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The collegiate market, unique within sports licensing, is undergoing significant change.

By Karen Raugust, Contributing Writer
March 9, 2016

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Collegiate licensing mirrors professional sports licensing in many ways, but it also has unique characteristics. There’s a plethora of licensees and retailers that sell collegiate merchandise. But most larger schools are tax-supported and must meet the needs of students, alumni, local government and the public.

Regardless of the similarities and differences, one thing is clear about the collegiate market: It is seeing an unusual amount of change for a historically stable sector. Still, it remains vast, with the Collegiate Licensing Co. (CLC) estimating retail sales at $4.6 billion in 2014. Industry publication The Licensing Letter pegs last year’s collegiate licensing market at a more conservative $3.4 billion, indicating flat sales compared to 2013.

“The college market still suffers from supply and demand issues,” says John Staton, president of loungewear maker College Concepts. “There’s too much product out there, and that drives down price points. Licensors are working to reduce the supply and once they do, we’ll see our collegiate business grow.”

Ten years ago, a school could bask in a sea of licensees and have nothing to worry about, says Derek Eiler, co-founder of Fermata Partners. However, modern times have spurred a new approach to the business. “The industry has matured to the point where a major U.S. university can generate $3 million to $10 million in annual revenues,” he says. “So the stakes involved are very high. The schools realize they have to start managing themselves as a brand instead of a commodity-based licensing program.”

Leading schools are starting to consolidate their apparel programs under one licensee, much like professional sports leagues have been doing for years. In October 2015, the University of Texas reportedly extended its footwear and apparel relationship with Nike in a 15-year deal valued at $250 million. The University of Michigan scored $169 million during a 10-year span when it switched from adidas to Nike this past July.

One ramification of this trend is an uptick in royalty rates, especially for exclusives. Eiler estimates that the average collegiate royalty was probably in the 7%-9% range a decade ago, vs. an average closer to 14% today, with some deals as high as 20%.

Ohio State consolidated its wearables business with J. America and Fanatics in 2012. “It has led to an increased royalty rate, and maybe higher prices,” says Rick Van Brimmer, the university’s director of trademarks and licensing services. “But we were always underpriced compared to the leagues. I never understood that because it’s just about a higher royalty rate and not the commensurate value.”

Van Brimmer acknowledges deals such as Ohio State’s are a big change. “Our industry has always been open to a lot of startups and entrepreneurs,” he says. “A company with a good idea could apply and launch off the Ohio State brand. But there was some negative effect to that.”

He says Ohio State now has more control of its brand and can differentiate among retail channels and develop strategic product placements. “We no longer have our own licensees beating each other up to get store presence. They were all calling on the same accounts and that wasn’t to our benefit. It’s becoming more and more strategic, and more sophisticated.”

While the trend is toward consolidation, smaller licensees with innovative ideas still can get in the game. The University of Oregon launched the Oregon Incubator to help entrepreneurs with good non-apparel ideas get their products to market. The program provides know-how, fast-tracks the licensing agreement and offers initial distribution in the six university-owned Duck Stores.

Channel Management
The leading universities sell through a plethora of retailers, including college bookstores and local mom-and-pop shops. The two largest college bookstore operators, Follett and Barnes & Noble, collectively service nearly 1,800 locations. Jim Gardner, founder of sweater specialist Brüzer, says 50% of his business occurs through Fanatics, LIDS and sporting goods chain Scheels All Sports, with the remaining 50% coming from 150 different customers, including college bookstores.

Some collegiate licensors now are controlling their retail distribution via exclusives and team-specific e-commerce sites, allowing them to reach their customers efficiently and improve margins. “Schools are positioning themselves to maximize the overall customer experience in the long term,” Eiler explains.

Still, the campus local channel is growing, increasing nearly 9% for schools represented by the CLC in 2014, according to Gary Dubiel, the company’s vice president of retail development.

Similar to professional sports, collegiate licensing success is closely tied to athletic performance, especially in football and basketball. “We have 600,000 alumni who love us beyond how our teams do,” says Van Brimmer, whose Ohio State Buckeyes are among the country’s football elite, winning college football’s national championship in 2014. “But you have to tie the athletic teams to the merchandise side of the business. People love to associate with winners and achievers. I don’t really want to find out what would happen if things went downhill and [the football team] happened to go 0-12.”

That said, collegiate licensing tends to be closer to a year-round business than pro sports. “We carry college [products] in almost every store, and we almost carry [them] year-round,” says John Jankovich, buyer for Cracker Barrel Old Country Store. “We do take a breather between seasons.”

Several licensors and licensees are launching programs to help bridge the gap between athletic seasons and appeal to alumni and students at other times of year. Brüzer, which sells most of its collegiate products during the back-to-school season, launched its Convocation Collection last year, addressing increased campus traffic during the collegiate award and graduation season. “Some schools are just tied to football,” Gardner says. “But we noticed that the [Ivy League schools] have more people on campus in the spring, so there were some key retailers in those areas that we targeted.” Cornell University is among those that have introduced the collection.

The CLC offers a number of promotions to extend its licensing business to near year-round status. College Colors Day kicks off the football season, which drives sales from July through October, as well as through the holidays when the CLC’s Holiday Cheer campaign is active. Basketball propels the business from mid-January through March Madness, assisted by a Rock Your Colors promotion.

Some CLC institutions with solid baseball programs, such as Vanderbilt University, promote that sport from April through May; retailer Academy Sports + Outdoors has implemented in-store programs promoting key baseball schools in the Southwest, Dubiel says. In June, Costco, which is involved with Holiday Cheer and Rock Your Colors, highlights a Father’s Day effort to support collegiate polos and synthetics.

Industry Upheaval

Some collegiate licensing categories are in flux due to the Ed O’Bannon v. NCAA antitrust case, in which a group of former collegiate athletes argued they were entitled to payment when their likenesses appear in video games and other products — something the NCAA has long prohibited. Electronic Arts (EA) was a plaintiff in the lawsuit before reaching a settlement, and also was sued by the NCAA.

The courts ruled in favor of the athletes in 2014, meaning universities now must pay their student-athletes when they are featured in licensed merchandise. Colleges would be allowed to establish trust funds of up to $5,000 per year, accessible after the athletes’ collegiate playing days. The ruling was appealed and the legal process currently is on indefinite hold. A potentially more disruptive class-action lawsuit, seeking to establish a free market for college athletes, also is underway.

While the final resolution of either case may not come for some time, there already have been ramifications. EA exited the collegiate video game business altogether. Some colleges, such as the University of Miami and University of Georgia, discontinued using player numbers on their Nike products. “[These universities] don’t want any external perception that they’re exploiting their student-athletes,” Eiler says. “The jersey business is just not meaningful enough for any level of activation to be worthwhile.”

But the flow of counterfeit player-identified merchandise hasn’t stopped. “If it has the name and number on the jersey, we know it’s 1,000% counterfeit,” Van Brimmer says. “The ways we can pursue and stop these are very limited now that you can get them anywhere. We can’t stop the containers coming in because the merchandise goes direct from the factory to the consumer. It’s very disturbing to go online any given day and see Ohio State product with players’ names and numbers, and the Nike swoosh and the Big 10 logo.”

One solution is participating in cross-licensing programs that involve former college stars, as trading-card licensee Panini America is doing under license from the NFL Players Association and CLC.

“I always say if you want to know what’s important to people, go to a cemetery and see what’s on the headstones,” Van Brimmer says. “It’s faith, family, military service and probably right behind that is affiliation to their university. You carry that loyalty throughout your life and pass it to your kids and grandkids.”

Karen Raugust is a Minneapolis-based freelance writer specializing in licensing, marketing and other business topics. For more information or to comment on this article, or read her twice-weekly licensing blog trends, visit raugustcommunications.com.