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NBA 2K engagement and e-commerce support NBA licensing amid brick-and-mortar lockdown

(Photo by Mairo Cinquetti/NurPhoto via Getty Images)

The NBA has counted on e-commerce sales and royalties from the popular NBA 2K game to shore up central revenues hit by a fall in other licensing categories because of the coronavirus pandemic.

With just days to go before the NBA restart on July 30, Salvatore LaRocca, president of global operations and merchandising at the NBA, tells SportBusiness that “the overall merchandising business continues to be a positive story”, with sales on NBAStore.com and via e-commerce specialist Fanatics up over last year, while video games and trading cards have also outperformed during the 2019-20 season to date.

“Due to the mandated shutdown of most retailers during the pandemic, the apparel category has been the most affected,” LaRocca says. “And, given the unprecedented circumstances, we have been working with our partners to provide flexibility in the structure of our partnerships.

“But while some areas have been deeply impacted by the pandemic – including brick and mortar retail – our e-commerce business has remained strong.

“New products available on NBAStore.com like face coverings from [licensed goods specialists] FOCO and Industry Rag were an opportunity that kept licensees’ manufacturing capabilities engaged, while also generating significant donations for ‘Feeding America’, ‘Second Harvest Canada’, and ‘Direct Relief’ in Europe and Asia-Pacific.

“The release of ESPN’s The Last Dance also resulted in increased sales of Chicago Bulls product and Mitchell & Ness Hardwood Classic authentic product.”

While the world has been practising social distancing and spending more time at home in the first half of 2020, LaRocca added that the use of the NBA’s streaming services had increased, as had engagement with NBA 2K.

“2K has served as a key component of our business,” he explains. “As the country has shifted to an era of social distancing and working from home, NBA 2K has offered fans an outlet to interact with the NBA, providing them an opportunity to both engage with the league and each other. Interest and engagement in NBA 2K has never been higher, and we look forward to what’s ahead.”

NBA 2K revenue

The importance of the NBA 2K game to NBA commercial revenues cannot be underestimated. The league earns more from video game maker 2K Sport – about $157m (€134m) per year over seven years from 2019 to 2025, according to Wall Street Journal estimates – than any other single sponsorship or licensing source.

This includes the Nike apparel deal, which is thought to be worth about $125m per year, from 2017-18 to 2024-25, comprising a mix of licensing and marketing rights, with marketing representing a significant proportion of the fee.

The 2K deal, in contrast, is largely based on royalty payments of between 10 and 15 per cent of annual game revenue. SportBusiness estimates the current marketing component to be much smaller than the licensing fee – in the single millions of dollars per year – given that 2K is understood to have paid a marketing rights fee of between $2.5m and $3m per year in the contract cycle before its extension in 2019.

Alfie Brody, vice-president of global marketing at 2K, confirmed that the shutdown had not dented sales.

On the contrary, Brody told SportBusiness last month that the game had continued to experience “heightened levels of engagement” during the period. “These ranged from simulating the season and playoffs and posting the results online as well as a range of team-specific challenges in our MyTeam mode for fans to play and earn rewards,” he said.

MyTeam is 2K’s answer to the ‘Ultimate Team’ mode created by EA Sports for its FIFA series of soccer games, which allows players to put together teams from across the league’s roster, with a platform for micropayments that give extra benefits to players and generates major revenue for the game makers.

While MyTeam meets the needs of avid gamers, the season and playoffs simulation was a way to promote the game to “more general NBA fans” who were unsure whether their teams would play again this season, Brody said.

The simulation predicted a down-to-the-wire, seven-game NBA Finals series between the Milwaukee Bucks and the LA Lakers, with the Lakers coming out on top. “With the resumption of this season, let’s see how close our prediction is to real life,” Brody said.

(Photo by Jim Poorten/NBAE via Getty Images)

Whoever makes the Finals, the remainder of the 2019-20 season, from the end of July to October, will kick-start revenue generation from licensing. “The hiatus has certainly generated excitement for the return of our game,” notes LaRocca. “Retailers have already placed orders to support the 22 teams that are participating in the restart and are additionally in the process of making plans for the Playoffs and the Finals.

“We are also approaching the launch of NBA 2K21 in September, which was met with significant excitement when we announced the news earlier in July.”

Sales disruption

The pandemic has hurt the NBA’s uniform supplier (Nike), ball supplier (Spalding) and other partners, like cap maker New Era and retail partner Foot Locker.

Surveys by the World Federation of the Sporting Goods Industry, a sports industry body officially recognised by the International Olympic Committee, reported “significant order decreases” across the sector during April and May and “signs of minor improvement” but “no significant key changes” in June.

Scott Bouyack, co-head of sports licensing at Creative Artists Agency, says that the various national lockdowns – and the almost global shutdown of live sport – has hit licensing revenues hard almost everywhere.

“As is the case with nearly every deal that a sports league has in place, the disruption in the first half of 2020 is leading to a good bit of renegotiations of business terms.

“Video game companies like 2K and EA [for the FIFA series games] are on a very short list of companies that have been able to maintain strong business throughout the shutdown, and in some cases have probably seen increased sales.

“But for nearly every other company in the licensed sports business the impacts are pretty dire.

“Fortunately, it does appear that most leagues and licensors are working cooperatively with their licensing partners to help address the situation, often through reduced guarantees or royalty rates or deferred payment plans.”

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