Bloomberg News

NBA Sponsors Stellar Like LeBron James: Riskless Return

June 20, 2012

Miami Heat's LeBron James

LeBron James of the Miami Heat. Photographer: Victor Fraile/BPI via Bloomberg

As LeBron James presses on toward winning his first National Basketball Association championship, the league’s sponsors can already claim victory.

The NBA’s advertising partners had the highest return and the lowest risk for shareholders in the past five years among corporate partners backing the four major U.S. sports leagues, according to the BLOOMBERG RISKLESS RETURN RANKING. The NBA sponsor portfolio, which includes 14 public companies, had a risk-adjusted return of 2.5 percent, ahead of Major League Baseball’s second-best 1.4 percent and more than twice that of the National Football League.

The low volatility of the NBA’s sponsors completes a season that was shortened to 66 games from 82 by a labor impasse and is now concluding with James’s Miami Heat leading three games to one in the best-of-seven NBA Finals against Kevin Durant’s Oklahoma City Thunder. Basketball advertisers did best even after the league replaced McDonald’s Corp. (MCD:US), the stock with the best risk-adjusted return of all sponsors, with Yum! Brands Inc. (YUM:US), the owner of Taco Bell and KFC restaurants, as its fast- food partner three years ago.

“The NBA is going to be working with real strong consumer brands, the kinds of companies Warren Buffett talks about that will still be around 10, 15, 20 years from now,” John Rogers Jr., chairman of Chicago-based Ariel Investments LLC and captain of the Princeton University basketball team for the 1979-80 season, said in a telephone interview. “In this risky market environment, those are the kinds of companies that are going to show up best.”

Beer, Tacos

The NBA sponsors produced the highest total return since 2007, with a gain of 45 percent, and the lowest volatility at 18. National Hockey League sponsors did the worst, with the highest volatility and a riskless score of minus 0.1, the only negative result.

The risk-adjusted return, which isn’t annualized, is calculated by dividing total return by volatility, or the degree of daily price-swing variation, giving a measure of income per unit of risk. A higher volatility means the price of an asset can swing dramatically in a short period of time, increasing the potential for unexpected losses, compared with a security whose price moves at a steady rate.

Yum, which sponsors basketball via its Taco Bell unit, was the best performer in that group, with a risk-adjusted return of 3.7 percent. The chain also sponsors MLB. Anheuser-Busch InBev NV (ABI), which also sponsors football and baseball, ranked second with a risk-adjusted return of 3.2 percent, and Coca-Cola Co. (KO:US) came in third with 3.1 percent.

China Presence

“These are well-run companies that know what they’re doing and they’re using us effectively,” Mark Tatum, the NBA’s executive vice president for global marketing partnerships, said in a telephone interview. “But we can’t take credit for that.”

The league is seeking relationships with businesses it thinks are stable and smart, with long-term growth and a plan for what the marketing should accomplish, Tatum said.

While football remains the most popular sport in the U.S., the NBA has the most fans in China, with more than 52 million followers on social media websites Sina Weibo and Tencent QQ, according to the league. Basketball won an increased presence in the country following the career of former Houston Rockets center Yao Ming.

Yum, which also has KFC and Pizza Hut restaurants, focused on stores outside the U.S. during the past five years, particularly China, which accounted for about 44 percent of revenue last year. The Louisville, Kentucky-based company, which has about 37,300 stores worldwide, plans to open 600 new restaurants in China in 2012.

McDonald’s Best

More recently, the chain has attempted to increase U.S. sales by offering new breakfast items and the Cantina Bell menu, created with celebrity chef Lorena Garcia, aimed at competing with rivals such as Chipotle Mexican Grill Inc. (CMG:US) and Jack in the Box Inc. (JACK:US)’s Qdoba Mexican Grill. The company has no Taco Bell restaurants in China, according to Rob Poetsch, a spokesman.

Taco Bell in 2009 entered a four-year deal to become the NBA’s fast-food partner, replacing McDonald’s after two decades. McDonald’s, which has 1,500 stores in China, said on June 8 that same-store sales fell 1.7 percent in Asia Pacific, the Middle East and Africa in May, the biggest decline since at least 2004.

The company, which is based in Oak Brook, Illinois, and sponsors the NHL, was the best performer among all sponsors over the past five years, with a risk-adjusted return of 4.4 percent. Visa Inc. (V:US) came in second with 4.3 percent and Yum was third.

Taco Box

Still, McDonald’s stock-market performance wasn’t enough to prevent hockey’s sponsors from falling to last place. The league was dragged down by Sirius XM Radio Inc. (SIRI:US), the largest U.S. satellite-radio broadcaster and the most volatile stock in the group, and Live Nation Entertainment Inc. (LYV:US), the world’s biggest concert promoter and ticket seller, which lost 62 percent in the period.

The partnership with basketball can advertise both the restaurant and the sport, producing menu items such as 2010’s “NBA Five Buck Box,” advertised on television by Charles Barkley. There’s a Taco Bell Skills Challenge at the All-Star game, and the restaurant chain offered free chalupas to fans of the Portland Trail Blazers when the team scored 100 points.

“Our core target is 18- to 35-year-old males,” Poetsch said in an interview. “They watch a lot of sports, they go to a lot of games, so partnering with the NBA resonates very well with them.”

Targeting the partnership is important, said Tatum of the NBA. Sponsors sign on with the NBA, such as networking technology maker Cisco Systems Inc. (CIS:US) and wireless communication provider Sprint Nextel Corp. (S:US), trying to reach different audiences in different ways.

LeBron James

“The first thing we look at is a corporate partner’s business objectives,” Tatum said. “We have a pretty diverse portfolio, anywhere from footwear to banks to technology companies to deodorant, but that portfolio is grounded in who we reach and who our audience is,” Tatum said.

The NBA’s sponsor portfolio through yesterday included five companies with negative scores on the riskless return calculator and seven with scores above 1. Second-placed Major League Baseball’s portfolio had four with negative scores and five greater than 1. The NFL’s sponsors included 10 with negative scores, along with seven above 1. NHL sponsors included eight above 1, which were dragged down by eight with negative returns.

For McDonald’s, being in the bottom league by that measure doesn’t mean it’s losing out in the NBA. The company two years ago signed a multiyear endorsement with James, the league’s most valuable player.

To contact the reporter on this story: Aaron Kuriloff in New York at akuriloff@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net; Michael Sillup at msillup@bloomberg.net


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Companies Mentioned

  • MCD
    (McDonald's Corp)
    • $95.18 USD
    • -0.77
    • -0.81%
  • YUM
    (Yum! Brands Inc)
    • $69.21 USD
    • -3.79
    • -5.48%
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