Gordon Growth Model: Pros and Cons
The Gordon growth model is a well known and widely known model for valuing equity securities. However, as with every model, there are some pros and cons that need to be understood before this model is applied. Understanding of these pros and cons will help differentiating between situations wherein it would be prudent to apply […]
Market-Based Vs Bank-Based Financial Systems
Commercial banks do make some money by providing services such as transaction processing and payroll processing to their clients. However, to a large extent commercial banks make money by making loans to corporations. Interest income is the predominant source of income for banks around the world. Now, this puts commercial banks in direct competition with […]
A Primer on Private Placements
When we think about investment banks, as well as the activities that they undertake, we tend to think about initial public offerings, debt syndication, and other such activities that are very visible to the public eye. However, the reality is that a lot of investments that are routed via investment banks are actually private placements. […]
What is Financial Modelling?
Planning is the cornerstone around which business empires are built. Businesses which survive and thrive in the long run are often businesses which have diligently kept track of their external environment and continued to plan ahead. In many ways, planning is intuitive to human beings. Every salaried individual plan how they are going to pay […]
Mental Accounting
Traditional economic theory assumes that all money is fungible. The meaning of the word fungible is “interchangeable.” Hence, according to economic theory, if we have $100, the value of that should be the same for us regardless of how that was obtained. However, behavioral finance theory argues that this is not the case. According to […]
In the previous article, we have already studied what merchandising is. We now know why it is an important source of revenue for the sports team. We also know how the business of merchandising is conducted and what are the benefits of the same. However, it needs to be understood that there are a lot of issues which are related to merchandising as well.
In this article, we will have a closer look at some of the issues which impact merchandising. The common issues have been identified and listed below:
However, if the team is not performing well, then the fans may not have positive feelings towards the team. As a result, they may not purchase products related to the team. Hence, it can be said that when it comes to sports merchandising, the sale of sporting products is not directly related to the quality of the sporting goods or some other innate attribute of the product.
Instead, the product derives its value from the external performance of a team or an individual player. This makes the sales of the product very unpredictable and hence makes merchandising unpredictable as a source of revenue.
The end result is that counterfeit products start to cannibalize the sales of the original products. Counterfeiting of sports merchandise is a big problem, especially in developing countries. This is because the gap between official and counterfeit merchandising is quite large in such countries.
Hence, a large number of fans end up buying these knockoffs since they make more economic sense. Sports leagues need to ensure that the selling price of their merchandise is in line with the income of the fan base after taking the purchasing power theory into consideration.
For example, many soccer leagues go on for more than six months in the year and fans can wear their merchandise to an event every few days, they are likely to spend money to buy it. On the other hand, the World Cup lasts for a couple of months and happens only once in four years.
As a result, fans are less likely to spend money buying merchandise related to the World Cup. The merchandise purchased now is likely to become outdated by the next World Cup.
However, when it comes to semi-urban and rural areas, fans might find it difficult to buy sports merchandise even if they want to. The end result is that the licensor focuses on selling these goods online. This is because it is not economically viable for the licensor to establish a physical distribution network given the high cost. However, there are problems associated with online selling.
Some of the people who work in the factories where the goods are produced work in really deplorable conditions. Earlier companies would try to distance themselves from these sweatshops by saying that they are external contractors. However, over time, these companies faced tremendous blowback from activists as well as consumer groups.
Hence, sports leagues need to be aware that the products that they are licensing for sale should not be manufactured by taking advantage of laborers. These ethical issues have caused many sports leagues to stay away from merchandising as a whole.
The fact of the matter is that there are several issues which are associated with merchandising. Also, the percentage of revenue generated from merchandising has been going down each year while newer revenue streams have been opening for sports leagues across the world. This is the reason that the importance of merchandising has been reduced.
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