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Rutgers and Adidas: you get what you pay for

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A lot goes into an apparel contract, including what you and I are buying

MLS: All Star Game-Homegrown Game Kyle Terada-USA TODAY Sports

This is the first in an ocasional series that On the Banks will be presenting on Rutgers Athletics’ financial situation. Today: apparel and what it’s worth

So, the story is out there that we’re going to have Adidas uniforms soon. And there were more than a few comments on the subject. They ranged from ‘this is a bad idea’ to ‘it’s about time’ to ‘we better be getting more money’ to ‘we better be getting better merchandise’.

But, let’s talk money first.

About Adidas vs. Nike

The story seems to be that Nike didn’t offer that much in a new contract and ultimately Adidas made us a decent offer for a relatively short term. And that was where people got a bit upset.

No we're not Miami...

but for cripes sake we should be getting better $$$ than the french, IU or Purdue!

Something is very crooked or we (fans) really have no idea how the college uni deals work.

Posted by RUinChiTown on Feb. 7, 2017

For the uninitiated, RUInChiTown refers to Boston College as the French. But we digress. As I replied, we probably don’t know all that goes into this process. But it did seem that any of these contract deals were based on what the companies saw in the school now. Not future growth, success, or opportunity. Now. As commented on here:

If you look at the deals when they’re done for the non "blue bloods" there’s generally been a correlation between how well the teams are doing/perceived at the time.

IU [Indiana] has tradition in basketball and while they’ve had some great coaches, Bob Knight completely changed the face of the program for nearly thirty years. Think about that. THIRTY. While they’ve taken some hits since then, that’s a long enough time to have developed a dynasty of sorts. IU basketball is everything to people in Indiana now, similar to what it is in Kentucky or Kansas. 5 NCs, 8 Final Four appearances, 22 conference championships.

Purdue also has a lot of tradition in basketball, but obviously less than IU. 2 Final Fours, 4 Elite 8s, 22 conference championships.

Rutgers? We have one Final Four appearance when we played easier schools in 1976. We have 5 conference championships – none of them being in the Big East. 2 sweet sixteens. Need I say more?

Posted by HowRU on Feb 7, 2017

And add to that this comment from a guest commenter, again, talking about Indiana.

A large portion of Chicago kids come down to IU as well as many from NJ/NY. I live on the lake (on the IN/MI border) and can see Chicago from my window but I can’t go anywhere around here without seeing an IU flag, plates, signs, hats, shirts.. I live 5 miles from Michigan and 70 miles from Purdue, 20 from ND, yadda yadda yadda. The point is that even though I’m near quite a few major colleges; the following IU has in a state with many D1 schools and in the Chicago area is amazing. Fan support is huge and when Adidas did the contract, they saw this and offered a very lucrative deal. It’s NOT based on where you’re located. it’s based on fans buying your brand NOW.... it’s obvious that you have to work on alumni and image to get people outside the general area to buy in to your school.

Posted by TheChicagoWay on Feb 8, 2017

Who is buying?

Think about one of his points:

I can’t go anywhere around here without seeing an IU flag, plates, signs, hats, shirts....Fan support is huge and when Adidas did the contract, they saw this and offered a very lucrative deal.

Is that the case in New Jersey? Anywhere in New Jersey? Sure, I’ve got a few flags and more red shirts and hats than I know what to do with. But is that the case for all of the state or the region? You know the answer: nope.

And therein lies the problem.

When you look at merchandising, and we’ve danced around that topic from time to time, the general consensus is that much of what Rutgers offers for sale isn’t very appealing. But is there a chicken-and-the-egg thing going on here? Would people buy more if the product was better, or is it that Rutgers’ fans - and casual followers - just aren’t buying the product regardless of the quality?

Royalties

Bear with me as I present a very simplified economics lesson that will likely be insulting to most of you. Let’s say you buy a hat or a shirt with the block R on it. And you pay X. A certain percentage of X goes to the retailer, a percentage to the manufacturer, various other percentages to other middle men, and a percentage to Rutgers. That last percentage goes under the heading “royalties”. Under its current contract with Nike, the Retail Licensing Rights provide Rutgers with a fixed royalty rate of 10%.

Rutgers, like most other such entities, licenses its name and marks (logos) to manufacturers. And in return, Rutgers receives payment for the items sold. In the financial report that colleges file with the NCAA, it is item number 15: Royalties, Licensing, Advertisement, and Sponsorships. The definition of that states:

Input revenues from:

Sponsorships.

Licensing Agreements.

Advertisement.

Royalties.

In-kind products and services as part of sponsorship agreement.

An allocation may be necessary to distinguish revenues generated by athletics versus the university if payments are combined

It covers a wide range of what I’ll call promotional revenues. And it would include licensing agreements with apparel merchandisers like Nike or Adidas. And, boys and girls, we ain’t making that much.

Rutgers, along with eight other Big Ten universities, uses The Collegiate Licensing Company (CLC), the trademark licensing affiliate company of IMG College, to protect its brand. You’ve seen its tag on merchandise indicating it is “officially licensed”. And so how good a brand is Rutgers? According to CLC’s 2014-15 rankings, the most recent we could find, Rutgers was its No. 56 client, behind such powerhouses as Montana (54) and Louisiana-Lafayette (55) and just ahead of UCF (57) and Boston College (58).

Through Open Public Records requests to the individual schools, the payments for royalties varied greatly among Big Ten schools. And the ones at the top - and bottom - probably aren’t surprising.

Source: 2016 NCAA Financial Reports from individual schools

At $6.2 million, Rutgers was earned a tad more than a third of what Ohio State made. It was almost a million dollars less than Maryland. Looked at another way, royalties to Ohio State account for 10.3% of its operating budget; for Rutgers it’s just 7.5%. Of course, for OSU that’s 10.3% of almost $168 million. If RU had was at 10.3% of its budget, royalties would be some $2.5 million more.

Bottom Line

Boy, is that sub-heading an understatement!

Rutgers’ bottom line is shaky, though getting better. Part of its overall economic health is sales of merchandise....royalties. Right now, RU isn’t in the same class as Ohio State or Michigan. It’s barely in the same building as Maryland and Purdue. Perhaps if fans want Adidas or Nike or whomever to pay Rutgers more for its apparel deal, they should be buying more merchandise. But then, there’s that chicken-and-egg thing again.

What are your thoughts? Are fans and RU’s lack of a “following” part of the issue? Would just winning be a big step toward a financial bonanza? Add your comments below.