Licensed Sports Products and the ebb and flow of time: What can change in 10 short years

I’ve written a fair bit about how difficult it is to acquire an NFL license, and I stand by what I have said and written. It is tough sledding to get an NFL license.

But time is a curious master, and I wanted to share with you the slightly bigger picture of what time can do and what the passage of time reveals.

When I became an NFL licensee in 2000, there were a large number of licensees – perhaps 300 or more. Things ebb and flow, and shortly after I became a licensee the NFL made a conscious decision to significantly reduce the number of licensees – a real bloodletting as I recall. There could be all sorts of reasons for the NFL to decide to reduce the number of licensees (then or now), but the prevailing thought at the time, as it was explained to me by several members of the NFL licensing team, was that if the NFL had six companies producing headwear, they would fight and bicker and point fingers at each other and generally make life miserable for the NFL licensing staff, but more importantly, they would compete in the marketplace and lower the wholesale, and therefore retail, prices of ball caps. Now on the surface of things that sounds like a good thing – companies competing and prices being reduced - but look at it through the eyes of the NFL licensing team at the time…

Let’s say each of the six companies sold 500,000 ball caps, and let’s say the average wholesale price of each cap was $7.50. The NFL’s royalty (at the 2002 royalty rate of 10%) would be:
500,000 caps/company x 6 companies x $7.50 each wholesale x 10% royalty = $2,250,000 in royalties

But remove the competition (ie reduce the number of licensees from 300+ to 100), and the prices for caps are going to rise. And the thinking was that regardless of price, the number of caps sold will be the same (perhaps a flaw in the thinking I realize, but accept it for now). In this scenario, the NFL royalty would be:
3,000,000 caps/company x 1 company x $10 each wholesale x 10% royalty = $3,000,000 in royalties.

And not only would the royalties increase by 25% by reducing the number of licensees, but the NFL licensing staff headaches of trying to adjudicate the fighting and finger-pointing between licensees would also largely go away. A win-win if ever there was one for the NFL licensing team, and thus the rationale for reducing the number of licensees.

Whether you agree with the thinking or not, accept for the moment that the prevailing thinking in 2000-2001-2002 was that by reducing the number of NFL licensees, the royalties collected would increase and the headaches would decrease.

So between 2000 and 2003, the number of NFL licensees decreased from 300+ in 2000 to just less than 100 by 2003.

September 2013: I used to show a list of NFL licensees that was given to me by the NFL in 2003, but I have been asked by the NFL not to publish that list - strange but true. This isn't a big deal, so let's not sweat it. Suffice it to say that the list, which I have, shows the NFL having just less than 100 licensees and since I was given this list by the NFL in March 2003, I will presume that it is more or less accurate.

Turn the hands of time ahead to 2008, and the NFL was continuing to make further reductions in the number of licensees. The thinking, as it was explained to me in March 2008 at the NFL Hardlines Summit in Miami, was that the NFL wanted “blue chip” licensees, and by reducing the number of licensees (from 100-ish where it had hovered for 5 years) to 80 while simultaneously increasing the annual guarantees somewhat significantly, they would shed some of the smaller, riskier companies and yet still increase the royalties generated on the basis of increased annual guarantees. “If you want to remain an NFL licensee, you’re going to have to prove you belong by paying for that privilege.”

Turn the hands of time to 2012, and the pendulum has clearly swung the other way. By my count there are approximately 175 NFL licensees in 2012, a very significant increase since 2008.

Why has the pendulum swung the other way? A host of reasons, including:

1. The NFL lost the American Needle court case in 2010, and regardless of what the NFL might say publicly, the Supreme Court ruling meant the NFL needed to increase competition and that meant increasing the number of licensees, particularly on the apparel (softgoods) side of things.

2. The NFL licensing team had some turnover after 2008, and with new people come new ideas. “What do you mean they reduced the number of licensees and stifled competition – what were they thinking?”

3. The NFL licensing team realized that by limiting competition, they were also limiting creativity and ingenuity, and they were actually starving the baby, not nourishing it.

Which way is the pendulum swinging right now? Is it still on the upswing or has it reached the peak and will soon be on the downswing? My guess is the NFL is still increasing the number of licensees, and that we might see as many as 200+ licensees in the next year or two.

And what impact would a larger pool of licensees have on things? If you are someone who is interested in acquiring an NFL license, my guts says now is a pretty good time to make your case and get in line.

Here are a couple fact-driven points that I would like to make.

I have said that things ebb and flow. I said that in 2000 there were 300+ NFL licensees, and by 2003 that number was barely 100 licensees. And I have said that now - in 2012 - there are roughly 175 licensees.

Of the 98 licensees from 2003 - not even 10 years ago – what percentage would you guess are still NFL licensees in 2012? 70%? 80% 85%? I would love to ask my friends at the NFL this question, because I’m guessing they have never been asked.

So please take a moment and guess, and think why you guessed the figure you did. What percentage of NFL licensees in 2003 are still NFL licensees in 2012?

The truth is, I think even the staff in the licensing department of the NFL would be surprised by the answer. I think if we were all honest with each other, we would think a fairly high percentage would still be licensees, largely because we all want to believe that having an NFL license is a bona fide ticket to prosperity – the pinnacle of the licensed sports business, the gold standard by which all leagues are judged.

So here are the facts as best I can determine:

Of the 98 NFL licensees in 2003, only 44% (43 companies) are still NFL licensees in 2012 – more than half the licensees have fallen by the wayside in less than 10 years. I realize that some companies were purchased and thus in a sense they are still licensees, but that’s gilding the lily. I also realize that I may have missed a handful of companies because the company name has changed slightly and I may have miscounted by a few companies, but the big picture point is that it appears that less than half the NFL licenses in 2003 remain licensed by the NFL less than 10 years later.

LIST OF THE 43 2003 NFL LICENSEES WHICH ARE STILL LICENSED IN 2012
1 Action Images, Inc.
2 BIC Corporation
3 Bradford Exchange, The
4 Brax, Ltd.
5 Highland Mint, The
6 Caseworks International
7 Classic Balloon Corporation
8 Decopac
9 Duck House, Inc.
10 Electronic Arts Inc.
11 Everlasting Images, Inc.
12 Fabric Traditions
13 Franklin Sports, Inc.
14 Fremont Die Consumer Products, Inc.
15 Great American Products, Inc.
16 Hallmark Licensing, Inc.
17 Hunter Manufacturing Group, Inc.
18 Imperial International
19 Kolder Inc.
20 Danbury Mint / MBI Inc.
21 McCarthur Towel and Sports, Inc.
22 McFarlane Toys
23 Memory Company, The
24 Mounted Memories, Inc.
25 MSA
26 National Emblem, Inc.
27 Northwest Company, The
28 Party Animal, The
29 Photo File, Inc.
30 Pro Specialties Group, Inc.
31 Reebok International, Ltd.
32 Rico Industries DBA Rico Industries/Tag Express
33 Riddell
34 Siskiyou Buckle Co., Inc.
35 Sports Coverage
36 Forever Collectibles / Team Beans, LLC
37 Topperscot, LLC
38 Topps Company, Inc., The
39 Twins Enterprise, Inc.
40 Wilson Sporting Goods Co.
41 Wincraft
42 Winning Streak Sports, Inc.
43 Zippo Manufacturing Company

Or phrased another way, of the 175 NFL licensees in 2012, only 25% (43 companies) were licensees in 2003 - less than 10 years ago! So over a period of less than 10 years, the NFL created well more than 100 new licensees. And that doesn’t take into account the companies who became licenses in 2004 –2010 and then fell by the wayside by 2012. So it’s possible that the NFL may have licensed 150 new companies, perhaps even 175 or more, over the last nine years – a significant number of companies!

No matter how you slice it, that’s a fair amount of turnover. In one sense that’s good news if you are currently seeking a license – this suggests that it’s not an impossible dream.

On the other hand, this is a bit scary in that it reveals, no matter how you slice it, that having an NFL license is not a ticket to the promised land. And having that perspective on things is an important lesson for anyone to learn, the NFL included.

Food for thought…

Many thanks for reading and as always, please contact me if you have any questions.
Scott Sillcox