I bleed blue and gold. To clarify, that means UCLA Bruin Blue & Gold. This means I’m one of the people who subscribes to a fan site to read daily updates on where teenagers will go to college.
It also means that when football and basketball end, I don’t fret. UCLA is, after all, a softball, gymnastics and beach volleyball school. I’m the type of fan who watched the NCAA playoffs for each of those sports. And I’m watching the college baseball series too. Or I was until, um, Sunday.
I’ve been thinking about college baseball since AthleticDirectorU first approached me about writing for their website. They asked me what I thought about college baseball. I answered, “Not much, unless it’s the post-season.” But that right there says a lot about college baseball’s (and softball) status in the sport’s landscape. And potential.
For all the money that college sports bring their universities, most of that money is from one of two sports, football and basketball. They’re the “revenue generating” sports in common parlance. That’s not a very diversified revenue situation. If something happened to college football—and I don’t even need to mention what that could be—all of college athletics could suffer. Bloomberg has a good table that puts this in stark contrast:
Source: Bloomberg.
Could college baseball be the solution for a third revenue generating sport? Or should it be another sport? Or some other venture entirely? In a previous life, I used to explore new business opportunities for an entertainment company. I want to take the methods and tools I used to do that, and over the next few months, think about how the NCAA (and its member colleges and universities) could think about growth.
Setting the challenge
Let’s start by defining the question. A lot of times, our disagreements—political, philosophical, business strategy—stem from trying to answer different questions. Here’s the challenge I set for myself:
What new lines of business should the NCAA try to grow, nurture or expand to increase its revenue?
Before we go too much further, I understand the NCAA is not a business in the traditional sense of having shareholders and being relentlessly focused on profitability. It is a non-profit devoted—rightly, I’d add—to supporting “the well-being and success” of student athletes.
Yet, for a non-profit, the NCAA does pretty well for itself. Like a billion dollars in revenue well. Their member institutions make tens or hundreds of millions more. And if they could make billions on top of that, that can only help further their mission to support student-athletes.
How should we think about growth?
To keep oversimplify it, growing your revenue comes in one of three rough areas:
– Expand your current lines of business
– Enter a new line of business
– Enter new markets
With this quick categorization, we can brainstorm all sorts of specific opportunities for college athletics. For expanding current lines of business, should the NCAA try to build out college baseball? Or lacrosse, which has expanded rapidly in the last decade? Or how about women’s athletics like women’s beach volleyball, women’s basketball or women’s gymnastics? (I bring up the latter, as an example, because UCLA gymnastics regularly exceeded 10,000 fans at UCLA’s Pauley Pavilion this year.)
Of course, sometimes expertise in one area could help build a brand new business. That’s true growth. Should the NCAAs adopt eSports as a new type of sport? Or what about gambling? Is that something the NCAA should sanction or is it too risky? Am I being too US-focused? How should the NCAAs think about global growth? Do they have the capabilities and where could they go? Europe? Asia? Latin-America?
That’s a lot of questions. What we need is a way to sort the good ideas from the bad.
Picking a Framework to Evaluate These Options
If I were approaching this as a consultant, I’d collect all the potential lines of business—and their financials, which I don’t have—then develop a set of criteria to separate feasible lines of business to narrow down the analysis.
I’m skipping that first step, though, because as a columnist I can pick lines of business that I find fun or interesting. That doesn’t mean I can skip the next step though. This is where good analysis—truly rigorous analysis—comes from. And that’s picking the right tool out of business analysis tool box to compare these different lines of business.
Before I tell you which tool I plan to use, let me go through some frameworks you won’t see.
SWOT
SWOT is probably the most common of the strategic frameworks. It stands for “strengths, weaknesses, opportunities and threats”. People like it because they can pretty much fit any idea they have into it somewhere. For that reason, it’s essentially a glorified pro/con list. Which isn’t bad per se, just too broad for our purposes here.
Marketing Framework (3Cs-STP-4Ps)
The Harvard-taught marketing framework aligns the strategic situation (3Cs) to the marketing mix (4Ps) This is my favorite framework and inevitably, I find fun insights while using it. However, it is better for evaluating a specific business opportunity and not as great for evaluating between multiple options.
Porter’s Five Forces
Porter’s framework is one of the more popular tools in strategy—I explained it on my website here—and when it comes to understanding an industry, it is very useful. Like the marketing framework, though, it doesn’t help you understand the revenue upside of a new business, just how it fits in the competitive landscape.
Ultimately, I needed a better tool. I have one in mind, but it isn’t perfect. It’s usually used by venture capitalists to evaluate investments. I’m tweaking it, sort of like one Alton Brown’s creations on Good Eats, where he takes a clay jar and turns it into a homemade tandoor oven.
POCD (with NPV upside)
The best way to identify new opportunities is to use the oldest metric: money. What can drive the most revenue (and/or profit) growth for the NCAA? So that’s the numbers we should get to. The question is, what are the factors that drive that growth?
For that, I use the POCD framework. People, Opportunity, Context and Deal. Take your set of new potential opportunities, and ask yourself:
– Who are the people involved? Are they good, bad, excellent or awful?
– What is the size of the opportunity? What is the probability that happens?
– Where does this deal fit in the economic and political context?
– and: How good or bad is this deal?
Unlike the SWOT analysis, the price of the deal is always mentioned. Unlike the marketing framework, this deal emphasizes the size of the opportunity. And unlike the Five Forces, the people involved in the opportunity matter. (Here’s a quick explainer from Harvard Business Review on it.)
To see this framework in action, consider how a venture capitalist would have evaluated AirBnb in 2010. (In 2010, Airbnb raised its first series of venture capital.) If you could disrupt the entire hotel industry, the opportunity is valued in the billions. Easily. The founders seemed pretty focused on customers, which helped drive early growth. Meanwhile, the deal terms may have looked cheap (they received $7.2 million in their first Series A round). The context may have been a VC’s hold up: would you bet on a company that needed to go to war with every local municipalities zoning regulations to succeed?
This brings us to the numbers. The reason we use a framework is to get to the “Net Present Value” of any opportunity. Which is what I plan to do over the next few months. (But I won’t explain “net present value” again, instead I’ll refer you back to my two part series on the Pac 12 in April.)
My goal isn’t to pretend to be exhaustive. This series of articles exploring new opportunities won’t be be-all-end-all for NCAA strategy. But hopefully they illuminate ways to think about sports—even amateur athletics—as business opportunities.
Who, by the way, am I?
To be honest, I’m a neophyte in the business of college sports. In a previous life, I used to manage the strategic planning for a major streaming company. Since we were growing, we often evaluated brand new business opportunities, and these were my favorite topics to work on. Sometimes these were area I knew well, but sometimes they were well out of my wheelhouse. Sort of like NCAA athletics now.
My goal is to take the tools, techniques and learnings I developed and apply them to college athletics. Hopefully, I can learn more about this fun industry while teaching Athletic Directors a bit more about business. If you have any questions, comments or feedback, hit me up via email on my website.
(The Entertainment Strategy Guy writes under this pseudonym at his eponymous website. A former exec at a streaming company, he prefers writing to sending emails/attending meetings, so he launched his own website. He’s also a product of the Pac 12 system, twice. You can follow him on Twitter or Linked-In for regular thoughts and analysis on the business, strategy and economics of the media and entertainment industry.)
