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The Five Forces Of College Athletics

By JASON BELZER
5 min read

The essence of success in any business venture is the necessity of understanding and learning to deal with the competition. Yet while it is easy to say that in college athletics the universities and sports programs that we play against on the field and court each day are our competition, such an observation is far too simplistic if we strive to build a sustainable and successful athletics program. In 1979, a young Harvard professor by the name of Michael E. Porter identified the Five Competitive Forces That Shape Strategy and in doing so created a universal tool for professionals in any industry to understand the dynamic and varied degree to which the competition shapes our day-to-day businesses.

 

Not only does the athletics rivalry which your university has with other institutions have an intense effect on the outcome of department’s labor, but you must also carefully analyze the other competitive forces that include: customers, suppliers, potential entrants and substitute products.  Moreover, recent strategic theory has added a sixth force – the influence of complements – whom in college athletics can have major effects on not only the success of individual sports programs, but the future sustainability of our industry as a whole.

 

Of course, how the forces are configured and their effects on profitability depends on the type of industry. Among athletic apparel and shoe manufactures, there is an incredibly fierce rivalry among incumbents Nike, Adidas and Under Armour, while the bargaining power of consumers and the threat of substitutes remains high with a strong opportunity to seek alternatives among the competing firms and other manufacturers. Equally, the power of suppliers is largely non-existent while the threat of entry remains impossibly high (although Kevin Plank begs to differ).

 

 

 

 

While performing a five forces analysis on the college athletics industry as a whole is an exercise that will lead us to the conclusion that launching an association to rival the NCAA is a daunting and likely futile effort, Porter’s framework is an equally powerful tool when scaled down into more manageable and appropriate applications. For example, we can apply the five forces analysis on our universities pending decision to add a football program (or any new sports program for that matter), which may then help us determine whether investing into a microlevel analysis (e.g. feasibility study) is warranted. For the purposes of this exercise, the following five forces analysis deals with college football in general, and many of the answers can change depending on the level, location and resources of your institution.

 

 

The threat of new entrants is almost always one of the most influential forces in an industry, often limiting the potential for profit (or in our case on-field success) of an industry. Because of the high capital costs associated with launching a football program, the strong foothold that incumbents have on suppliers (student-athletes and coaches) and buyers (fans), as well as minimal economies of scale, there is an overall high barrier to entry and accordingly a relatively low threat of new entry.

 

 

Unlike industries like consumer packaged goods, transportation and retail where the power of the suppliers remains low, college athletics is a high-skilled industry in which student-athletes and coaches have many choices on what university they choose to align themselves with. Just consider the sheer amount of scholarship offers that a top-rated prospect gets, or the ever-escalating salaries of quality coaches, to understand that the bargaining position of suppliers is strong. But for NCAA transfer rules and coaching buy-outs, supplier leverage would be through the roof.

 

 

Unfortunately, whatever sport your department is choosing to add, it is likely that the bargaining power of the buyers (i.e. fans) will be extremely high. Not only do buyers have many options – they can root for other universities, professional leagues or do something else with their time – but it costs almost nothing for them to shift their allegiance and eyeballs to other programs. That being said, increasing ticket and gameday experience prices are driving many fans away from professional sports, and so collegiate programs stand to benefit the most from the immediate shift in dollars.

 

 

It should come as no surprise that with the strong bargaining power of buyers, the threat of substitutes should also be relatively high. Your department has a limited ability to differentiate it’s on the field or court product from direct competitors (other university and professional leagues), and there are plenty of other options for buyers to shift their attention spans to. The only thing holding the threat of substitutes at a moderate level is the fact that many fans rarely have a direct alternative when it comes to live football experiences (see: Oregon, Nebraska, Alabama, et al.)

 

 

The very nature of college athletics, and particularly a marquee sport like football, leads to high rivalry among industry competitors. The reality is that very few programs have the capability to differentiate the on the field product significantly – hence why it’s seemingly the same programs year in year out competing for conference and national championships. Moreover, once vested in the sport the vast majority of universities rarely back out, as the capital and public relations costs are simply too high. Furthermore, there is a select customer base to draw from and so universities are fiercely competitive on keeping fans (and getting them into empty seats).

 

 

The sixth force – the influence of complements – is important to note in our analysis because of the uniqueness of the amateurism and college athletics model. Because complementors (television networks, shoe and apparel companies) play such a critical role at the highest level of college athletics, you would be all but negligent to not include them if you are a Division I program considering the addition of football. Indeed, if tomorrow ESPN and Nike disappeared, it is likely that your football team – and college athletics as we know it – would also collapse.

 

 

 

Overall, our Five Forces analysis on college football reveals (as most of us already know) that it can be a very lucrative business for incumbents, but an extremely difficult one for upstarts to gain a foothold in. Of course, applying the same framework to men’s hockey or women’s lacrosse will likely bring us to an entirely different set of conclusions and assumptions about the viability of such programs at our institution. Lastly, when conducting a five forces analysis on your athletics department and individual sports programs, you might consider performing two separate studies – the one outlined above, and another where you switch the label of the most important entity, student-athletes, from supplier to that of customer.

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