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Why Uber, Tesla & Apple May Be The Most Important Companies For Athletic Administrators To Watch

By Matt Roberts
10 min read
As the debate around cord-cutting and the shift to over-the-top viewing continues, today’s ADU will again dig into the less analyzed side of the dual-revenue cable bundle model, advertising. This piece builds upon my previous two on the topic, ‘The Importance of TV Advertising Trends, Scarcity and Sports’ and ‘The Cable Bundle and Thompson’s Aggregation Theory.’
To quickly recap, Stratechery’s Ben Thompson argues the bundle is far more secure than many analysts or media members believe or understand, due to the intertwining of business models between networks, the bundle and brands who spend huge amounts of money on TV advertising and the volume of diverse programming that can all be found in one place. These dynamics are not without challenges on the advertising side of the model as Thompson points to changes in consumer and brand behavior that could completely fracture the system and lead to its abrupt downfall. Most recently in college athletics, ESPN & the ACC are betting on the incumbent value propositions with their plans to launch a linear ACC Network in 2019. The Big Ten recently received re-ups by both ESPN and Fox for new rights and we may know very soon how the same broadcast partners value the Big 12’s portfolio as its expansion review continues and may or may not result in institutional additions 

According to SportsBusiness Daily, $13.9B was spent on advertising within sports TV programming in 2014. Chevrolet topped the list by investing $322,971,609. Fellow auto industry competitors Ford ($201,346,283), Nissan ($152,346,285), Toyota ($142,076,962), Mercedes-Benz ($138,422,505) & Lexus ($127,445,851) all finished in the Top 25. Combined, the sextet poured $1,084,609,405 into sports TV advertising. These same companies, along with the entire automobile industry, are facing the potential of major disruption to their businesses by the likes of Uber, Tesla and Apple. Here’s why athletic administrators should keep a close eye on each:

 

Uber
Here’s betting the vast majority of you have experienced Uber’s nearly frictionless ride-hailing and digital payment technology that has completely upended the traditional taxi industry and made anyone a cabbie who has a car and the interest. Transportation-as-a-Service (or Mobility-as-a-Service) is generally defined as:

 

…a shift away from personally owned modes of transportation and towards mobility solutions that are consumed as a service. This is enabled by combining transportation services from public and private transportation providers through a unified gateway that creates and manages the trip, which users can pay for with a single account. Users can pay per trip or a monthly fee for a limited distance. The key concept behind MaaS is to offer both the travelers and goods mobility solutions based on the travel needs.

 

The overall long term challenge to the auto industry here is pretty clear, why own a car when you can hail one on demand and create: a) Physical drive time savings as the passenger is no longer the vehicle operator (time=money); and, b) Cost savings in the form of insurance, gas, registration, purchase/lease, upkeep, parking, etc? There are certainly arguments to support the status quo, as well, but Uber’s volume from the first six months of 2015 is nothing short of eye-opening (Uber is still a private company, making access to data quite difficult). From Forbes staffer Solomon’s, ‘Leaked: Uber’s Financials Show Huge

 

Growth, Even Bigger Losses’:
Uber had gross bookings (total fares charged to app customers, before the drivers get their cut) of $3.63 billion in the first half of 2015. That’s up from just $2.93 billion in all of the prior year. So Uber’s overall ride-hailing business is strong: unless these figures fell off in the second half of 2015, it likely more than doubled its bookings year over year.

 

It’s also quite clear major autos have a clear eye on TaaS/MaaS as General Motors tried to buy Uber’s main domestic rival, Lyft, just last week, but got denied. Additional notes on Uber include its interest in self-driving cars (more on autonomous cars below) and its entry into the $1T auto loan space in an effort to ensure its drivers can access capital for new vehicles to supply the cycle of ride-sharing. With the rise in ride-hailing (and ride-sharing), students on your campus are undoubtedly plugged into Uber and its competitors, which over time could change how fans arrive at games, potentially impacting traffic flows and more importantly, parking revenues. For all of these disruption trends, Watch Uber.

 

Tesla
While Tesla is only projected to sell upwards of 100K new cars in 2016, against an overall car purchase estimate in the United States of 18M, the electric auto manufacturer who handles its own sales directly, not through the traditional dealership model, expects to move 500K annually by 2018. More importantly, Tesla is preparing to roll-out the Model 3, its lowest priced vehicle to date at $35,000 by the end of next year, in an obvious attempt to make the brand more accessible to the masses. If you’re thinking Tesla could eventually replace one of the legacy automakers in volume of TV sports ad spending, I suppose it’s possible, but consider right now it’s earning business on little to no advertising whatsoever.

 

Clearly, some of the top sports TV advertising spenders have also shifted to electric offerings with mixed results. Back in April, the Chevy Volt posted solid sales numbers, while Nissan’s Leaf sputtered. If Tesla continues to gain ground due to its low environmental impact, exclusive network of national charging stations, sharp design and/or self-driving appeal, the automobile industry and its mainstay brands could be disrupted. Watch Tesla.

 

Apple
You’re probably not surprised to see Apple on this list, though it may not be for the reasons you expect. While recent speculation of how Apple may revamp its Apple TV product to serve as a new age TV Guide is undoubtedly important, especially for college athletics and conferences who have significant content on an app, more central to this article is news the company is fully committed to building a self-driving car. Late last month, TechCrunch reported the effort was being led by longtime executive and former board member, Bob Mansfield. Also late last month, Apple snared Dan Dodge away from BlackBerry’s automotive software unit with Bloomberg Technology’s Gurman and Webb providing additional context:

 

The initiative is now prioritizing the development of an autonomous driving system, though it’s not abandoning efforts to design its own vehicle. That leaves options open should the company eventually decide to partner with or acquire an established car maker, rather than build a car itself. An Apple spokesman declined to comment.

 

Apple has hundreds of engineers working on car design and has been targeting a release as soon as 2020. That goal has been affected by multiple departures, technical delays and confusion regarding the direction of the project, according to people with knowledge of the efforts.
The two key leadership hires came on the heels of Apple tabbing former Tesla VP of Product Engineering, Chris Porritt, for the ‘special [car] project’ back in April. Self-driving cars are an unbelievably complicated push, but who here would wager against Apple figuring out hardware? If Apple is successful at introducing its version of a self-driving car and its related benefits, it could be to the detriment of traditional automobile companies and their deep pockets for sports TV advertising. Watch Apple.

 

This review really should be taken a step further, since the six auto brands mentioned (Chevrolet, Ford, Toyota, Nissan, Mercedes-Benz and Lexus) only made up 7.8% of overall sports TV advertising in 2014. To do so, Amazon and Facebook should also be considered as both are remaking traditional retail behavior and advertising paradigms.

 

Amazon
Plenty of attention has been paid to Amazon and its Amazon Prime platform in the context of sports rights and it’s all for good reason: 1) A job listing showed up on LinkedIn, hiring for a Principal Content Acquisition Manager – Sports; 2) American Athletic Conference Commissioner, Mike Aresco told SI.com’s Pete Thamel earlier in the month Amazon was in the mix to broadcast some Women’s Basketball and other non-revenue sports as soon as this year; and, 3) Prime is currently broadcasting ‘All or Nothing’, a behind the scenes series with the Arizona Cardinals from last season that’s getting solid reviews by those in and around the media. It seems more than fair to say Amazon has its eye on sports. But, that’s the not the reason why Amazon could turn traditional TV advertisers on their heads.

 

More important for our context here is Walmart’s announcement earlier this year it would shutter 154 stores in the United States as e-commerce led by Amazon is eating away at margins and profits. Further, legacy department store Macy’s disclosed plans last week to close 100 locations nationwide. Walmart and Macy’s provide shelf space and traffic for thousands of other brands and products, many of whom rely on TV advertising’s scale to promote their goods from coast to coast. While we’re talking total TV advertising spending as opposed to just on sports, the two likely go hand-in-hand in impacting the system as a whole and there are two in the Top 10 from 2014 connected with Walmart and Macy’s: Proctor & Gamble Co. (#1 – $4.6B) and L’Oreal (#9 – $2.2B) (by the way, GM, owner of Chevy, was #3 on the list at $3.1B). If the big spenders in the auto industry could be crimped by Uber, Tesla and Apple, some of the largest overall investors in TV advertising could be shelved by Amazon. Watch Amazon.

 

Facebook
Even though Stratechery’s Thompson has positioned TV advertising as still the most effective way for mega brands to reach audiences en mass, he’s also pointed to Facebook (and Snapchat to a lesser degree) as the social media players who could usurp dollars at scale from TV if they improve products around brand advertising. Thompson, in ‘Peak Google’ and ‘The Facebook Epoch’:
The idea behind brand advertising is to build “affinity” among potential customers. For example, a company like Unilever will spend a lot of money to promote Axe or Dove, but the intent is not to make you order deodorant via e-commerce. Rather, when you’re rushing through the supermarket and just need to grab something, the idea is that you’ll gravitate to the brand you have developed an affinity for. And once a customer has picked a brand, they’re loyal for years. That adds up to a lot of lifetime value, which is why consumer-packaged goods companies, telecom companies, car companies, etc. are among the biggest brand advertisers.

 

Brand advertising is a bit of a mysterious thing — the biggest sign that it works is that when companies don’t invest in it sales suffer — but at its core it is about engaging potential customers in the empty spaces when they aren’t too focused on any one thing, and thus more receptive to formation of subconscious affinities. There have traditionally been few better places to do brand advertising than TV: it offers a captive audience at scale that is in a laid back state of mind, not an active one. Advertising on TV, though, is in serious trouble: first came DVRs, and then subscription services, and, perhaps more importantly, that device in your pocket ever tempting you to do what is most natural: connect to others.
It should certainly be noted advertising heavyweight Proctor & Gamble delivered a stiff blow to Facebook last week as it announced plans to pull back on targeted advertising, Facebook’s specialty, after sub-par results. P&G CEO Pritchard: “We targeted too much, and we went too narrow and now we’re looking at: What is the best way to get the most reach but also the right precision?” A key balancer is that P&G does not plan to decrease its overall spend with Facebook. More from the Wall Street Journal on the development:
P&G could be the bellwether on how consumer goods companies and big brands use digital advertising. Over the past year some marketers, specifically consumer product companies, have discovered they need to go “much more broad” with their advertising on social media sites such as Facebook, said James Douglas, executive director of social-media agency Society, which is owned by Interpublic Group.

 

Mr. Douglas said case studies show that companies can receive a bigger sales increase if they reach a more significant portion of a platform’s overall audience.
If brand advertising dollars shift to digital, Facebook will very likely be the major winner. On top of its brand advertising potential, Facebook Live has streamed a number of high-profile sporting events to date, including the Champions and Europa League Finals last season and could be squarely in the mix for college rights now and in the future. Watch Facebook.

 

Connecting the Dots
There are certainly no assurances Uber, Tesla, Apple, Amazon and Facebook will continue advancing upon incumbents and the automakers noted in this piece most certainly would seem to have the financial and intellectual wherewithal to pivot, where needed, and accelerate. But, it’s quite clear many of the top advertisers on TV, in sports and within the overall ecosystem, are experiencing significant challenges to their business models. These advertisers help to monetize TV programming, which in collegiate athletics helps to support budgets of conferences and schools both large and small.
Plenty of words have been contributed by notable journalists and reporters on why ESPN, Fox Sports, etc. should be quite worried about millions in subscriber losses over the past couple of years. To be clear, it’s a real issue. However, the advertising side of the dual-revenue cable bundle model doesn’t get as much exploration and is arguably just as important for what the future holds. Watch closely.

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