Economics of the Final Four

March Madness is starting soon, with Conference Championships ending on Saturday and Selection Sunday coming the day after. The post-season NCAA tournament is good news for fans, great news for the 65 teams that compete, and fantastic news for CBS. But is it a good deal for the host cities of the Final Four?

The answer seems like it would be an emphatic “Yes,” but in the book The Economics of Sports (2004), Robert Baade and Victor Matheson argue that promoters overstate the economic benefits of the Big Dance. Accordingly, they maintain that in only two of the 48 men’s and women’s tournament finals before 2004 did the host city experience significant positive income growth.

In the separate Handbook on the Economics of Sports (2006), Baade again argues that the NCAA Tournament (along with other “mega-events” such as the Olympics, World Cup, Super Bowl, etc.) fails to generate the expected income because of costly government subsidies (such as stadium financing and infrastructure), security expenses, operating costs, and the likelihood that a counterbalance to the gross spending of visitors occurs when residents not attending the event decrease spending because of local price increases and their desire to avoid venue congestion. On top of that, multiplier analysis can be used to estimate the amount of money retained locally. In Economics of Sport and Recreation (2000)Chris Gratton and Peter Taylor estimate that only 20 percent of additional visitor expenditure is retained as additional local income.

On the flip side, it’s easy to see why cities line up to host the Final Four. Besides the public relations benefits and the opportunity to attract visitors who may be coming to the city for the first time, host cities also make real money. In 2006, Indianapolis hosted the Final Four and reported an economic impact of $40 million, not including direct spending from media or corporate sponsors.

Maybe this year San Antonio, the host of the 2008 Final Four, will strike it rich. But my guess is that when the dust settles and they’re counting media and visitor spending revenues, it might be harder than they think to balance their checkbook.

Online Video Marketing Campaigns

A 30-second spot in last year’s Superbowl cost advertisers $2.6M (it was $2.7M this year) plus hundreds of thousands of dollars in production costs. But for Five Point Productions, the winner of the 2007 Doritos “Crash the Super Bowl” contest, the production cost for their ad, “Live the Flavor” cost only $12.79. Though the story is inspirational (USA Today ranked the ad 4th out of the 62 ads that were aired), the implications of this sports marketing triumph went beyond the Frito-Lay accomplishment. The larger picture is that the Doritos ad campaign from the 2007 Superbowl affected the norms of sports marketing video content: how it’s assembled, where it’s distributed, and how much it costs.

In the last year, sport marketers seem to have boosted their online presences with fancier Web sites, integrated Flash applications, Social Networking profiles, and more. But of all the improvements these companies have made online, perhaps the most effective (after a Web site) has been the use of innovative video techniques.

One of the best videos, shot with an amateur camera, features the Brazilian soccer star, Ronaldinho, as he meticulously straps on a pair of Nike soccer shoes, juggles the ball for a minute, then fires four consecutive shots off the top of the goal post without letting the ball touch the ground. The video, posted by Nikesoccer.com, has been viewed more than 21 million times as of this posting. To put that in perspective, this is roughly a quarter of the global viewership of an average Superbowl. Not bad when you consider that the clip is 2 minutes and 44 seconds, and that viewers were likely paying more attention to the video they had chosen to see than they would to a Superbowl commercial.

With the majority of online video viewers saying that they find new videos through friends’ recommendations, it’s helpful to note that the Ronaldinho video was selected as a favorite (“favorited”) by 48,740 different viewers. Youtube, like other social participation sites, allows users to tag, comment, rate, and embed the videos as well as add them to a favorites list. In the near future participants should also expect to be able to personalize, edit, an add in-video comments.

“It Takes 5ive” is the adidas basketball campaign based on the idea of believing in the team. The campaign has put together a presence on YouTube with clips of Dwight Howard, Jerry Stackhouse, Adam Morrison, TJ Ford, and other celebrity ball players. Their most viewed clip, “adidas 5ive on 5ive,” has just over a million views, and is part of a campaign that includes at least 14 other short videos. Though not as successful as the Nike soccer video campaign, adidas finishes the video with a call to action, urging viewers to see all the action by visiting their video site. Adidas’ video is a jumping off place for the basketball enthusiast to see more related videos and the accompanying marketing messages.

Digital marketing can help maximize the impact of production budgets (the Ronaldinho video would have cost more than $10M to air on the Superbowl because of its length), it can act as a gateway to a longer piece that allows for a deeper and more interactive experience, and it can work without the formal constraints of time (both in the sense of 30 second spots and the sense of ads appearing only after the 5 o’clock news). Digital marketing doesn’t mean that traditional marketing is irrelevant, but it has become enough of a force that media campaigns should have an Internet component. Moreover, traditional media should take a lesson from the 2007 Doritos “Crash the Super Bowl” contest and learn how to integrate this new format with their own.