Sports Business

Dollars say Dwyane Wade a better investment for Bulls than Derrick Rose

Dollars say Dwyane Wade a better investment for Bulls than Derrick Rose

The NBA offseason has been a bull market for free agency. The league's massive new television agreement virtually triples the amount of money the NBA makes from rights fees, compared to its previous deal. With a higher salary cap, teams could spend millions of dollars on new players during the free agency period. The question for all teams became: how could it most effectively spend this new money on players that would have the greatest overall impact on their organization.

The Bulls made several notable free agent moves this summer. The biggest transactions involved a trade between the Bulls and New York Knicks headlined by Derrick Rose and Robin Lopez, the signings of Dwyane Wade and Rajon Rondo, and not re-signing Joakim Noah or Pau Gasol. Many fans are still debating whether these moves will help the Bulls return to their winning ways and enable them to once again make the playoffs.

However, Block Six Analytics Revenue Above Replacement (RAR) model shows that the Bulls should be a clear winner in acquiring new players that can generate more potential revenue for the team. RAR evaluates how an individual player’s on-court and off-court performance impacts a team’s ability to make money. Why on-court and off-court factors? While winning is important, NBA teams don't only generate revenue based on their on-court performance. For example, the Bulls had the highest overall attendance this year despite not reaching the postseason. Therefore, players should not be judged solely by their on-court performance.

[GROSSMAN: Kevin Durant's Golden State decision is a winner for the NBA]

To evaluate both factors, RAR uses regression analysis to determine what percentage of a team’s revenue is generated by its on-court and off-court performances. For on-court performance, RAR uses one of the most common on-court analytics called win shares to determine an individual player’s impact on a team’s ability to win games. According to Basketball-Reference.com, a “win share” is a “way to divvy up credit for a team’s success” to each individual player based on how his offensive and defensive production — essentially his points produced – points allowed — compare to league averages. For off-court performance, we examine a player’s individual revenue contributions via jersey sales, media exposure, social media presence, and fan engagement. We then apply a player’s on-court and off-court impact to his team’s revenue streams to determine his overall value.

The Bulls added $8.6 million in value through the players they signed based on 2015-16 results. Gasol generated the most of the three major players no longer with the Bulls at $31.4 million last season. Rose was second at $23.5 million and Noah was third at $7.8 million. This means that these players contributed a combined total of $62.7 million for the Bulls. In contrast, Wade generated $29.3 million for the Miami Heat, Rajon Rondo generated $22.4 million for the Sacramento Kings and Lopez generated $19.6 million for the Knicks for a total of $71.3 million.

[SHOP: Gear up, Bulls fans!]

We also used RAR to examine how the new and old Bulls should perform next season. What we discovered is that our 2016-17 projections create an even larger gap. Wade, Rondo, and Lopez are projected to generate a combined $104.3 million for the Bulls. Rose, Noah, and Gasol are projected to generate a $63.2 million combined for their respective teams. Part of the increase in value is due to the NBA’s new television deal, however, each team receives an equal share of this revenue. That means the increase in television rights fees does not explain the difference in value. It is Wade and Co.’s ability to generate interest, excitement, and engagement among fans, media, and sponsors that is the primary driver of the Bulls projected revenue success.

The no. 1 priority for the Bulls is to have a winning team. However, the Bulls are also business, and the team’s business does not rely solely on how it performs on the court. The players should also not be solely measured by how they perform on the court. By taking on-court and off-court factors into account, the Bulls maximized the team’s likelihood of business success through offseason moves.

Ross Chumsky also contributed to this story.

Adam is the CEO and Founder of Block Six Analytics. He is also a lecturer for Northwestern University's Masters of Sports Administration and the co-author of The Sports Strategist: Developing Leaders For A High-Performance Industry. Ross is a Partnership Analyst at Block Six Analytics.

Why Cirque du Soleil, NFL experience could come to Chicago

Why Cirque du Soleil, NFL experience could come to Chicago

With the success of the NFL Draft going mobile, the league may eventually decide to take another NFL experience on the road.

The NFL has partnered up with Cirque du Soleil to launch an interactive exhibit in New York City this fall.

The attraction, titled NFL Experience Times Square, will include interactive screens, an auditorium for 4D shows, coaches clinics, autograph sessions and much more.

[BEARS TICKETS: Get your seats right here]

CSN Sports Business Insider Rick Horrow explains why taking the experience on the move could be a good thing for the franchise value of the Bears.

"This is an example of a $25 billion NFL business joint-venturing with another pioneer in the entertainment industry Cirque du Soleil to make it better," Horrow explained. "Here's the case, because the NFL Draft has become mobile with Chicago leading the way, then Philadelphia, the Pro Bowl, the Super Bowl, you can't believe it's not an opportunity for potentially doing this NFL experience along the streets of Madison Avenue, along State Street, as well as Michigan Avenue.

"How about downtown Chicago on the way to other places."

Watch the video above to see what else Horrow had to say about the NFL Experience possibly coming to Chicago.

Sports business: Using targeted promotions to earn more dollars

Sports business: Using targeted promotions to earn more dollars

In Monday's episode of National Public Radio’s (NPR) Fresh Air Joseph Turow, professor of communications and associate dean for graduate studies at the Annenberg School for Communication at the University of Pennsylvania, ominously "Warns That Brick-And-Mortar Stores Are Watching You."

While this may seem a bit like the real-life equivalent of "Big Brother" from George Orwell's book 1984, Turow is describing the reality that the tracking companies do in e-commerce has moved more fully into the offline stores. Using technology including mobile applications, iBeacons, loyalty cards, geo-targeting, and geo-fencing companies have more information about customers in-store buying and behavioral patterns. This enables companies to design targeted adds and promotions specifically tailored to customers that can increase the likelihood of them making a purchase.

While the ethical implications of this activity would require and entirely separate blog post, Turow and host Terry Gross discussed an important idea that comes from having this technology. In the past, companies have focused on rewarding and retaining loyal customers. Those are the customers that keep coming back and buying a company's products or service offerings. Because the cost of keeping a customer has been much lower than attracting a customer it would seem to make sense that companies would want to focus on keeping the customer's they have.

However, this may no longer be the optimal strategy for maximizing revenue growth. Instead, companies should be focused on the marginal customer rather than the most loyal customer. A loyal customer is loyal for a reason – he / she likes the company's service offerings. Why spend money on advertising and promotions if that person is already likely going to buy the product anyway?

Instead, targeted promotions should be focused on customers that will only make a purchase if they are influenced in the right way. For example, let's say a customer is indecisive about buying a pair of jeans. In the past, this customer may have tried a pair of jeans on and then left the store without purchasing them. Now, a customer can download a company's app to access additional content, deals, and other helpful information. In return for delivering these benefits the company can receive information from the app that shows the location of the person while he/she is in a store. It can then use a geo-fence, a virtual fence that surrounds a geographic area, to determine when a customer leaves a specific geographic area. If this customer leaves the store without making purchase after spending a certain amount of time (i.e. the time to try on the jeans) then the company could send a targeted ad saying that the customer has 15 minutes to come back to purchase the jeans at a 15 percent discount. Essentially, companies now can identify "disloyal" customers and then attempt to bring them back to stores to make purchases.

Using technology to reward "disloyal" customers is something that sports organizations need to increasingly focus on given the demands of the business. More specifically, there are loyal fans that are going to buy tickets, watch games, and purchase merchandise even if they do not see any advertising from a team. These customers add significant value and should not be ignored. However, sports organizations want to focus on targeting the marginal customer using new technology to encourage ticket sales, in-venue purchases and increase game viewership.

The added benefit of using technology and customer outreach in this way is that it should increase sponsorship revenue as well. Not only can sports organizations use targeted promotions to help their current sponsors expand reach, but organizations can also show how these targeted marketing efforts cause lifts in purchasing. For sports teams, clearly communicating how sponsorship/marketing assets are used to create a lift in sales provides powerful evidence of how similar tactics can drive new revenue for partners. Rewarding "disloyalty" seems counter-intuitive, but there are many ways that targeting marginal customers should lead to substantial revenue growth.

Adam is the CEO and Founder of Block Six Analytics. He is also a lecturer for Northwestern University's Masters of Sports Administration and the co-author of The Sports Strategist: Developing Leaders For A High-Performance Industry.