 50% success rate by giving fans what they pay for be successful across all teams? A big part of that is due to where the revenue comes from. Broadly speaking, most sports franchises achieve revenue mostly from the following sources:
- Broadcast Revenue – revenue obtained for media rights to broadcast games and matches with media companies offsetting costs through the sale of advertising
- Sponsorship Revenue – Advertising sold directly by the sports franchise for various inventories ranging from naming rights to in-stadium signage and sponsored events
- Gameday Revenue – Generally consisting of direct ticket sales to fans and often revenue achieved from concessions at the stadium
- Events Revenue – Either paid fan events (player meet and greet opportunities) or through sponsor-paid events
- Membership Revenue – This can generally be seen as revenue obtained from fans for being “member” of the organization, through items like Personal Seat Licenses (PSLs) or other subscription opportunities; in the case of the Green Bay Packers of the National Football League, they also sell non-voting stock to fans
- Merchandise Revenue – having your fans pay to advertise your brand by wearing licensed merchandise
It would seem that most of these are influenced by wins and losses, but the magnitude of the influence varies – along with the contribution of each of these to the top line revenue. Again referencing the Green Bay Packers, a 60% split of revenue (US$347.3 million) comes from National Revenue that includes broadcast rights, licensing deals, league sponsorships, and national merchandising agreements. This revenue is aggregated across the entire league and distributed equally to all teams. The remaining 40% split of revenue (US$231.7 million) is derived from what is called local revenue: ticket sales, concessions, local events, and local sponsorships. While the direct contribution of fan spending for Local Revenue is difficult to completely assess, if you consider an average ticket price of $130 for a stadium capacity of roughly 81,441 for 10 home games (which are usually sold out to capacity), that represents just over US$100 million in revenue. However, even in the worst years and best years, there is not much ability to significantly change that revenue amount as many fans have already paid for their personal seat licenses and have ticket contracts that lock in prices for up to five years. Additionally, in this situation, the cost of maintaining the stadium is running nearly US$50 million a year (based on the last 10 years). That does not include gameday staff and event costs – those military flyovers are not inexpensive.
With that direct fan revenue representing a small percentage of revenue, without the high level of profitability that comes from the indirect revenue, one might ask: Is the fan experience important?
As has been noted by many that understand this space, sports entertainment revenue will always be connected to team performance. This means both the direct and indirect revenue are derived from team performance and feed into the experience, which then feeds back into revenue.
When we look at the impact of COVID-19 on spectator sports, we note that despite no decrease in broadcast revenue, the lack of fans severely impacted profitability. Why did this happen if the least profitable (by percentage) portion of the franchise revenue was all that was eliminated when fans were unable to attend in person? Without the enthusiasm of fans enjoying the time together in the stadium and at other events, other spending also decreased, such as merchandise, sponsorships, events and even memberships.
While the National Revenue that represents 60% of the sports business is still alive, all parts are needed to make a profit – and that includes the fans having an experience.
Evolving Fan Experiences
The fans are – without a doubt – important to the fan experience. Without fans in the stands, the merchandise and concession sales see a direct and immediate negative impact. The sponsorships will decrease year-over-year and the broadcast value will decrease. Therefore, it is important that there are fans in the seats and that they have good experiences. That is where a new challenge arises. Expectations for what fans want will continue to evolve.
Consider your first experience at a professional sporting event. The size of the stadium, the roar of the fans, the food (for both the good and the bad) and the bonding of strangers being fans. For those fortunate enough to have attended their first professional sporting event before the widespread use of mobile phones and once more recently, you have been able to experience drastic differences in how fan engagement has changed over 30 years. The prior version of the game was fan engagement, perhaps some entertainment during a select break in the action. As the technology evolved, so did expectations. Small video replay boards evolved into massive high-definition screens that span three-quarters the length of the stadium. Where we once had half-time entertainment, we now have some sort of entertainment (dancing, singing or some other show) three or four times a game. Interactive fan entertainment is displayed on these video boards during nearly every commercial break (Kiss-Cam, trivia and fan games).
With mobile phones, in-stadium entertainment will continue to evolve. Mobile devices have changed how fans engage with the team during the games. Most notably, the use of social media allows fans to brag about their experience (some of that positive word-of-mouth that we all look for from our customers) and it also allows the teams to engage back with those fans through replies and re-posting. As these platforms develop more features, instead of a focus on the game, more time is spent engaging with these social media platforms and mobile apps. On the topic of mobile apps, even the teams are getting in on the action with teams launching mobile apps that will allow fans to view replays, check player & team statistics and even order food directly to our seats, something we generally do not get to do from home.
Speaking of home, one of the biggest “competitors” of the in-stadium event is our couches at home. Gameday has changed significantly at home at a possibly faster rate than the in-stadium experiences have changed along with time. Our in-home entertainment has changed from single televisions to big-screen high-definition home entertainment systems. Where in-home gameday used to be among family or a very small & select group of friends, our bigger screens and better audio now allow for our home to be the ‘center of entertainment’. Why would someone want to get ready for the elements, spend in excess of an hour traveling to a stadium, paying an exorbitant parking fee and excessively high prices for concessions while cheering among strangers versus sitting at home with friends? The experience of course. However, beyond wins and losses, many teams struggle to understand and assess how to better engage fans for a better experience. Why are they not asking the fans? Are they afraid a survey about that topic will not get responses? Do they feel that they know better than the fans? In one of the simplest explanations that was once provided to me, one sports franchise executive I spoke to said simply: “If we ask them, they might give us feedback that they expect us to act upon”.
In the customer experience space, we certainly would say it is true that you should only ask customers about topics that you would act upon. At the same time, a real awareness of the concerns and topics that impact their experience can still lead to a conversation with fans.
There is a professional soccer team that had this exact quandary. They knew the conditions of the stadium were impacting the fan experience. They also recognized the regulations and costs of fixing the problem that was plaguing both the experience along with ticket sales. However, the business side of sports franchises needs to recognize that beneath the ‘big’ problem, there are also several smaller problems that can be solved that will enhance the experience and, perhaps, make the big problem seem less important. At the very least, from survey research, one can understand the impact of the problem and communicate with fans the necessary information for them to make informed decisions. For instance, if the repair of a stadium would require the raising of ticket prices by fifty percent, the public insistence for the repair may decline.
Engagement Beyond Gameday
The gameday experience is only half the experience in the current time. In most sports leagues, there are player-fan events that engage the fan outside of gameday. In the more popular leagues, there is also a constant drumbeat of media beyond gameday surrounding trade deadlines, and drafts along with constantly running sports broadcasts news featuring the happenings of players and coaches.
Historically, there used to be a strong affinity to the home team because that was often the only broadcast that you could receive. As the country (and indeed countries) have become more mobile and fans of teams have moved around, there is now a blended fan base in many cities. With some cities having fewer home team fans versus the collective group of fans for other teams. Much of this has been made possible with the increase in sports television packages and even more with internet streaming of games and matches from across the country and even around the world.
Now when you consider engagement with fans beyond the gameday experience, you must consider your fans may not be in the local area or even in the same country. The challenge goes beyond an email newsletter to keep them up to date on the filtered content that a team wishes to publish. One area that developed strongly amidst the recent pandemic was an interactive forum for fans to participate in question and answer sessions with players and coaches via telephone or video conference. Whereas fans may not be able to regularly access players for autographs and meet and greet events with great frequency (without impact to both players and the teams), these interactive events give them insider access without requiring setup, security, and personnel travel. In fact, even the most remote fans can participate – provided they have an internet connection.
Building a relationship with fans is more than just giving them a hometown to cheer for. Especially considering that, in a typical market, fewer than 80,000 fans will be able to show up for gameday for each home game and most of them will be the same season ticket holders that are there week-to-week. Engagement with fans requires a thoughtful approach that feels almost unique or special to each fan, and will be something that will delight the fan, even if they are unable to attend during gameday.
The Bottom Line
The concept of delight is not unique. It has been written about extensively since the mid-1990’s. However, in a discussion about the best experience key performance indicator for an organization, the focus on the experience benefits for an organization largely caused the idea that going above and beyond for individual customers to be largely forgotten in the pursuit of moving passives to promoters and fixing concerns for detractors.
Delight is not a new concept in the experience research arena. In 2001, in the book The Customer Delight Principle, the authors strongly recommend that companies can only “consistently retain and grow their customer bases by moving beyond satisfaction to discover and fill each customer’s unseen yet essential needs“4 Delight is everything to individual customers. In return, Delighted customers will commit their highest level of spending – generally viewed from the lens of the share-of-wallet – with the brands that Delight them.
The value of improving the Customer Experience is generally not disputed. Research by Avanade5 states that 95% of executives invest in Customer Experience and according to Sitecore6, for every dollar invested in Customer Experience yields a return of over three dollars. Even with all the research out there, many still ask the question of “how” to make that return on the Customer Experience investment and how much that investment is worth. Overall, it should take an understanding of the analysis behind the return-on-investment computation and that it is on a customer level – not a branch or organization first analysis.
Even in recent results published by Steven MacDonald in October 20227, one can expect a 2.4x increase in spending by the customers rating the highest satisfaction rating over the average spending of customers in the lowest level of satisfaction ratings – and that compares to only a 1.9x increase in spending by the customers rating even one down on the satisfaction scale. The reasoning behind this is simple and due to psychology, it comes down to the hormones that are released when someone is grateful – or delighted8. Our brains are wired to seek that gratitude – and good experiences lead the list of ways those hormones can be triggered. Strong emotions that can make someone a detractor and a churn risk are on the opposite scale of those emotions that make someone wish to spend more with a brand – whether that is a product, technology device or even entertainment. It is a reason, despite all the changes in the music industry and how we consume music, that concerts remain a staple in the music industry. Most concerts will evoke that satisfied feeling, and usually have something that makes them unique each time they arrive in town.
Despite all these statistics, the idea of measuring the fan experience as customers of the sports economy product has generally lagged behind other industries. The reason these executives spend so little on this investment? Almost any sports industry executive will state that the fan experience is important, but that the “big bucket” of revenue comes from media and sponsorships. As a result, sponsorships and media attract investment by franchises in the form of account and business development representatives. These teams then view that “small bucket” of revenue as being mostly influenced by wins and losses. While fan satisfaction with a team (and even fan spending) is highly correlated with the team record, this approach is short-sighted in that it forgets two key elements:
- A fan can still be delighted even after a loss
- Media and Sponsoring companies are customers too
A sports business needs to keep all the customers happy to maintain revenue – that will include broadcasters, sponsors and fans. Further, if a franchise wishes to maximize revenue, it will have to Delight all the stakeholders. However, the idea of “Delight” as a measurement is different from the idea of what it takes to Delight a customer.
One might state that any Promoter would be Delighted. It only takes a sports fan to realize that Promoters may not be Delighted, and the recommendation sought through the Net Promoter Score has more to do with fandom than Delight. Consider a good stadium experience with the outcome of the game being a hard-fought overtime win against a team’s rival opponent. At the moment walking away from the stadium, that fan may express ‘delight’ with the outcome, but you certainly won’t be able to provide that kind of experience in every game because there is a reality that “we can’t win them all”. Yet even with the same experience instead of a loss, few fans will say they are ‘delighted’ with the experience, yet will still recommend the experience to friends, family, and fellow fans. What was the difference between the two experiences where one might say they are delighted and the other would not? Quite simply the final score. An area where the fan business part of the organization has little control to consistently deliver.
Now if we consider a similar scenario. The same expected good stadium experience, a hard-fought overtime win and – to take it a step further – the win propels the home team into the playoffs. Upon walking out of the stadium, there is something unexpected – a ‘surprise’ – the fan’s car has been broken into. I doubt anyone is looking back at that day and saying they were delighted. In fact, with all the other elements the same, they may be inclined to say they were dissatisfied with the experience.
So, what would be a delight? How can we define it so we can measure it and ultimately have all the stakeholders feel delighted? For all those groups, you minimally have to meet the expectations and promises made to those customers. For sponsors, you need to have the brand placements you promised – visible and delivered as described. There is one more thing that the sponsors want, and that is fan affinity for the brand and a higher likelihood of purchasing the brand as a result of the sponsor being associated with the franchise. It is a reason the authors have been assessing the Net Sponsorship Index as part of the fan experience measurement for over fifteen years: it is feedback for the sponsors that the attention they have contracted for is also producing a return on the investment. At times, the Net Sponsorship Index shows that a sports franchise has been under-charging a brand for marketing based on the ROI, and believe it or not, it can delight that sponsor to be charged more as a result.
It is a little more complex for a fan, but still attainable even with a loss. It can be attained by viewing the game or match as an entertainment product, which successful sports leagues have done. So much of the emotion that can fuel those delighted feelings after a hard-fought win, can also leave a fan disappointed with a hard-fought loss. However, transitory feelings are not what will influence delight or dissatisfaction. Certainly, an extended losing streak or a pile of losing seasons will eventually lead to dissatisfaction that will affect both the direct and indirect revenue. However, if the entertainment product provided is maintained along with the basic promises or a reserved seat, secure environment, and excitement, then fans will still be satisfied. Delight is not that much more complex. A souvenir for a first-time attendee, an opportunity to meet a player/alumni of the team or even being spotted on camera within the stadium. Even the first-time fans were able to post about their experience on social media, that same adrenaline that accompanies delight will appear. Fans want those experiences, and often it does not take a large spend to make it happen.
Regardless of how you look at it, Delight drives revenue increases – not satisfaction – only delight. Delight comes with a little something extra, that little surprise. The sponsor that finds their brand affinity has increased beyond expectations, or the fan that was surprised with an autograph. Ultimately, Delight is a powerful emotion and empirically it is derived from two key ideas:
- The unexpected
- A positive experience
Delight allows for an increased share of the wallet and customers respond to this favorably by becoming avid brand advocates. Ask most organizations, regardless of industry, just making it a positive experience for customers on a consistent basis is hard work. Now add the layer of surprising the customers with something unexpected and positive, it increases the degree of difficulty. Adding to the complexity, once a fan has experienced something unexpected, it will become the new standard. It may seem to be a frustrating cycle to continue to keep surprising customers, and it will be an ongoing challenge. It is, however, a challenge that will allow brands to innovate, and with that innovation a brand will be more competitive.
Competing is what sports franchises should be doing, both on the field and off the field. It is a reason we see so many copycat ideas in the industry. One team builds a new stadium with internally hosted wi-fi, the next team will do that and add a beer garden (which by the way, is a great opportunity to sell a sponsorship). You cannot build a stadium every year, but one can certainly find ongoing opportunities to surprise guests with experiences, rather than cutting back on experiences that will take away from both delight and satisfaction. Knowing that these needs are being met requires three factors: fan experience measurement must be conducted, it must include feedback about sponsor affinity, there should be an understanding of the root cause (both good and bad) and it must identify if that root cause resulted in delight.
In the business of sport and business in general, Delight is everything!
- Sports Illustrated Fan Nation – 21 June 2022
- Business Insider – 3 February 2016
- Green Bay Packers – 22 July 2022
- Keiningham, T. L., & Vavra, T. G. (2001). The Customer Delight Principle: Exceeding Customers’ Expectations for Bottom-Line Success. Chicago, IL: McGraw-Hill
- Avanade global martech research report
- 18% of companies invest in CX tech ‘based on who shouts loudest’
- Customer experience strategy
- Competence is not a differentiator, competence with empathy is