12 Part Blog Description

Are you looking to learn as much as you can about the business of sports licensing? Then please read the 12 Part "An Insider's Guide to the World of Licensed Sports Products in 12 Parts: Practical Lessons from the Trenches" - all 12 parts of the blog can be found within this site. Click here to start with the Introduction.

Thursday, March 1, 2012

Part 9 - An Insider’s Guide to the World of Licensed Sports Products: Local Licenses – myth or reality?

Please note: This 12 part series initially appeared on my "Heritage Uniforms and Jerseys" blog, but I moved it in March 2012 to this blog which has a more single-focus on the world of licensed sports products. Thanks! Scott Sillcox

Greetings!

This is Part 9 of a 12 Part Series of blogs Scott Sillcox wrote called “An Insider’s Guide to the World of Licensed Sports Products in 12 Parts: Practical Lessons from the Trenches”. For a backgrounder on Scott Sillcox and his company, Maple Leaf Productions, please see the introductory blog and/or watch his 11 minute introductory video. Scott is available to consult with anyone interested in pursuing a sports license.
The 12 Parts of this Licensed Sports Products blog are:
Part 1: How Licensing Works - Follow The Money or How $5,000,000,000 can be less than you think
Part 2: What’s Involved in Getting a License – You need them far more than they need you
Part 3: The Landscape and some of the players
Part 4: Quality Control – Where The Real Power in Licensed Sports Lies
Part 5: Royalty Reporting and Audits
Part 6: Selling Licensed Goods - Why it’s not as easy as it looks
Part 7: Players Associations and Current vs. Retired Players
Part 8: Royalty Rates – Is 12% the norm and when 12% isn’t enough
Part 9: Local Licenses – myth or reality?
Part 10: Packaging
Part 11: Ten Things (Actually 12 Things) I Learned Along The Way
Part 12: Ten More Things (Actually 14 Things) I Learned Along The Way

Greetings!

I have told the story before that I first applied for an NHL license in 1994 and was turned down. The same thing happened in 1996. At the time, it was suggested to me that if I was turned down by the NHL itself, I should contact the Toronto Maple Leafs about a “local license”.

The theory was that that each NHL team had the right to enter into a sports product licensing agreement with companies as long as the product being manufactured is only to be sold within a 75 mile radius of the team’s home arena.

I have never seen anything about “Local licenses” in writing in any official league or team document, but I have heard about it again and again not only in the NHL, but also in the NFL and MLB.

The whole business of local licenses began to feel a bit like chasing a mythical beast – do local licenses exist, and if they do, does anyone have one?

In their 2004 book “The Business of Sports”, authors Scott Rosner and Kenneth Shropshire write about the NHL “As in the other three leagues, all teams have granted NHL Enterprises the exclusive right to license and use their marks. In exchange, all… teams receive an equal share of income from those marketing, licensing, and sponsorship deals. Like in other leagues, NHL teams retain limited rights to sell and license those marks. NHL teams are allowed to license their own marks within a seventy-five mile radius of their respective arenas.”

I contacted the Leafs about a local license, and I was given a lot of runaround, to the point that I dropped the idea.

For a long time I suspected that the “local license” concept as it related to licensed sports products was a bit of a game played by the league(s) and the team(s) to throw off small time potential licensees – a way of wearing them down - but in hindsight I actually think local licenses do exist and in certain circumstances may make a great deal of sense for a potential or even existing licensee to pursue – either as a starting point in the process of obtaining a league license at a later time or simply as a stand-alone strategy that may be far less costly than a league license. The beauty and simplicity of the 75 mile radius “rule” is that in most cases the bulk of sales of a team’s licensed product comes from stores within a 75 mile radius of the team’s arena, so you aren’t losing that many sales by restricting yourself to the 75 mile radius rule.

If you are interested in pursuing a local license, mythical though it may be, my advice would be:

1. Contact the team, not the league, and explain that you are interested in a local merchandising license – the 75 mile radius license. Be sure you have drilled down in the organization to the person who would actually be involved in local licensing, and once you have them, listen carefully to their response about the possibility of you obtaining a local license.

2. Be sure you convey a sense of professionalism and licensing experience to the person you are talking to, and be sure that they understand you clearly understand the difference between a league issued license and a team’s local license (although you will need clarification from the team as to their specific rules). Be sure you can defend and explain your reasoning why you feel a local license would be better for you, and the team, than a league license. In my opinion one very strong argument that might sway a team is the fact that they will receive 100% of the royalties generated by the sale of your product vs 1/30th (or 1/32nd in the case of the NFL) of the royalties if you were licensed by the league. If you can live with the 75 mile radius restriction, it might be a great deal for both you and the team.

3. Be sure that you have clearly thought out your sales and distribution strategy and have identified the bricks and mortar stores within the 75 mile radius area that might sell your product – this would of course include the team’s store(s). Be prepared to supply the team a list of those stores as part of your local license application.

4. You will certainly want to clarify with the team what the rules are vis a vis selling to catalogues and e-tailers under a local license agreement. Are these type of customers fair game for you to sell to as long as their offices are located within the 75 mile radius? Or are these type of retailers excluded from the type of retailers you are allowed to sell to under a local license (see above and the reference that NHL teams retain “limited rights to sell and license those marks” within the 75 mile radius area).

5. You will want to find out as soon as possible what the annual guarantee and advance royalty payment amounts would be for a local license.


Because they are so darned mythical, I don’t have a lot of examples of local licenses, and I welcome any readers and fellow licensees to share with me any examples that they know of and I will subsequently add them to this blog. That being said, here are at least a handful of sightings;


Local License Example #1:
In the mid 2000’s, Labatt’s was the official beer of the NHL in Canada, whereas Molson was the official beer of the Toronto Maple Leafs. Labatt’s had the right to do cross Canada, or even just across Ontario sales and marketing promotions such as the use of the Leafs’ logo on cases of beer and in their advertising campaigns. As the official beer of the team (not the league), Molson had “pouring rights” within the Air Canada Centre as well as specific marketing rights inside and outside of the arena. At one point Molson did an in-case promotion that saw cases of Molson Canadien beer using the Leafs logo and actually including a series of “Toronto Maple Leafs” collectors cans. This, to me, was a clear indication that the Leafs were exercising their right to do a “local licensing” agreement within the 75 mile radius of the Air Canada Centre. Granted it was an agreement with a sponsor as opposed to a product licensee, but the principle of a “local license” was clearly identified.


Local License Example #2:
This article is from a March 27, 2004 article in the Milwaukee Journal Sentinel and makes reference to an agreement that was about to expire at the time. A new agreement was reached and since then I believe a subsequent agreement was reached as well. Even though this article is from 2004, please read it carefully to understand more about local licensing.

“On Wednesday [March 31, 2004], the NFL's legal agreement known as the "NFL Trust" expires, ending a 22-year pact stipulating that the NFL serves as the licensing agent for all of its teams. Under the trust, revenue from all trademarked merchandise is split equally among the teams.

The agreement is part of the revenue-sharing structure that has allowed small-market teams like the Green Bay Packers to survive.

Though the huge television revenue that is shared equally among the teams does not fall under the governance of the trust, the agreement has served as a strong link in a revenue-sharing chain that has made the NFL the most popular sport in the country.

On the table this week is a master agreement that will maintain the current licensing structure for another 15 years and prevent a rebel owner from striking out on his own in ways the league doesn't permit.

Over the years, the league has amended some of its licensing rules to allow individual teams to swing local deals with competitors of official sponsors of the NFL. For instance, teams may negotiate their own exclusive pacts with soft drink and beer vendors, regardless of whether they are also NFL sponsors.

But when it comes to licensing the NFL name on things such as apparel and merchandise, the league is in charge and revenue is split evenly. Recently, the NFL has paid out about $4 million a year in earnings to each of the 32 teams [2004 info – 2010 estimate is more like $8 million per team].

"The proposed master agreement would formalize going forward the way our licensing and sponsorship businesses have been conducted in recent years with more rights going to the clubs, and the league focusing on licensing the NFL logo," said NFL spokesman Greg Aiello. "The master agreement would essentially formalize that structure."

While its passage may just be a formality, it certainly won't be taken for granted by teams like the Packers, who don't want to see the end to any form of revenue-sharing, thereby opening the door for further erosion of a system that has allowed them to thrive in the smallest market in the NFL.”


My point in reprinting this information is to suggest that there is something in the league’s “NFL Trust” agreement (or its successor document) that allows NFL teams to sign local deals with sponsors and presumably product licensees as well.

April 2012 note: I have done some more research on this subject and the document below is an actual page from the 292 page "Constitution and Bylaws of the National Football League - Effective February 1, 1970 and Revised 2006". While still a little hard to follow, it clearly shows that the NFL allows some level of local licensing of hardline products.



Local License Example #3:
This is a different type of local license – a local license issued by the league itself. I included this among my examples of local licenses to suggest that the concept of “local licenses” isn’t totally foreign to the leagues themselves, but also to make sure you are clear about what type of local license you should be interested in – one issued by the team vs one issued by the league.

In recent years the NFL began a local Super Bowl license program where they award temporary Super Bowl licenses to a handful of companies who are in the local area where the Super Bowl is being held each year. They were five such licensees from North Texas for Super Bowl XLV. This is clearly a bit of a PR initiative on behalf of the NFL but it is also an incubator of sorts. The thought is that one or more of these licensees will go on to become a regular NFL licensee – the NFL doesn’t need more licensees, of course, there is a long line-up, but the public relations and local area interest makes for a good story.

Please see www.giftedbydezyn.com and/or here or search Debra Mars and Mars Promotional Services.


Local License Example #4:
This is another example of a type of local license issued by the league itself. Just like Example #3 above, I included this among my examples of local licenses to suggest that the concept of “local licenses” isn’t totally foreign to the leagues themselves, but also to make sure you are clear about what type of local license you should be interested in – one issued by the team vs one issued by the league.

In 2000 MLB issued an "eight month concession supplier license" to a backpack company. This license gave the licensee the right to create LA Dodgers backpacks that could only be sold in the Dodgers' in-stadium concession stands as well as through mail order catalogues (presumably one controlled by the Dodgers). This license appears to be a precursor to a full-fledged license the following year, and I am guessing this initial concession supplier license had a much smaller Year One annual guarantee but the same league standard 11% royalty rate.

This league-issued "local license" is a one-season, temporary license, so it is clearly not the same thing as a full fledged local license issued by the team itself which I am suggesting is the more attractive option.

For more information, please read this July 12, 2000 article from the LA Times.

[Thanks to reader Don Gray for this example of a "local license.]


Local License Example #5:
There is a well respected New York based licensed sports company, Steiner Sports, that has a number of relationships with sports leagues, players and teams. It seems to me that they likely have a New York Yankees local license. I’m sorry to sound so vague and mysterious, but such is the nature of local licenses. I say “it seems to me that they likely have a New York Yankees local license" because in their line of Derek Jeter products, among others, they use the New York Yankees logo alongside the MLB Licensed Products logo, and my gut says they wouldn’t be able to do this without a specific licensed product agreement from the Yankees.

As shown above, they also have a specific Steiner Sports-Yankees logo that clearly suggests to me that they have a local license - and not only with the Yankees, but with other blue chippers like the Boston Red Sox, Chicago Cubs, Dallas Cowboys, University of Notre Dame, University of Alabama and others. In all cases Steiner uses the expression "Team Partnerships" which I take to mean "Local Licenses".

Furthermore, among their many products, have a look at the “DJ3K” line of products – Derek Jeter 3000 Hits. These products feature a logo that has the New York Yankees’ interlocking NY logo incorporated into it – something that they could only do with the permission of the Yankees and something you couldn’t do without paying the Yankees an amount of money, ie a local licensing agreement.

Could they have made an agreement with the Yankees without being an MLB licensee, ie would the New York Yankees have agreed to work with Steiner even if they weren’t an MLB licensee? I suspect Yes although I don’t know that for sure. My instincts tell me that the New York Yankees know and understand very well what they can and can’t do vis a vis local licenses, and if there is a dollar to be made that gives them a competitive edge vs other teams, they will use it.

My point is simply this – I believe this is a clear example that the New York Yankees (and Red Sox, Cubs, Cowboys and others) will do a local licensing agreement if it’s the right partner (and if the price is right of course).


Local License Example #6:
In the case of NCAA licenses (please remember that when I use the expression “NCAA”, I’m using shorthand and I really mean the world of US College/University licenses and not specifically an actually NCAA license) we find several examples of “Local licenses”. I am including these here so that you further understand that there are various permutations and combinations of “local licenses” and they may be something that fit your needs.

Remember that “NCAA” licensing is done by one of three companies – CLC, LRG and SMA – or by the school itself.

A. CLC issues the following types of licenses:

Standard License: A Standard License is available to companies that wish to manufacture collegiate product for six or more institutions, and is typically reserved for larger manufacturers with well-established production, distribution, and marketing capabilities

Local License: A Local License is available to smaller companies that wish to manufacturer collegiate product for up to five in-state institutions, and do not have plans to expand significantly beyond those local institutions.

Restricted License: A Restricted License is available to companies that wish to produce non-resale merchandise for “internal consumption” by institutions in the local area.

NCAA/Bowl/Conference Licenses: These are special licenses that are available to companies that wish to obtain rights to use the trademarks of the NCAA, bowl games, or athletic conferences for use on licensed merchandise, either alone or in conjunction with an institution’s trademarks. Licensing rights to these properties can be more expensive to obtain, depending on the event and the extent of the rights and product categories.

B. LRG issues the following types of licenses:

Standard License: allows you to produce products for resale, including, but not limited to, wholesale and retail sales.

Internal Usage License: allows you to produce products intended to be sold directly to the University that are not for resale. This does not include sales to the University Bookstore. Please note: an internal usage license may not be available for each school. Please reference the “List of LRG Accounts” within the application for more information.

In-State License: allows you to produce products for resale, including, but not limited to, wholesale and retail. Your company is applying for a license for one school only, and is located in the same state as that school.

C. SMA issues the following types of licenses:

Standard License Application: This application should be used by companies that desire to produce licensed products for resale to the general public. We encourage you to complete all of the requested information to the best of your ability and please feel free to contact our office with any questions you might have. Please note that any information not provided will be taken into consideration when reviewing this application and that SMA may contact you to clarify any responses.

Restricted License Application: This application should be used by companies that desire to only produce licensed products for internal use at the selected institution. No products produced under this license agreement may be sold to the general public. We encourage you to complete all of the requested information to the best of your ability and please feel free to contact our office with any questions you might have. Please note that any information not provided will be taken into consideration when reviewing this application and that SMA may contact you to clarify any responses.


To summarize this blog, I believe that team-specific local product licenses exist, and if you have a proper approach and are willing to spend the time and effort, this may be a very interesting approach to either becoming a licensed sports products company for the first time or adding a license for a sport with which you are not currently licensed.

That’s all for Part #9 of “An Insider’s Guide to the World of Licensed Sports Products: Local Licenses – myth or reality?

Thanks for reading and all comments are welcome!

Scott


PS: This is just a quick FYI that in the spring of 2017 Scott Sillcox will be continuing the multi-city tour of North America that he started in the spring of 2013. While in each city, I will be meeting face-to-face with people who want to learn more about sports product licensing.

If you are considering going through the process of acquiring a sports license(s), or if you are considering working with an existing licensee, you should strongly consider meeting with me live and in person. If you have been dreaming about your product and the opportunity it represents for months, maybe years – now’s the time to move your idea forward! Take advantage of me coming to a city near you.

1. You can meet with me for a full day session – from 8:30am – 5:00pm - just you and me (or you and your team if you wish). The full day one-on-one session fee is $1500.

2. You can meet with me for a half day session (4.5 hours) – either in the morning or the afternoon. This half-day session is also one-on-one - just you (or your team) and me. The half day session fee is $900.

3. New for 2017: You can meet with me for two hours - the timing depends on my other meetings. The two-hour session fee is $600.

The cities and dates for the Spring 2017 tour are:
1. Feb 21 - 23 (Tues - Thurs): Boston
2. Feb 28 – Mar 2 (Tues - Thurs): Atlanta
3. Mar 7 - 9 (Tues - Thurs): Washington DC
4. Mar 21 - 23 (Tues - Thurs): Chicago
5. Mar 28 - 30 (Tues - Thurs): Princeton NJ & NYC area
6. Apr 4 - 6 (Tues - Thurs): Cleveland & Columbus, OH
7. Apr 11 - 13 (Tues - Thurs): Dallas
8. Apr 18 - 20 (Tues - Thurs): Ft. Lauderdale FL
9. Apr 25 - 27 (Tues - Thurs): Las Vegas
10. May 1 - 3 (Mon - Wed): Los Angeles
11. May 4 – 5 (Thurs – Fri): Seattle

I can send you a suggested meeting agenda - just ask - but because our one-on-one time together will be totally focused on your needs and your story, no two sessions are ever the same so the agenda is highly flexible.

If your city is not listed above and you would like me to come to you, I’m happy to go almost anywhere in the continental US or Canada as long as you book a full day session and pay a one-time all-inclusive travel fee of $500. Thus for a flat fee of $2000 I will come right to your door and spend a full day with you.

To register, simply call me, Scott Sillcox, at 416-315-4736 or email me at ssillcox@rogers.com and book your face-to-face time - you can lock-in a confirmed session right over the phone.

1 comment:

  1. Thanks Scott! Very real and very informative stuff!

    ReplyDelete

Thank you for taking the time to add a comment - all input is welcome, especially the constructive kind! All the best - Scott