Part 2 - An Insider’s Guide to the World of Licensed Sports Products: What’s Involved in Getting a License – You need them far more than they need you

Greeting folks!

This note is written by Scott Sillcox in fall 2023 in response to a lot of readers asking me two questions:

A. You wrote and posted this 12 part blog in 2012-ish, is it still relevant today? Short answer - absolutely! The basics of sports licensing change very little over the years, so I strongly suggest that if you are trying to learn about sports licensing, read away! I have also tried to update certain areas where there have been significant changes, so I feel comfortable in telling you that this information is still highly relevant.

B. You mention that you are a consultant and might be able to help me, do you still do consulting? Short answer - absolutely! I work in the licensing field virtually every day of my life, so if you have questions or would like my help, contact me! The two primary ways I work are hourly telephone consulting ($175US/hour) and face-to-face meetings where I come right to your office for a full day ($1500US/day + $650 travel expenses).

Many thanks and happy reading -
Scott Sillcox

Please also 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.

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Greetings!

This is Part 2 of a 12 Part Series of blogs Scott Sillcox wrote called “An Insider’s Guide to the World of Licensed Sports Products”. 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

I am a big believer in perspective, so just as the first blog in this series explained how in the case of MLB, $5,000,000,000 of retail sales turns into only $10,000,000 (or less) per team, a little perspective is needed to understand what is involved in obtaining a license to produce a licensed sports product.

Perspective #1: You need them far more than they need you
No matter how big you think you are, or how great your idea is, please keep coming back to this truism: You need them far more than they (meaning the leagues) need you. In fact, I don’t like sounding negative, but they really don’t need you at all – I’m not trying to be mean, but I want to give you a reality check. If you take nothing more than this truism away from this blog, you will have learned an invaluable lesson about licensed sports products – You need them far more than they need you. Accept this fact and you will be well on your way to understanding the world of licensed sports products.

Perspective #2: Soft goods licenses vs hard lines licenses: Part 1
Traditionally, all products licensed by sports leagues fall into one of two categories:
A. Soft goods
- Sometimes referred to as soft goods and headwear; or apparel; or apparel and headwear.
- This category is generally dominated by Nike, Reebok, adidas and a handful of other apparel giants.

B. Hard lines
- Sometimes referred to as hard goods; or trinkets and trash.
- Electronics, especially video games, falls into this category although some people/leagues might call it a third category – I am going to leave Electronics as part of Hard lines.
- This category has no giants on the scale of the apparel companies, rather this category is characterized by lots and lots of small, entrepreneurial companies.

The perspective you need to understand is that soft goods licenses are generally multi-year licenses, while hard lines licenses are generally one year licenses. Why is this the case? Any number of reasons, but the important thing to understand is simply this – soft goods are generally multi year licenses, hard lines are generally one year licenses.


Perspective #3: Soft goods licenses vs hard lines licenses: Part 2

If you have a soft goods product that you would like to get licensed, you’ve got a harder hill to climb than if you have a hard lines product. This is because soft goods, as noted above, is generally dominated by the big boys and for you to muscle your way into that group is going to take a lot of work on your part. And for you to even be considered you are going to have to make a large financial guarantee to the league. And even then you are going to have do a great sales job convincing the league’s licensing people that your soft goods product is significantly different than the existing licensees – the hurdle that you are going to have to climb is the reality that the league’s existing soft goods licensees, whoever they may be, have spent a LOT of money with the league in the form of an upfront royalty payment and one thing that the league gives back to those licensees is some level of exclusivity and protection from a multitude of licensees for a specified period of time.

Let’s say you are a ball cap manufacturer and you are would like to get a license from the league. It’s a certainty that the league has an existing cap licensee, maybe more than one. The league simply has too much at stake with their existing licensees – the existing licensees have paid a lot of money for some form of exclusivity, and the league is going to tell you that the ball cap category is full. Your only real hope in getting a soft goods license to produce ball caps is to understand when the league is going to review their ball cap license agreements (ie when the current licenses expire) and be ready to make a proposal at that time. At some point the league will be reviewing their ball cap license(s) – this might be every five years, or ten years, so you will need to be patient, prepared and ready to write a big honking check to wrestle the license away from the incumbent(s).

One exception that I can think of is if you truly have a unique product – like the folks from Crocs (footwear) had in 2004-ish. Crocs was a runaway success story in the footwear world and when they came knocking on the NFL’s door in 2004-ish for a soft goods license to produce and sell NFL team-branded Crocs, the NFL was willing to listen because the casual footwear category was not full – in fact, the were no casual footwear licensees . But you can be sure that the NFL charged Crocs a whopping annual upfront guarantee, and as big as Crocs were at the time, I’ll bet even they had to think twice about agreeing to the amount that the NFL was demanding.

But Crocs was an exception. In the case of the NFL, their official web site states the reality:
“At this time [June 2011] we are NOT licensing the NFL Marks in the following product categories”: [The breakdown by soft goods vs hard lines is done by the author Scott Sillcox to better let you understand the difference between soft goods and hard lines when it comes to applying for a license.]
• Headwear - men's, women's, children's [soft goods]
• Apparel - men's, women's, children's [soft goods]
• Sleepwear/Loungewear - men's, women's, children's [soft goods]
• Underwear - men's, women's, children's [soft goods]
• Swimwear - men's, women's, children's [soft goods]
• Jackets/Outerwear - men's, women's, children's [soft goods]
-----------------------------------------------------------------------------------
• Helmets [hard lines]
• Footballs [hard lines]
• Video Games [hard lines]
• Trading Cards [hard lines]
• Throws [hard lines]
• Duffle Bags [hard lines]
• Bean Bag Chairs/Portable Fold-up Chairs [hard lines]
• Tents and other Similar Shade Structures [hard lines]
Virtually the entire soft goods category is closed – what other soft goods are there besides headwear, apparel, sleepwear, underwear, swimwear and outerwear? Hey, how about casual footwear?

If you have a hard lines product that you would like to get licensed, the odds are more in your favor than if you are a soft goods company. But that’s still not saying too much. The NFL went through a period of time (2004 – 2007ish) when they were publicly refusing to issue any new licenses for hard lines manufacturers. There were a handful that slipped through and became new licensees, but these were very few and very far between (one or two new hard lines licensees per year) and I would suggest that in each case the new product was extraordinarily good/compelling with a proven track record in another sports league or licensed products category (Disney, etc.).


Perspective #4: Players’ Association?

Are you seeking a league license or a blended license with the league AND the players’ association? In other words, is your product designed to feature the name and/or likeness of current payers? If so, you will need a joint or blended license between the league and the players’ association. I will write more on this in upcoming blogs, but the takeaway at this point is that if you are seeking a joint license from
- NFL + NFLPA
- MLB + MLBPA
- NHL + NHLPA
- NBA + NBAPA
- Not so applicable to WWE / NASCAR / MLS / PGA / UFC
- Not applicable to NCAA
you have just made the process of becoming a licensee twice as challenging – not impossible, but harder than if you are seeking a league-only license. So if you want to increase your odds of becoming a licensee, steer clear of joint licenses, at least initially.


Perspective #5: Try to see things from the league’s perspective
Keep in mind what I said at the outset – you need them far more than they need you.

Try to see things from the league’s perspective – they are being contacted (bombarded is a better word) on a daily basis by would-be-licensees with the next great idea. Many of these are one or two person operations with nothing more than an idea and a dream, but many are larger operations not used to being told “no”. The league licensing people simply do not have the time or energy to listen to each idea and dream. Instead they almost cover their ears and hope the endless parade of schemers and dreamers knocking on their door will go away by making the process seem overwhelming.

In many cases these dreamers and schemers (and I use the terms lovingly!) have an idea, maybe a great idea, but they have no real sales contacts in the licensed sports products industry, no sales force, no existing relationships with retailers, no manufacturing facility, no track record in this industry – in short they are bringing very little if anything to the table other than an idea, and for that reason the league basically wants them to quietly disappear, to go away and never to come back. I am not trying to be mean spirited about the leagues, I am asking you to see things from their perspective.


Perspective #6: Working with an existing licensee
One way that some of the leagues try to make you go away is by suggesting to prospective licensees that they take your idea to an existing licensee and work some sort of arrangement out with them. I wish I could provide you with the exact wording the leagues use – the NFL used to have this suggestion right on their website – but I cannot find the exact wording and it is no longer on the NFL site - nonetheless the point is the league might steer you towards working with an existing licensee. The league is more than likely doing this as a “brush off”, but hold on a moment.

Being an entrepreneur myself, I can hear your entrepreneurial mind shutting down and dismissing this suggestion – “I’m not taking my idea to someone else so they can steal it from me. Forget it.”

But since the alternative is not getting your product licensed, ever, you might want to reconsider your harsh stance. I would advise anyone faced with the prospect of seeing their product NOT come to market vs working with an existing licensee, to consider very strongly the idea of working with an existing licensee who has a good reputation for integrity and getting products to market. If you don’t know the companies involved, who to approach or how to approach them, I can help. Based on your product idea, I can suggest an existing licensee(s) who you might want to consider partnering with and vice versa. You will have some selling to do to them rather than the reverse (even in this instance you need them far more than they need you), but it is possible to work together and I can help make it happen. It’s the old “Half a loaf of bread is better than none” philosophy.

Below please find three links to a great three-part article about new product licensing by Ed Zimmer of “The Entrepreneur Network” and even though it was written in 2004, it is highly applicable to this subject. It wasn’t written with sports products in mind, but it is 100% applicable to licensed sports products and working with an existing licensee to bring a product idea to market.
Part 1:
Part 2:
Part 3:
(If these links  don't work, contact me and I can send you the article as a 9 page pdf document.)

Now that we have some perspective on things (especially the fact that you need them far more than they need you), let’s get to some of the nuts and bolts of “What’s Involved in Getting a License”.

These are some of the licensed sports products that Scott Sillcox and Maple Leaf Productions produced.

1. The Application:
The process begins with an application and the application takes a considerable amount of time to complete properly and fully:

- You submit an application to the league.

- Here are links to the:
NFL application
NHL application
and
NCAA application (at least for all NCAA schools repped by the Collegiate Licensing Company, aka CLC – for more on the NCAA and licensing, see Blog Part 12)

As far as I can tell, at the present time the MLB, NBA, PGA Tour, UFC and WWE all seem to want potential licensees to contact them directly by phone or email to request a license application vs posting one online for you to download.

For a fairly detailed list of Links to license applications for the NFL, MLB, NBA, NHL, NCAA, MLS, Nascar, UFC, WWE, PGA, CFL and USTA, please see Part 12 of this blog (go to Section 19 of Part 12).

- In the case of the NFL, applying is a multi-step process, the first which is to submit what they call a “Pre-qualification application” but what I would call a full-fledged application.

- For most of the other leagues, it is a one step process.

-The point is that no matter which league you are applying to, you are going to have prepare a formal application, and preparing that document will require gathering and presenting a lot of information, some of which is likely confidential. Count on this process taking the better part of a week, maybe more, to prepare. You don’t just “whip off” an application for a license in an afternoon.


2. Minimum requirements:
In most cases, the leagues have a variety of minimum requirements. In the case of the NHL, these are:

1) Your company must have a minimum of five years experience in manufacturing and distribution to retail.

2) Your company must have five years experience in each of the product categories for which you are seeking an NHL license.

3) Your company must be a manufacturer, not a middleman, distributor or
promotional products company

You might well ask - Why do they require these things and are they sticklers on these requirements? The leagues have minimum requirements as a mean of weeding out 90% of the dreamers and schemers who come knocking on their door seeking a license. Remember, you need them far more than they need you. And yes, they are largely sticklers vis a vis their requirements. That being said, if you “almost” meet a requirement but don’t quite, don’t let that stop you – keep in mind what the leagues are trying to do more than anything by posting minimum requirements is to reduce the number of applicants they have to deal with.


3. You must be a manufacturer
As stated above, one of the minimum requirements of most/all of the leagues is that you must be a manufacturer, not a middleman, distributor or promotional products company. This doesn’t mean that you have to own a factory – it does mean that you, not some other company, have contracted with a manufacturing facility to make the product. The key? That you have contracted to have the product manufactured. If you’re simply buying the product from someone, that is a deal breaker and will kill your application.


4. Guarantees

Let’s now address how the leagues typically structure a licensing agreement and the world of “Guarantees”.

A. Royalty Rate
The league tells you what the royalty rate is going to be, there is no negotiation. For purposes of this exercise, let’s assume it’s 12%. This means that 12% of your wholesale sales (sales to the first level of distribution – see Blog Part 1 for what the first level of distribution means) is paid to the league as a royalty. So if you sell $1,000,000 worth of wholesale product in a year, you owe the league $120,000.

B. Annual [minimum] guarantee
You and the league are going to negotiate an annual [minimum] guarantee. In other words, you and the league are going to reach a contractual agreement on the [minimum] amount of money that you will pay the league in that licensing year, regardless of what your sales are. And by “negotiate”, I mean there is a little give and take, but not too much – the league more or less dictates what the annual guarantee will be. Let’s assume that you negotiate an annual guarantee of $100,000 – this means that you must pay the league at least $100,000 of royalties. This is known as an annual [minimum] guarantee. If you only sell $200,000 worth of product and therefore think you only owe 12% of $200,000 = $24,000, think again – you owe $100,000. Conversely, if you sell $2,000,000 worth of product, you will owe the league $240,000 of royalties.

C. Up-front payment
The league is going to demand that that you pay a large percentage, if not all, of your annual [minimum] guarantee “up front”. Using our example of annual [minimum] guarantee of $100,000, the league will likely ask for at least 80%, and perhaps all 100%, of the $100,000 guarantee up front – before you have sold even $1 of product, you will have to write a large check to the league. Don’t like this? Don’t think this is fair? Then don’t apply for a license because you need them far more than they need you. And if you sell $2,000,000 worth of product, you will owe the league $240,000 of royalties – assuming you paid $100,000 up front, the balance will be paid on a monthly basis as the sales are made, not in a one time payment at the end of the year.

D. More on guarantees:
Let me make this as clear as I can – once you have become a licensee, the league wants you to succeed. They want you to meet and exceed your annual [minimum] guarantee. The league does not want you to sell only $200,000 of product if you guaranteed that you would sell $1,000,000 – the league does not want to make money on the annual guarantee – they want you to succeed and to be a successful partner. But if your sales fall short, they are going to hold you to the annual guarantee, most or all of which they have already collected up front. And if you undershoot your annual guarantee for more than two years, you are likely not going to have your license renewed.

Let me make that point once more – if your sales fall short of the annual [minimum] guarantee for two years in a row, even if you have paid the annual guarantee in full in advance, they are almost certainly going to terminate your license by not renewing it at the end of its term. The league will simply view you as an unsuccessful licensee and want to end the relationship. And because you need them far more than they need you, you have no negotiating power, so goodbye license.

E. Even more on annual [minimum] guarantees:
You will never see this published by a league as gospel or even as a guideline, but here are some educated guesses based on experience as to what some of the leagues are charging as annual [minimum] guarantees. These figures are for hard lines licensees with league-only licenses (ie not soft goods licenses nor joint licenses between the league and the Players’ Association, in these cases the annual [minimum] guarantee will be significantly higher).
Probable annual [minimum] guarantees:
NFL: $100,000
MLB: $35,000
NBA: $30,000
NHL: $25,000
NCAA: Ranges from $0 for some schools to $10,000+ for others
WWE / NASCAR / MLS / PGA / UFC: Less than $100,000 but likely more than $15,000

* FYI, this is the top page of our actual MLB contract.

* FYI, this is the top page of our actual NHL contract.

5. Negotiating your annual minimum guarantee – Braggers Pay

Allow me to share some personal experience to make the point that “Braggers Pay”.

- As part of the application process, the NHL asked me to estimate what our annual sales would be in Year 1 and Year 2 (at the time the annual royalty rate was 10%, not the more standard 12% it is now):

- My natural inclination was to aim high, otherwise the league might not be interested in me as a licensee, so I estimated annual Year 1 sales to be $500,000, and year 2 sales to be $750,000.

- The NHL came back to me and said, “Okay, you estimate your annual sales will be $500k in Year 1 and $750,000 in Year 2, so we are going to set your annual guarantees at $50,000 in Year 1 and $75,000 in Year 2. And we are going to demand 80% up front in each year. That is our offer. Thank you.”

- What I failed to understand is what the generally accepted annual minimum guarantee was at the time for NHL licensees, which I later learned was in the $15,000 range.

- So what I should have put in my application was an estimate of annual Year 1 sales of $150,000, and Year 2 sales to be $160,000 (a very modest increase). In that case I absolutely believe the NHL would have come back to me and said “Okay, you estimate your annual sales will be $150k in Year 1 and $160,000 in Year 2, so we are going to set your annual guarantees at $15,000 in Year 1 and $17,500 in Year 2. And we are going to demand 80% up front in each Year. That is our offer. Thank you.”

The important lesson in this is very simple and holds true as much today as it did 15 years ago: Don’t try to be a shooter and don’t over promise – it will cost you! Braggers pay!!!

Try your very best to learn what the minimum annual guarantee is for that particular league, and forecast your sales to be in that range. Far better to under-promise and over-deliver than the reverse.


6. Annual [minimum] guarantees: The law of ever increasing annual guarantees

This is a very simple concept - the leagues are very much like a sales manager, if you sell $1,000,000 worth of product this year, they want you to sell 5% or 10% more the following year. If your annual guarantee this year is $100,000, you better be prepared for that guarantee to be $105,000 or more likely $110,000 the following year. The annual increase doesn’t seem particularly tied to the general rate of inflation, it is far more tied to your actual sales – if you met your annual minimum guarantee, they are going to raise the bar the next year.

The danger lies when you have an especially good year – let’s say you made a whopper of a one-time sale to someone and instead of selling your estimated $1,000,000 of product, you sold $1,600,000 of product. The league is going to want to use the $1,600,000 as the base target for the next year, whereas you know that it was a one-time sale that you may not be able to duplicate. You would like to duplicate it of course, but the reality is that you likely won’t. But the league is going to be very tempted to raise your annual guarantee to $160,000 the next year, not just $105,000 or $110,000.

Your primary defense against this is to make it very clear to your league licensing rep every time your communicate with them, and anyone else within earshot, that your success was due to a one-time sale and while great, highly unlikely to be duplicated.

Of course this falls apart if in the second year you again sell more than $1,600,000 worth of product – your can rest assured that you know where your annual minimum guarantee is going to be the following year.


7. What happens if you miss your guarantee
As stated earlier, the league wants you to succeed. But if you miss your annual sales target two years in a row, you are on very shaky ground and stand a good chance of not having your license renewed unless you can provide some very concrete form of evidence that the third year will be much better.


That’s all for Part #2 of “An Insider’s Guide to the World of Licensed Sports Products”.

Thanks for reading and all comments are welcome!

Scott


PS from fall 2023: In case you weren't aware, I created and constantly maintain a searchable Online Directory of 2500+ North American Licensed Sports Products Companies – it can be found at www.LicensedSports.net and only costs $59 to use for three full months. This is a highly searchable directory of licensed sports products companies in North America, companies that have been licensed by various sports leagues (NFL, MLB, NBA, NHL, NCAA, NASCAR, MLS, etc.) as well as the various players’ associations (NFLPA, MLBPA, NBAP, NHLPA). There is nothing like it anywhere on the internet, and I update the database weekly, oftentimes daily.

Virtually all 2500+ company records have a contact name with title, phone number and email address. In many cases, I list up to six contacts within the company. What's more, many of the records have a Linkedin url so you can learn much more about that contact including if you know people in common.

So if you’re looking for all the licensed sports products companies based in Connecticut, or all of the NFL licensees which sell housewares, or all companies licensed by the NBA and the NHL and MLB for soft goods, check out this terrific and highly searchable resource at www. LicensedSports.net .


PPS from fall 2023: I am a very active consultant to people looking to learn more about the licensed sports product industry - you can find the full detail here.  I spend almost every day in the licensed sports product field and I work with between 300 and 500 clients each year. There are three primary ways I work with people:

1. Hourly telephone consulting
2. Full day face-to-face meetings where I will go almost anywhere in North America to spend a full day with you and giving you a fire hose amount of information that is directly applicable to your circumstances.
3. I have a bundled package of services for those people who know that they want to work with an existing licensee.

So visit here for more detailed info and let me know how I can help you move your idea forward.