Evaluating the Effectiveness of Sports Sponsorships
In the previous article, we have already seen how multinational companies spend large sums of money in order to buy the rights to be associated with a large sporting event. Companies are willing to provide these resources since they feel that they will be able to meet their corporate objectives. Sports sponsorships are purely commercial […]
Types of Costs to be Allocated in Job Order Costing
Companies incur a variety of costs in their day to day operation. These costs are very different from one another and need to be treated differently by the accountants to give a fair picture of the organization. Here is a list of the different types of costs that are usually incurred by an organization as […]
Regret Aversion Bias
In order to be successful at investing, an investor not only needs to have mastery over their numbers, but they also need to have mastery over their emotions as well. In the past few articles, we have already discussed how emotional biases can lead to suboptimal performance in investing. In this article, we will try […]
Two Fundamental Rules of Corporate Finance
Corporate finance is based on two fundamental rules. All tools and techniques of corporate finance are mere ways and means of implementing these rules. These rules can be found at the beginning of any and every corporate finance text book. One of these rules relates to the concept of return while the other relates to […]
Conservatism Bias
In accounting and in finance, conservatism is generally considered to be a positive quality. However, studies in behavioral finance have shown that this may not be the case. This is because conservatism bias is one of the most profound biases which impact the investment decisions of an average investor. In this article, we will understand […]
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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