Sunday, April 8, 2007

A Prize for Business Mind and Spirit

In response to proposals for the USC College Dean’s Prize for the enrichment of student academic life and to answer the question: “How would you go about making the educational experience at USC college even better?”, this week’s post focuses on my suggestion to integrate undergraduate businesses class lectures with invited practitioners in the field. For brevity, let us call my suggestion the “Classroom Motivation Speakers” (CMS). The role and mission of USC is the “development of human beings and society as a whole through the cultivation and enrichment of the human mind and spirit.” Too many of my undergraduate classes are interesting in their own right but fail to show how the course material relate to the business community. For example, BUAD-311 Operations Management, examines maximizing efficiencies in production assembly lines but lacks referencing any contemporary real world examples. With all the resources available to the USC Marshall School of Business, it is depressing that no one from the multitude of industries surrounding Los Angeles was brought into class to provide a personal success story of how they used the principles studied in class to turnaround a moribund company. With this simple connection, the class would have educated both the mind and spirit of business students.

The winners for this year’s College Dean’s Prize will be judged on the following selection criteria: (1) importance of the issues being addressed, (2) originality or creativity of the idea, (3) feasibility and potential for successful implementation, and (4) range of students affected if implemented. CMS will provide important benefits to the business school and students in all the above criteria. Part of USC’s Plan for Increasing Academic Excellence is a vision that “advances knowledge and at the same time addresses issues critical to our community, the nation, and the world.” By bringing into the classroom champions of industry, students will be able to recognize immediately the connection between theory and application. Although the concept of CMS is not original, its implementation in a classroom setting is far from optimum today. CMS should be easily enacted within the USC business school environment because of enthusiastic alumni support groups and the strategic value of attracting top students to companies represented by the speakers. Embedding CMS as part of all business classes will provide the widest range of benefit to all students and counter any arguments of favoritism toward specific business curricula. Any fears that CMS will require significant funds to secure distinguished speakers can be countered by the natural appeal to USC alumni to share their successes with future leaders of America.

Creating a CMS program facilitates development of USC’s four major strategic capabilities contained within its Plan for Increasing Academic Excellence. First, CMS will help span disciplinary and school boundaries by enhancing interest and engagement by students in other USC schools. For example, the Viterbi School of Engineering already has a cooperative graduate course of study with Marshall in 3D Animation. Second, CMS will provide and stimulate dialogue among researchers and business practitioners. It will demonstrate how theory is transformed into profitable practices. Today, many sound business decisions are based on probability and statistics. Just one business success explained in a CMS setting, such as choosing the best set of stock options, can only encourage students to dig deeper into the underlying theory of this branch of mathematics. Third, CMS encourages the formation of networks and partnerships by disseminating success stories among a wide range of people within and outside of USC. Today, UPenn-Wharton already provides an “Executive Speaker Series” in-class for undergraduates. Because of existing collaborations with other top business colleges including Stanford, Harvard, and Columbia, a USC CMS program will expand existing networks and coalitions beyond the Trojan Family. Fourth, CMS will increase responsiveness to learners by highlighting the latest technology and process improvements in business circles based on evolving strategies and methods. CMS will enhance learning opportunities to the Trojan Family well after graduation and into retirement. Finally, CMS will strengthen USC’s Core Values of free inquiry and code of ethics by promoting open discussion between industry and academics.

Monday, April 2, 2007

USC’s 2007 Cuban Commencement: Entrepreneurial maverick Mark Cuban Provides a Vision for Success in Today’s Business Environment

With dates for 2007 school commencements fast approaching across the nation, the University of Southern California joins other major educational institutions in seeking out prominent and noteworthy commencement speakers to inspire their graduates. In this post I am honored to empower myself and nominate Mark Cuban to the USC Honorary Degree’s Committee (HDC) for a Doctorate in Humane Letters and 2007 class commencement speaker. Anyone familiar with professional basketball will immediately recognize Cuban as the flamboyant and highly successful owner of the NBA Dallas Mavericks. But most sports fans may be surprised to learn that Cuban also created two of the hottest and most lucrative internet communication startups of the 21st century, and HDNet (logo pictured). Cuban’s rapid successes in the sports and business worlds have made him a billionaire in his mid 40’s and recognized by his peers as an innovator in adapting Internet technology to sports entertainment businesses. In the words of James Freedman, President Emeritus of Dartmouth College and author of Idealism and Liberal Education, an excellent commencement speaker should be a “talismans for inspiration and rejuvenation at those hollow moments when we feel depressed and defeated.” Graduation can be a time of uncertainty and emotional stress as students leave the safe confines of a well-structured university environment for the rapid and unpredictable dynamics of the world marketplace. The graduates are looking for heroes to give them confidence that USC has prepared them for their careers and Cuban’s charisma and success record are the best tonic to overcome any fears.

Mark Cuban’s qualifications for USC’s commencement speaker goes far beyond the standards set forth by the HDC. His “extraordinary achievements in scholarship, the professions, or other creative activities” are mercurial in time, diverse in scope, and innovative in concept. Barely out of college, he built up a startup software business called Micro Solutions that he quickly leveraged to create the ubiquitous, an Internet company that streams live basketball games to paying viewers. Whether through uncanny insight or remarkable business savvy, he sold to Yahoo and diversified his stock holdings just before the bubble burst in the late 1990s. While continuing his technology pursuits with the highly profitable HDNet, a high definition cable network company, Cuban jumped at the chance to purchase the Dallas Mavericks and turnaround the ailing franchise. Within a year he had rebuilt the team into a top contender that has challenged for the NBA title over the last five years. He appears to have the Midas touch in every field he enters. Besides Cuban’s outstanding contributions in the Internet entertainment arena he has also made “outstanding contributions to the welfare and development of USC and/or society.” Despite the abrasive demeanor he shows at Maverick basketball games as an owner who encourages criticizing officials and extolling outlandish displays of team solidarity, Cuban is deeply committed to helping society improve the plight of the less fortunate. He has matched every NBA fine imposed on him with millions of his own dollars for worthy charities within the Dallas area. His immediate success with the Mavericks have made him an instant hero among the local community and his enthusiasm is contagious, providing fans a sense of pride and encouragement extending into their own personal lives. Of all the honorary degrees USC could confer on Cuban, including a science degree for contributions exploiting the vast potential of the Internet, Humane Letters is most appropriate for his unbending commitment to using his wealth for the benefit of society.

Like many highly successful men, Cuban is feared by his business competitors and often controversial in his actions. He even once started a public “booing” campaign against former Maverick players who returned to Dallas on opposing teams. But despite these occasional outbursts, Cuban embodies those personal traits central to USC’s Mission statement, “strongly committed to academic freedom and proud of our entrepreneurial heritage.” Inscribed at the base of Tommy Trojan is the Latin motto, “Palmam qui meruit ferat” (Let him who deserves it bear away the palm). Mark Cuban has proven himself a victor among men and it is only fitting that USC award him their highest honors, the palm of Doctor of Humane Letters and 2007 Commencement Speaker.

Wednesday, March 21, 2007

Technology: The Benefits for Everyone

This week I decided to write about my belief in technology related to business and sports. As a third year business student, I see technology embedded in my Business Writing 340 class and my daily student life. For example, homework is assigned, submitted, and graded over the Internet. Rather than being a tool for computer savvy students, knowledge of the Internet is essential to turn in your homework and find out how well you perform in class. Just like my parents witnessed the calculator replace the slide rule in 1970’s, I saw laptops and PDA’s replace calculators in the 21st Century. Even though I still carry a hand calculator around with me, it also contains my calendar, phonebook, and games. I believe in technology.

I’ve always been intrigued how technology integrates with sports. During my Little League baseball days I always volunteered to operate the electronic scoreboard when our team was not playing. When I entered high school I became fascinated with the weight machines used to condition the players. Some might argue that technology tends to remove the human element from the game but I feel otherwise. I cannot imagine football or basketball games without “instant relay”. This marvel of technology allows the fans and officials to scrutinize every play and virtually eliminates human errors of bad calls or biased views. Watching USC play Michigan at last year’s Rose Bowl was an unbelievable visual and emotional experience. Every down was replayed on a giant high-resolution video screen pictured to the right. The mega-sized instant replay allowed the Trojan and Wolverine fans to follow the individual heroics of their favorite players and understand the game strategies. Instant replay has also become an essential part of basketball and soccer where referee decisions on precise location and timing can make the difference between winning and losing. It is only a matter of time until baseball replaces home plate umpires with electronic sensors to determine balls and strikes. We may all like to yell at the men in black for making bad calls, but technology makes for greater entertainment and that is why I believe in technology.

This past November before the USC-UCLA game, my high school classmate, Jeremy Weinstein, and myself devised a plan to create T-shirts we could sell at the upcoming football game. Jeremy is currently an Economics major at Cal Berkley and an ardent Bruin basher. We agreed to work this joint venture over the Internet. I knew the T-shirt would be widely popular among USC students because it exaggerated the embarrassing stun gun incident at UCLA the week before the game. The challenge to us was to design, create, produce, and sell the shirt within a week. I used the Internet to market the shirt to USC students and also describe a conceptual design to Jeremy. Any excess shirts we couldn’t sell online would be bartered at the stadium immediately before the game. Jeremy returned a cartoon caricature of a Trojan using a taser weapon on a Bruin (see picture to left) in less than a day. Based on the process that I observed my father use when ordering uniforms for the Santa Monica Little League, I knew it was possible to produce the shirts in less than one week. Any reputable silkscreen shirt company only needed a CD-ROM with a JPEG image rendering the shirt design. I located a local silkscreen company that had the required computer automated equipment for a fast turnaround. With the right technology I had no doubt the shop could complete the job on time. Four days later, 100 shirts were mass-produced at a local silkscreen factory just off campus in time for us to start selling them before the game. Even though we risked $400 of our own precious funds, we were able to turn a profit in the end. And that is why I continue to believe in technology.

Monday, March 5, 2007

Los Angeles: The Olympic Sports Capital of the World

With the 2008 Olympics in China fast approaching, a hot debate today among Los Angeles politicians and businessmen is whether or not we should host the 2016 Olympics. Just like the saying “Rome wasn’t built in a day,” Los Angeles needs to start planning more than 10 years in advance of the spectacle to even be considered a candidate city. This past Thursday and Friday, the United States Olympic Committee's evaluation team inspected potential sporting venues in Los Angeles. The picture to the right shows the flamboyant mayor Antonio Villaraigosa addressing his Olympic visitors. Without wasting any words, the mayor cut to the chase by proclaiming, “This is where the stars are born, where dreams are made and where the whole world comes together, because no city inspires dreams quite like the city of Los Angeles.” After listening to the sales pitch, the Olympic team will move on to Chicago for a similar reception. If all goes well, Los Angeles will be selected as the US Olympic site candidate on April 14. The following pros and cons have been made among news reporters and journalists on whether or not Los Angeles should host the Olympics in 2016.

One of the most important benefits for hosting the Olympic Games in Los Angeles is the expected flow of money into the city’s coffers via tourists and sponsorships. The 1984 Olympics generated over $200 Million in revenues. Assuming an annual inflation rate of 5%, a similar monetary success story could result in over $850 Million. Of course, we would need to select an entrepreneur like Peter Ueberroth to marshal the financial planning and execution of the 2016 Olympics to guarantee success. Today, Los Angeles is famous for it entertainment, technology, and sports environments. In order to maintain this leadership position in sports, we need to attract and promote mega events like the X Games, Super Bowl, NBA All Star Game, and BCS finale. What world event could be bigger in sports than the Olympics? With the improvement in Internet broadband services and inclusion of professional athletes, watching the Olympics is a necessity for every sport’s aficionado on our planet. While holding this mega event will attract huge revenues to our city, we need an environment that is conducive to many of the outdoor events. Summer weather in Los Angeles is hard to beat anywhere else in the world. The cool breezes at night from the Pacific Ocean offsets the warm Santa Ana winds from the deserts. Because of Los Angeles’ temperate climate conditions, it is an ideal venue for outdoor sports. I have spent many nights at Dodger stadium enjoying the action as if I was inside an air-conditioned theater. Although there will be a significant investment to upgrade existing facilities, the infrastructure to support multiple Olympic venues has already been developed from the 1984 games. Los Angeles is world renown for its sport’s stadiums that include baseball’s Dodger Stadium and Edison Field, football’s Coliseum and Rose Bowl, basketball’s Staple Center and Pauley Pavilion, and soccer’s Home Depot Center. The Southern California Committee for the Olympic Games (SCCOG) has estimated it will cost $112 Million to renovate the Coliseum as shown in the figure to the left. Besides these major sports complexes within the Los Angeles area, the local universities provide excellent settings for individual sport’s competitions like wrestling, boxing, fencing, and equestrian contests. If anyone would try to challenge our city’s ability to host all the Olympic events, we would only have to point to the past successes of the 1932 and 1984 Games.

Critics opposed to the 2016 Olympics in Los Angeles usually point to the risk of the city absorbing a huge loss like Montreal did in 1976. But much of Montreal’s financial downfall can be traced to poor planning and lack of management skills. Los Angeles learned in 1984 that sound financial backing is essential for the health of the games and does not intend to burden the public with tax payments that have haunted the city of Montreal for over 30 years. A lesser argument for not holding the Olympics in Los Angeles concerns fairness. Since Los Angeles has hosted this worldwide event twice in the past 100 years, other cities should be given a chance. But if the choice of the Games goes to the best-qualified city, then Los Angeles should be judged on an equal basis as the other competing metropolises. Barry Sanders, chairman of the SCCOG best summarizes the reason for bringing the Olympics back to Los Angeles, “It's the city that has the Olympic ideal in its DNA. Los Angeles is emblematic of the Olympic dream, achieving, coming here to achieve your goals.”

Sunday, February 25, 2007

Image Makeovers: Marketing Sports Heroes

Professional athletes are paid enormous amounts of money to provide entertainment and excitement to the fans. The accompanying stress and stardom provides an environment ripe for inappropriate behavior. It seems like every week some athlete commits a crime or makes some careless remark about minority groups. This week I comment on two other blogs how athlete’s behavior off the field affects their public image and marketing potential. The first blog post focuses on Muhammad Ali’s commitment to personal values at the expense of his career. Although always outspoken and controversial, he has become a sport’s icon for his unbending support of human rights. The second blog post follows the rise, fall, and reinvention of Kobe Bryant’s image among his fans. Unlike most members of professional sports, Kobe received a second chance to rebuild his shattered image and now guards it meticulously. My comments on these posts can be read below.

In response to the blog “To the greatest of all time,” I agree that Muhammad Ali is a true sport’s hero recognized by many fans and athletes today. Back in the 1960’s it was rare for a celebrity sport’s star to voice his opinion on any political subject. Not only was Ali labeled a loudmouth and irreverent poet by newspapers and sports-casters, he directly challenged the military industrial complex. During this dark era of American history, he stood firm and became a popular anti-hero with those opposed to the Vietnam War. Today, popular athletes rarely take positions on anything except non-controversial subjects like clothing and food choices. The blogger states that athletes are “image conscious and seemingly bend over backwards to avoid taking stands that may jeopardize endorsement deals.” Athletes now consult their lawyers and public relations staff before commenting on sensitive subjects. Just last week, Tim Hardaway, in photo to the right, permanently tarnished his popularity by speaking out against gays and lesbians. He immediately tried to retract his statement by saying, “I shouldn't have said I hate gay people or anything like that. That was my mistake.” More importantly, publicly stating he hates gay people will only endanger his own popularity and paycheck. NBA Commissioner Stern’s quick and decisive action to distance Hardaway’s views from the league can only lower his respect from his peers, fans, and employers. Muhammad Ali was forever outspoken and outrageous but never publicly criticized any individual groups. In contrast, Hardaway casually revealed his feelings on gay people during a radio interview and will never be able to achieve Ali’s status as a true hero.

I find this blog an excellent example of how to reinvent a superstar. Kobe Bryant was the prima donna of the championship Lakers during the 2000-04 seasons. Immediately after his acquittal for rape charges, Nike released a commercial with Kobe saying, “Love me or hate me…I hate that I am loved for the exact same reason.” Kobe was frustrated with his love-hate relationship among NBA fans. Los Angeles fans loved him while almost everyone else despised him. Eventually, many LA fans began to blame him for everything wrong with the Lakers, including the firing of Phil Jackson and the trading of Shaquille O'Neal to the Miami Heat. This time period was the nadir of Kobe’s career. They even made a bobble head doll to celebrate his fall from grace (see picture to the left). Fortunately, owner Jerry Buss kept faith in Kobe and used his public relations team to reinvent Kobe’s image. The blogger refers to Kobe as the “Black Mamba” named after a reformed female criminal in DC comics. The choice of a woman character reflects Kobe’s new respect for female values as evidence by his public apology to his wife after committing adultery. This description fits Kobe as perfect as his customized shoes. The “KB824” transformation from reclusive chauvinist to unselfish team player took place over the last few seasons. This year completes the recast as he changed jersey numbers from 8 to 24. The number change had two purposes: (1) boost jersey sales and (2) distance himself from his sordid past. Kobe hopefully has learned his lessons well and will be rewarded “symbolically by his placement adjacent to LeBron at the center of Nike’s basketball future.” Not many people get second chances in recovering stardom. Hopefully Kobe will not pass up this opportunity.

Tuesday, February 20, 2007

The Latest Sport’s Experience: Games Go 3D-HD to Keep Customers

With the increasing popularity and affordability of home entertainment systems, Nielsen Entertainment/NRG reports ticket sales at local theaters have dropped 9 nine percent in 2005. Although data for 2006 haves not yet been compiled, the results do not look any more optimistic. In an attempt to reverse this declining trend in movie ticket sales, Shari Redstone, president of the National Amusements theater chain said, “We want to transition our theaters from being traditional movie theaters to being community entertainment destinations, and what better way to do this than sports?” The sports entertainment industry must be listening to Redstone because this week two major sporting events, the NBA All-Star game and the NASCAR Daytona 500, are providing 3D-HD programming for select customers. If these business ventures are successful, we should expect to see live sports telecasts in 3D-HD at local theaters soon.

ESPN and FOX Entertainment will introduce pay-per-view packages with 3D instant replay at this year’s NASCAR Daytona 500. By installing GPS trackers on race cars, FOX will be able to use computers to recreate video versions of exciting race situations such as car wrecks and near collisions. Just like XBox’s NASCAR 06 game shown to the right, the broadcasters can select multiple views to show exactly how the accidents occurred and simulate evasive maneuvers that could have prevented the collision. These visual enhancements can only make the viewer feel closer to the action and more connected with the entertainment experience. From a business perspective, increasing the fan’s enjoyment will help increase sales and minimize any initial objections for paying premiums to view the sport. By enhancing the sport’s actions through 3D-HD technology, the sports industry hopes to hold onto the loyal fans that cannot afford to attend the actual sport events but still are willing to pay for the video entertainment.

On the same day that the Daytona 500 is being piped into viewer’s homes on pay TV, the NBA All-Star game is being staged in Las Vegas, Nevada. Almost 3,500 lucky viewers will be selected to witness the first live 3D-HD telecast of an NBA game from the Mandalay Bay Resort & Casino. PACE Technologies, a leader in digital video equipment has specifically designed a Sports Fusion 3D-HD camera system to capture all the actions on the court. The PACE double-lensed camera system is shown in the picture to the left. Michael Rokosa, vice president of engineering for NBA Entertainment said, “Our hopes are to understand the emerging technology and where our world of entertainment is going.” If this event is successful, it will accelerate the transfer of live sport’s arena experiences to local theaters across the nation.

Just like the Daytona 500 event, ticket prices to professional basketball games are slowly becoming unafforable for ordinary fans. But basketball promoters may follow the lead of their counterparts in major league baseball. During the 2004 baseball season, the National Amusements theater chain began screening HD broadcasts of Boston Red Sox games in their Showcase Cinemas throughout New England because of the scarcity of tickets. To help simulate the game-like experience, vendors strolled through the theater aisles hawking popcorn, peanuts, and beer. As Redstone, a diehard Red Sox fan said, “The experience is more important, really, than what you are showing.” Building on this successful model, NBA Entertainment will add 3D effects to giant theater screens to make the fans feel like they can almost touch the ball. With the rapid advancement of technology over the last decade, the possibilities are endless how far the promoters of sporting events can actually involve the fans. Emerging technology holds the promise of satisfying the fan’s ultimate fantasy of playing on his favorite professional team. Some rabid basketball fans would pay a small fortune to be given the opportunity to hit a three point shot over Kobe Bryant and beat the Lakers just before time expired on the game clock. Rokosa told reporters at the pre-game events in Las Vegas, “You know the saying a picture is worth a thousand words? This one is worth two-thousand." Maybe Rokosa really meant a thousand dollars!

Monday, February 12, 2007

Sports Stories: A Look at How Shoes and Rules Change the Competition of Sports

This week’s post connects to two other blogs on Sports and Business. Both posts provide pros and cons on the other author’s viewpoint. My first set of comments are linked to the Sports Business News blog regarding the release of the Marbury One shoe line. I chose this blog because of my personal interest in athletic shoes and Marbury’s attempt to make his shoes affordable for the ordinary guy. My second set of comments are posted on the BBT: The Magazine blog and focus on changing the way sports are played in order to maintain fan interest and team revenues. As a business student, I am always amazed how sports are becoming more exciting to make the fans convinced they are getting their money’s worth. You can either read my comments posted at the other two blogs or just continue reading below.

As an athletic shoe collector I find this article fascinating if not unbelievable. While many high profile athletes make fortunes selling $150+ basketball shoes, Stephon Marbury has discovered a way to sell his own brand of shoes for a ridiculously low price of $15 a pair. I salute him for reaching out and making sure that all kids have the opportunity to achieve greatness regardless of their own economic barriers. In addition to giving back to his community, I feel that the launch of Marbury’s shoe campaign will help get more kids off the streets and onto the basketball courts. Similar to after school programs which help kids stay in school and go to college, Marbury’s shoe program will encourage kids to stay physically fit, avoid drugs, and join athletic teams. All of these actions will help promote health awareness among our youth. To satisfy my curiosity, I checked out the nearest Steve & Barry’s Athletic Store in Culver City last Saturday at 10 AM. It is located next to Macy’s department store in the Fox Hills Mall and the insides resemble a K-Mart or Target environment. I found a huge inventory of Marbury’s shoes available and not that many customers. According to Andy Todd, president of Steve & Barry’s, the shoes were sold out throughout the United States. Instead, I would tend to agree with Bob Basche that “Marbury didn’t have the cache to sell shoes nationally like LeBron James, Michael Jordan, or Dwayne Wade.” As a lifelong Laker fan, I have seen plenty of people wearing Kobe and Jordan jerseys but no one in LA wearing Marbury clothing. If Steve & Barry can make sports shoes affordable to everyone, they will clearly have revolutionized the sports apparel industry.

When I first read your article I couldn’t stop laughing. The suggested new playing rules seem absurd and could never be accepted in our traditional sport’s society. But reflecting on the changes in sports over the last couple of decades, one thing remains constant: the rules will change in order to hold the interests of the fans and make a profit for the owners. The following changes come to mind: (1) adding the designated hitter rule in baseball to eliminate a weak hitting pitcher; (2) decreasing the shot clock interval in basketball to force teams to take more shots; and (3) adding the shootout rule in hockey to eliminate tie games. In each case, the rules were changed to make the sport more entertaining and draw bigger crowds. Let’s take a look at two of your suggestions. If we eliminate football salaries and make players solely dependent on endorsements and fan donations, no one can accuse them of inflated paychecks. On the other hand, only the high profile superstars will command mega level endorsements and force the other players to create their own businesses to generate revenue. Even worse, many of the top players will flock to the giant media centers, such as Los Angeles and New York, to solicit major endorsement contracts. Your other suggestion to add a “Zero G” environment to basketball could add a whole new dimension to how the games are played. Just imagine the score for dunking the ball could be based on the difficulty of the acrobatic maneuver, just like gymnastics. And with today’s technology, creating a Zero G environment is feasible although costly. Who really can predict what the game will look like 10 years from now?

Monday, February 5, 2007

Deep Pockets: Determining the Real Value of Athletes

Two weeks ago I watched the New Orleans Saints play the Chicago Bears in an NFC Playoffs game. Although the Saints lost, 39-14, AOL sports describes the thrill watching “in a bit of dash and daring Reggie Bush took a short pass from Drew Brees in the third quarter and rocked, rolled and dismembered 88 yards for a touchdown." Adding insult to injury, Bush "turned and pointed at the nearest Bears defender as he neared the goal line and executed a perfect somersault into the end zone." Unfortunately, this type of bad behavior has become commonplace in professional sports today and is reminiscent of similar theatrics Bush performed when he led the USC Trojans to the national championship in 2005. Looking for bigger challenges and rewards, Bush passed up his senior season at USC and signed "a six-year contract with the Saints in 2006 that guarantees $26.3 million with a $51 million total." Shocked at these figures and Bush’s lackluster regular season statistics, sport critics proclaimed, "Saints and Madison Avenue have already made Bush a star and a millionaire many times over, it's time for him to earn it." But just like their counterparts in the entertainment fields, athletes’ salaries are determined by their unique skills, agents’ ingenuities, and values to their teams. Despite his detractors, Bush shows that extraordinary skills can command an expensive price tag that fans are more than willing to pay.

A professional athlete’s value is directly related to his ability to generate revenue for the team. It is completely unfair to compare an athlete’s salary to someone in the normal work force such as a teacher, engineer, or small businessman. All these jobs are essential for the welfare of the local community but they do not demand the extraordinary physical skills nor place the participants under the ever present scrutiny of the public eye as professional athletes. A popular career website notes “athletes continually push themselves, training year-round to perfect their game. Their careers are constantly in jeopardy as the probability of injury is high.” Besides the uncertainty in their jobs, the playing season robs players of a normal family life as they devote off playing times to constantly honing their physical skills and studying opponents. Even worse, they wind up spending more than half their time away from home as their team schedule requires periodically touring across the country. With this in mind, “all these factors, coupled with the very public nature of the job can quickly wear down an athlete's psyche and damage his or her personal life.” lists the highest wage earner during 2006 as film mogul Steven Spielberg. At $322 million income, he “made the bulk of his cash from the sale of DreamWorks SKG's live-action business to Paramount." In comparison, sport’s top money maker was Tiger Woods, who "earned $58 million in career tournament winnings, $12 million more than his closest competitor. Add to that lucrative deals with blue chips like Nike, Accenture, General Motors and American Express, and it's no wonder golf's crown prince can afford playthings like his recent purchase of 155-foot yachts and a ten-acre oceanfront estate." While not many athletes can even hope of reaching the payroll heights of Tiger Woods, a dramatic shift in high end salaries from individual sports to team sports has occurred during the last decade. Forbes’s Kurt Badenhausen reports "the salary explosion in team sports means that basketball (14 entries) and baseball (13 entries) players now dominate the list of highest priced players. Overall, the 50 highest earners pulled in a combined $1.1 billion, 40% of which came from endorsements. The minimum to make the list was $15 million versus less than $5 million in 1994." Thus, if we compare the highest salaries of professional baseball and basketball players to entertainment and business leaders, sports salaries are not necessarily inflated. For example, USA Today lists the richest baseball franchise, New York Yankees, paying out more than $20 million apiece to Alex Rodriguez, Derek Jeter, and Jason Giambi. It is only a matter of time until the entire Yankee lineup will all be millionaires!

Michael Rice, a weblog baseball editor notes “it is impossible to pick up a newspaper sports section these days without reading how the New York Yankees are paying too much money for players and such deep pockets is bad for baseball." But he disagrees with these Yankee critics by showing that “ in 1977 the New York Yankees had a payroll of $3,474,325 out of a total league payroll of $23,854,375 (14.56%) while in 2003 the percentage had only risen to 15.71%." While one could claim the Yankees have historically overpaid their players, on a percentage basis the Yankees are simply keeping pace financially with opposing teams. A recent Harris Poll of 874 U.S. adults "found New York Yankees again on top as the country's favorite baseball team." Not surprisingly, lists the three Yankee sluggers as leaders in statistical performance metrics (hits, RBIs, and home-runs). Due in a large part to their outstanding skills and fan popularity, Forbes magazine reports “The New York Yankees' value increased 17 percent in the past year to $1.2 billion." From this business perspective, their salaries are commensurate with other leaders in the entertainment industries who also are paid on performance. In a similar fashion, shows NBA’s former Lakers teammates Shaquille O’Neal and Kobe Bryant “commanding salaries of $31 million and $30 million respectively." With humor almost as large as his size, O’Neal accepted a salary cut this year so he could “address all of my family's long-term financial goals while allowing the Heat the ability to acquire those players that we need to win a championship." One can only wonder what kinds of children’s goals would require this much cash?

Even if sport salaries are in line with the entertainment and business industries, the general public is still alarmed that ticket prices are quickly becoming unaffordable to the general public. Sport’s commentator Mike Simmons warns that "corporations are scooping up tickets at high prices and writing off the costs as business expenses." These inflated priced tickets are hoarded as enticements to select customers and rewards for high performing employees. In addition, “they are simultaneously paying premium dollars to get stadium naming rights and advertising spots." Soon only the rich can afford to attend professional sports events while the rest of us watch the games on cable television.

One of the key reasons for professional athletes salary jumps with subsequent rises in ticket prices is the bidding war over free agents by wealthy owners. In this year’s most publicized international baseball bidding contest, CBS Sports reports "The Boston Red Sox emerged Tuesday night as winners of the bidding for Daisuke Matsuzaka with a $51.1-million US offer." When Boston season ticket holders receive their new price lists they may question who exactly is the winner from this bidding war? Football forecaster Neil Warner points out that over in the NFL the owners finally acceded to the players’ demand for free agency as long as they could "protect themselves from each other as a result of the bidding wars for players that they feared would follow." Today, MLB, NBA and NFL all have salary caps but ticket prices still seem to be rising without limit. Warner warns that “the salary cap has been shot full of holes, almost as many holes as the NBA’s cap." Clever club lawyers and unscrupulous owners make “the amount of money each club spends on player salaries bears little resemblance to the salary cap." Almost as tragic as the added burden on fans’ wallets is the impact on “above-average NFL veterans who have gradually worked their way into the middle of the salary range but are sacrificed in favor of cheaper, marginal players.” This financial solution appears to be a winner takes all approach.

For the 2006-07 season, states “The NBA salary cap for 2006-07 is officially $53.135 million, up $3.6 million from the previous season." In addition, the NBA has instituted a luxury tax threshold of $65.4 million and ESPN reports "Teams with payrolls over that will have to pay a dollar-for-dollar tax on the amount of their payroll that exceeds the $65 million. The resulting tax revenues will be handed over to poorer teams to financially balance the league and maintain parity in personnel. What ultimate affect this tax will have on future ticket prices and player salaries is unclear but the good news is that “it seems to be working. As it stands right now, only one team, the Knicks, are way over the luxury tax threshold." We can only hope that professional sports will not become a pastime for only the rich and famous.

Monday, January 29, 2007

The Inflation of Sport Shoe Prices: How Business Uses Sport Stars to Drive Up the Demand for Customized Shoes

The world of sports and business has many avenues to explore but one that has intrigued me lately is the sale of high end priced athletic shoes. I had always wondered why anybody would want to pay $200 for a pair of tennis shoes that would probably wear out within a year. I thought the answers were one of the following: (1) emulate their favorite sports stars who wear or promote these shoes; (2) treat themselves to the finest shoes available; or (3) keep pace with their friends and athletic partners. But according to Stefani Greenfield, co-owner of Scoop, a chain of trendy boutiques based in New York City, “People are buying expensive sneakers to achieve that stylish-without-trying effect." The need to look good from head to toe is overwhelming America and NDP, a consumer information company, substantiates that claim by noting, “Spending on athletic shoes that cost $100 or more shot up to $674.5 million in 2005--a 37% increase over last year's top-tier sneaker spending.” Just like designer jeans, expensive shoes make a fashion statement about the wearer.

An exciting combination of unusual shoe designs fused into one model was released by Nike on October 21, 2006. “In celebration of their historic relationship, Jordan Brand and Spike Lee have come together to design the Jordan Brand Spiz’ike.” Shown to the right, it integrates into one shoe the popular features from the Air Jordan III, IV, V, VI, and XX series. “In addition to the obvious Jordan design characteristics, Spike Lee’s Mars Blackmon character and his ‘40 Acres and a Mule’ logo are placed on the back of the kix.” Basketball viewers should be very familiar with Mars as the primary pitch man for Nike shoes during the 1990’s with his classic phrase, "Is it the Shoes? Is it the Shoes? Is it the Shoes? … it's gotta be the shoes.” The customer message is clear and simple, much like the famous “Just Do It." When I first saw the shoe advertised over the Internet, the elaborate style and color combinations immediately stood out. The marketing idea of combining Jordan and Lee trademarks into a single shoe package is pure genius. The design incorporates subtle references to the two media superstars by numbers and patterns etched onto the sides. For example, the “40/a” on the heel represents Spike’s film company, 40 Acres and a Mule. In addition, Nike will produce only 4023 pairs – and as any NBA fan knows, the number “23” is Jordan’s Chicago Bulls retired jersey number. Both superstars have large and dedicated fan clubs that collect almost anything that is associated with their names. Like many rare sneakers, this model transcends the normal use of a basketball shoe and will most likely never be used in a gymnasium or ball court. As a tribute to Spike Lee, the shoes first went on sale at Premium Goods, “Brooklyn’s first and most premier sneaker boutique." Early bird shoppers were ecstatic to purchase them for $175 a pair. Today, this limited edition model can only be purchased through online resellers with starting bids at $300 each.

Nike’s most famous sneaker, the Air Force One, was first released in 1982 as the first basketball shoe to incorporate Nike Air technology. It has remained one of the company’s most popular styles selling for about $65. As stated on many Nike retail websites, “The Nike Air Force One shoes have been a major hit in the hip-hop community whose culture was so closely connected to the streets of New York and the basketball scene there. Many of the up and coming artists from the streets of Brooklyn rose to the top while wearing the Nike Air Force Ones.” The mixture of bold music sounds, classic New York roots, and the new shoe designs immediately grabbed the public’s attention. In celebration of the 25th year anniversary of Air Force One, Nike has decided to produce the Nike Air Force One Supreme ’07 with a price tag of $200. Although the two shoes appear identical, the company is promoting the latest version shown to the left as superior in comfort with a brilliant white exterior. As part of the Nike’s advertising campaign to soften the price increase, they are featuring a television piece on famous NBA stars wearing the shoes as they battle each other in one-on-one games inside a darkened aircraft hanger. Titled "The Second Coming", it features such NBA stars as “Kobe Bryant, LeBron James and Rasheed Wallace in front of the camera and Rakim, KRS-One, NAS and Kanye West providing the soundtrack." The surreal black and white setting helps to accentuate the sneakers in dynamic images with the clear association of the Nike logo and basketball’s elite players. The company is betting that customer loyalty and the endorsement of the NBA stars will override any initial hesitations to purchase the latest model. Loyal Nike fans will have to think carefully about losing their cherished “Swoosh” quality if they switch to another brand. This year Nike “profits rose to $325.6 million, or $1.28 per share, from $301.1 million, or $1.14 per share, a year ago.” With these financial records they can afford to gamble on an aggressive marketing strategy. The company is banking on a reputation for unmatched quality control and customer satisfaction as constant differentiators with their nearest competitors. In the past they has successfully made the customer believe that extra cost always provides a superior product. With this business philosophy, Nike believes there will always be profitability in creating new designs and enhancing long time favorites.