Business of Sports Licensing

Today sports licensing emerges as one of the fastest growing segment of the global licensing industry. The size of the global sports licensing industry is approximately $17.5 billion which accounts for 11% of the global licensing industry. The concept of sports licensing was first introduced in ancient Rome where the athletes were paid for using their images on the products sold at the Circus Maximus. The National Football League (NFL) was the first sporting organization to introduce a formal licensing programme in 1963. At present, structured licensing programmes are used by most of the leagues, events, clubs and sports bodies. Even the Colleges and Universities in many countries use the licensing programme for generating revenue. It is, therefore, essential for a sports manager to understand the fundamentals of licensing.

Licensing can be defined as the right to use the image or a logo or the name of an athlete or an event or a team or an organization. According to Lehu, a license “details responsibilities of each party, the conditions and terms of use as well as the royalty payable to the owner based upon the limitations on the use of license.” Licensing is a two dimensional process which involves two parties – a licensor and licensee. The licensor provides the right to use its name or logo or image to the licensee, while the licensee pays royalty to the licensor. This license is used by the licensee to distinguish its products from the rest available in the market. A research reveals that the customers are 50% more likely to purchase those products which carry the symbol of sporting entities. Thus, it is evident that licensing is a mutually beneficial process for both the licensor and the licensee.

In the USA, sports licensing business is dominated by the major sports leagues such as NBA, NFL, MLB, NHL and NASCAR. Smaller leagues, such as Major League Soccer, also make their presence felt in the business of sports licensing. A report estimates that one fifth of per annum profit of World Wrestling Entertainment (WWE) can be attributed to its licensing programmes. The football clubs of Europe enjoy a prominent position in the business of sports licensing. The success of the licensing programme of these leagues and teams can be attributed to their popularity and constant emergence of sports icons.

The success of a licensing programme largely depends on the recruitment of a suitable licensee. The licensing strategies adopted by most of the sporting organizations are personal networking, direct mails, trade show networking etc. (Irwin and Stolar, 1993). The licensee, at the same time, should demonstrate its ability to maintain quality control, financial stability and a comprehensive plan to promote products. It is the duty of a licensor to review the quality of the products under consideration, its packaging, advertisement campaigns etc as the reputation of the licensor is associated with these products. A licensing agreement is made when the licensee fulfills these parameters successfully.

Licensing agreements can be divided into various categories. ‘Exclusive Licensing Programme’ allows the licensor to limit the number of licensees in a specific geographical region or a product category. This programme helps the licensor in developing a strong relationship with the licensee and also to prevent unlicensed, illegal merchandise. On the contrary, a ‘Non-exclusive Licensed Programme’ invites competition among the licensees of the same product range or geographical region. In ‘Joint Use License’ programme, two or more licensors agree to use their logos together on merchandize. In ‘Promotional Licensing’ programme, a licensee is allowed to use the licensed items for short term promotional initiatives, such as a campaign to launch or promote a product. Except the fourth category, the other programmes are made on annual or bi-annual basis.

Billions of people follow sports and cheer for their teams and players. Their passion directs them to purchase the licensed merchandize of their teams, players or organization. Their passion provides an opportunity to the business of sports license to grow further and to emerge as a prominent segment of the global business of sports.