NEW YORK (TheStreet) -- This Saturday four college basketball teams will compete to determine which two teams will go on to duke it out for the NCAA championship title. The next few days of events is the culmination of the annual March Madness in college basketball, a ritual that creates a boom in business for retailers selling licensed merchandise for the winning teams.
In fact, the overall collegiate sports licensing is a huge market ripe with opportunity for small retailers and not just from March Madness.
According to The Collegiate Licensing Company, the licensing affiliate of IMG College, annual retail sales for collegiate licensing in 2012 were $4.62 billion, a record high and up from just $2.9 billion in 2004. Merchandise attached to college licensing sells more licensed goods than any major league sport with the exception of Major League Baseball.
Consumers love buying everything from T-shirts and sweatshirts to Apple
TheStreet took the opportunity to speak with The International Licensing Merchandiser's Association's senior vice president Marty Brochstein about what it takes for a small retailer to get in on this profitable market.
(Full disclosure: This reporter is a Wildcat. I went to graduate school at Northwestern University.)
Why is collegiate licensing so hot and how has it been essentially "recession-proof"?
Brochstein: I guess I should start with a rather basic statement which is whether you're licensing, whether you're a manufacturer that is licensing in a brand or if you're a brand owner and you're licensing it to somebody else, whatever size the brand is it's built on emotion. The essence of any brand is that it evokes something.
If you're looking at a brand potentially to license in, if you're a manufacturer and you make widgets and you're looking to license in a particular brand, you have to evaluate what that brand brings to the party.
A customer who is a Northwestern alum, I'll presume that they have some warm feelings toward it, so they are going to perhaps be open to buying a piece of apparel or having a pillow, or replica of a football helmet or something of that sort in their home or on their body that broadcasts to people, 'Hey, I went to Northwestern. I'm proud of it.' Now when you take it into the realm of athletics where let's say that Northwestern actually made the tournament
So that's what's behind the merchandise sale. Do you need another purple shirt? Possibly not, but if you're excited about what Northwestern is doing and you're going to a bar with all the other Wildcat fans, then that's what we're building on here, and that's the essence of collegiate licensing, whether it's for the home or apparel or any other product category.
Is it difficult to get a license agreement?
Brochstein: There is a basic deal structure. As a manufacturer if you are interested in the license, you will go to the school itself or if the school has a licensing agent. Collegiate Licensing Company is an agent for a huge number of schools and conferences and things of that sort. There are a couple of other agents out there and a few schools handle it on their own, but you will go to the agent or the school. You will submit an application, which I'm sure they'll have available online, and it will ask you some very pertinent business questions because they have an interest in doing business only with quality companies. You will agree to pay, if assuming your application is accepted, you will agree to pay a royalty, generally it's based on the wholesale price of whatever you're selling. The royalty probably is somewhere speaking broadly 7% to 10% of wholesale, generally.
There is going to be a guaranteed minimum, which basically says that I, the manufacturer, even if I don't sell one piece, I am contractually required to pay the school X amount of dollars and the function of the minimum is to make sure that a manufacturer doesn't just go around taking 40 or 50 licenses and seeing what works, and just abandoning the other ones. So basically it makes sure the manufacturer has some skin in the game.
Are these negotiable terms or is it each school has their terms and that's that?
Brochstein: Every term is negotiable, but there is a basic royalty rate that is published. It's like any other business where if you can show that there is a good reason why you should have a lower advance, a lower minimum guarantee and maybe a higher royalty rate. Licensing was once described to me as the attorneys' full employment act.
How long does it take to agree on a licensing deal?
Brochstein: It can take anywhere from a couple of months to up to a year. You shouldn't expect to get it done in a week.
Collegiate licensing goes on year round. The hook right now is the Final Four and March Madness and all that, but there is collegiate licensing that goes on year round, and it's not all tied to sports. Some of it is just school pride. Walk through the NYU bookstore or the Northwestern bookstores, there's a lot of merchandise on sale there and that goes on, it's a 12-month business. Obviously it spikes, but it is a year-round business.
So what are the best products? Besides apparel, are there products that are maybe off-the-beaten path that would work well as well?
Brochstein: Schools, and the pro leagues for that matter, are always looking for new stuff. The home area is one area they've really been trying to grow. Another area that's been a major growth area is tailgating and party supplies. If I'm a widget maker what I should be doing is coming to them saying, 'I make these great widgets and it can benefit you and me because these are really unique widgets, and if I put a collegiate mark on it then it's going to make it that much more attractive and all that.' So basically it's do what you do well, and then the addition of the license hopefully you have an equation of 1+1=3.
I mean there are categories that pop up that didn't exist five years ago, and you just have to be on trend with what it is you're making. But again, the value to the school or to the licensor is that you if you're coming to them for a license you know your business and you should say, 'Wow. There's a real market opportunity with what I do,' and again the application of the collegiate mark will enhance it so that everybody makes money.
What about location of the business? These days do you have to be a bricks-and-mortar retailer within one mile of the school?
Brochstein: Obviously proximity to the school helps. There are a few 'national' schools whose merchandise sells all over. Notre Dame is the example a lot of people pull out, but schools like Ohio State and Texas have large, national followings.
With the advent of online retailing it's as though it was created for displaced fans and displaced alumni. It used to be, let's say I was a Northwestern fan living in New York. Where would I go to buy Northwestern stuff? Nowhere. But now I have access to any number of Web sites a way to acquire goods. I could be living in Tokyo and I can get my Northwestern stuff. So the advent of online retailing was really a Godsend to the sports business. It gave them a wonderful channel for the displaced fan.
-- Written by Laurie Kulikowski in New York.
To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.
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