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Sports Team Franchises To See Strong Growth; Fast Food Not So Much

Growth in professional sports franchises & key related industries

SANTA MONICA, Calif. —If you want to own a franchise, research shows that the boats rise a little faster for sports team owners. If you can afford one, professional sports team franchises will be one of the strongest growing sectors compared to other sectors tied to sports.  According to market researcher IBISWorld, sports franchises are anticipated to grow on average at 3.3% from 2012 to 2017, exceeded only by the growth of ad agency revenues.

With an anticipated viewership of 116 million pairs of eyes, today's Super Bowl, which matches the Baltimore Ravens with the San Francisco 49ers, highlights just how big the money is for professional sports franchises and their contribution to the United States economy. Their profits are impressive (see chart). Today's Super Bowl players, The Ravens and the 49ers, are on the low side.

Professional sports team franchises have also seen growth for the past five years at an annualized rate of 3.0%, according to IBISWorld. The sector hauled in a whopping $23.5 billion in revenue last year. Even better, that growth is about to speed up.

The big franchising business of sports, dominated by the four major leagues of the National Football League, Major League Baseball, National Basketball Association and the National Hockey League impact downstream industries that rely on professional sports leagues for significant business.

Cable television hit hardest

Cable television is the hardest hit, down from 5.2 percent to hitting the bottom of the list at 1.9 percent for the next five years (see table). It faces considerable competition from the changing technology of the Internet, tablet and mobile media outlets.

NFL Team profit margins, according to Forbes 2012
Team Oper. profits/revenue. Source: Sep 2012, Forbes' NFL Team Values

IBISWorld says the economy is rebounding. That means consumers watching events from home will benefit from technological improvements in viewing. growing home viewer phenomenon is the "second-screen experience." According to Nielsen, a global information and measurement company, roughly 40.0% of TV viewers watch TV along with their mobile devices nowadays. Currently, Twitter dominates the landscape, but other apps, such as Viggle, are aiming to penetrate this growing market. This social television experience opens up a new avenue for sports franchises to push their teams' brand, market to new audiences and leverage lucrative advertising and Internet broadcasting contracts.

Fast food, a strong downstream component of sports franchises, will be alongside Cable Television at the bottom of growth, at 1.9 percent. That's according to IBISWorld analysts Antonio Danova and Eben Jose. The good news is that unlike cable, which is down in growth, restauarants slight rise is up from 1.3 percent it has seen for the last five years.

Restaurant franchises want sports celebrities

The irony of the strong growth in sports franchises is that many multi-millionaire sports players invest not in the lucrative industry that they know so well but rather into the lower growing restaurant sector, where their fame is traded to market restaurant brands. After all, restaurant and other business-format franchises are a lot cheaper to get into for player multimillionaires than sports franchises. For example, according to WorldFranchising.com, the average total investment for a Papa John's store is $333,000. That's not a big hit to the savings of athlete celebrities. Compare that to the price tag of $1 billion for the Cleveland Browns NFL franchise back in October to truck-stop magnate Jimmy Haslam.

This Manning commercial was featured during the NFL season

Peyton Manning is one of the most recent restaurant franchise recruits. In October of last year the Denver Broncos quarterback signed a deal to own 21 Papa John's pizzerias around the Denver area.

"He's the kind of partner we're looking for, not only in marketing but in business," said Papa John's chief marketing officer Andrew Varga last year.

Manning's football fame has been a blitz for Papa John's (NYSE:PZZA) marketing efforts. His face, along with Papa John's founder John Schnatter, has been plastered in commercials far and wide to push pizza and franchise deals during the NFL season. Manning states in a commercial that as a new franchisee he can now give away free pizzas. He also gives fans information about how to join him in becoming a franchise owner. "It's a smart investment now and will be long after I'm done playing football," says Manning.

Nat'l Football League Team Values
NFL Team Values according to Forbes, Sept 2012
Source: September 2012, Forbes' NFL Team Values

The terms of how much cash the employee of the Denver Broncos had to put down for the pizzerias and how much were bartered for his marketing services was not disclosed.

Sports players invest in a wide variety of eateries, and are heavily recruited by restaurant franchisors — from pizza to burger franchises.

In April of this year, an NFL franchising boot camp will kick off in Ann Arbor, Michigan. It is organized by the International Franchise Association to match sellers of franchises — franchises that aren't sports franchises — with athlete celebrities. "As both a former player and one who is still active in the food industry, I am excited and honored to address these players," said Richardson, a Baltimore Colts receiver (1959-60) who became a Hardee's franchisee in 1961.

In the last five years, IBISWorld's analysts estimate that revenue for the fast food industry will increase at an annualized rate of 1.3%. The expansion of menus to include specialty and ethnic foods in addition to more partnerships with sports franchises should help the industry experience continued growth over the next five years. Although the $191 billion Fast Food Restaurants industry makes a small percentage of total revenue from stadium sales, it has sizable sales outside the nations' stadiums. Nonetheless, IBISWorld observes that changing consumer tastes and a struggling economy has created a major slowdown for the industry.

Despite high volatility for owners during the past five years from labor disputes and other issues, the future looks bright for sports franchises and many of their downstream industries. In 2013, the Sports Franchises industry's revenue is expected to jump 1.8% as rising disposable income and upgrades to the viewing experience generate greater fan support.


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