Offseason-Off Topic - Does City Size Really Matter for Athlete Endorsements

This is not Gopher related, but we are all sports fans and I'm willing to bet our loyalties expand to various professional organizations and teams other than those who don maroon and gold. In sports there are often common assumptions and practices that we accept as truth but when you dig deeper we often find that things are not as concrete as once thought. I find these topics to be fascinating and some of the more enjoyable topics to discuss.

Many of these common assumptions occur within the game and they usually involve strategy. One intriguing example would be the notion that it is never in your best interest to punt the ball (or very rarely in your best interest) on 4th down. At a very high level, the argument is that statistics have shown that you score on X percent of possessions and you typically average about 3.5 yards per play. So depending on where you are located on the field and your distance to a first down, you should rarely give up on a possession. Occasionally you'll give up a short field but over time the notion is that you will score more points because you retain more possessions.

But that isn't the topic I want to discuss today (maybe another day, cause that one is really interesting too). Over the last several years I have begun to hypothesize that in the year 2012 and considering the way we consume information today, city size has virtually no bearing on a professional athlete's earning potential.

We, especially those of us who live in and follow teams that are not in mega-markets, so often hear how elite athletes need to move to larger markets in order to capitalize on endorsement deals they could not otherwise garner in much smaller markets. For the most part salaries for your top end talent is relatively similar between maga-markets and smaller markets. Baseball is mostly an exception here, but the other sports have tighter salary structures making salaries fairly equitable regardless of city size. The other half of an athlete's earning potential comes from endorsement deals and marketing their personal brand.

The assumption has always been that playing for teams in larger cities dramatically increase their endorsement income and I'm not sure sure that this is necessarily true today. Maybe this is ultimately rooted in my insecurities living in a smaller market that occasionally watches it's stars leave the mini-appolis for the bright lights of larger cities promising championships and endorsements. Championships I cannot argue with but I'm not buying the endorsement argument anymore.

My theory was really put to the test when the bright lights were shining on LeBron James and his "decision" in 2010. As the world was waiting for James's decision many believed he would leave Cleveland for a much larger market as part of his effort to brand himself and make himself dramatically more marketable.

(more after the jump, this is a LONG post)

Shortly after the debacle that was "The Decision" Sports Illustrated interviewed Michael Jordan's agent, David Falk to get his opinion on LeBron's Decision. The interview eventually moved toward the notion of "branding" an athlete where Falk had this to say...

In 2012, I find that to be incredible that someone would think that. We live in a digital age, and I think people like Dwight Howard, LeBron James, Kobe Bryant, Dwyane Wade, Kevin Durant -- Kevin Durant is incredibly marketable in Oklahoma. He doesn't have to be in New York or L.A. I think he could be the best player in the league in two years, at the most. And if someone said to you, "If you represented him, would you move him to New York?" I'd say, "No, for what? I think he has a certain homespun credibility being in Oklahoma. It's like Brett Favre being in Green Bay." And I think these guys are being told by these agents who aren't very sophisticated in marketing that you have to be in New York or L.A. to be marketable. Maybe they've never heard of the Internet.

I found that answer to be very interesting and it got me thinking about a couple of the guys listed. LeBron James obviously went from a small-market to a larger one. And then you have a guy like Kevin Durant who is in a tiny market. How much are those guys making, particularly in endorsements and how does that compare to some of the other superstars in the NBA?

Well, fortunately we have lists like this one from SI.com which ranked the top 50 paid athletes in the world. Below are the NBA players who cracked the top 50 overall.

There are some interesting things of note from this data.

• Kobe Bryant (Los Angeles) makes the most money among NBA players with a salary of nearly $20.3 million and endorsements bringing in $28 million.
  
• James is #2 largely because he makes much more money in endorsements ($33 million) and then has a smaller salary (12.88 million).
  
• Kevin Durant is in one of the smallest NBA markets yet is able to not only command a top of the line salary, but he also rakes in a number of endorsements. More endorsement money than a superstar in New York City. More endorsement money than the established and marketable Kevin Garnett in Boston. Third only to Kobe and LeBron who are basically the elite of the elite in the NBA over the last several seasons.
• According to this Orlando Sentinel 2009 article, Dwight Howard may have the most corporate partnerships in the NBA. Orlando is not a huge market.

Where it gets really interesting with LeBron is when you look back at his endorsement income over the last few seasons. One might have expected that when he moved from Cleveland to Miami, his endorsement income dramatically increased.

• 2008 Endorsement income - $28,000,000 (Cleveland)
  
• 2009 Endorsement income - $28,000,000 (Cleveland)
• 2010 Endorsement income - $30,000,000 (Cleveland)
  
• 2011 Endorsement income - $30,000,000 (Miami)
  
• 2012 Endorsement income - $33,000,000 (Miami)
  

A slight increase but nothing significant and I'm not sure that the approximate 10% increase is due to being in a larger market as much as things like winning MVPs and further developing into the best player in the NBA (arguably).

The NBA is really THE league of endorsement money. You can see from the chart above that every one of those NBA players is making over 20% of their total salary from endorsements (13 total and it includes Duncan and his 17%). The NFL and MLB players who crack the top 50 have just seven players who make 10% or more of their salary from endorsements. Maybe it is because they aren't wearing helmets, maybe it is because the NBA is more of a hip-hop league or maybe they are just more entertaining then baseball or football players.

When you look at the MLB players in the top 50 athlete earners, they really do tend to represent the larger markets. This is a function of no salary cap and larger media markets being able to and making an effort to spend more money on salaries. Interestingly Albert Pujols (recently in St. Louis) and the very vanilla Joe Mauer (Minneapolis) are two of the top four endorsement earners in all of baseball. The difference for baseball is significant. 15 of the 19 highest earning MLBers live in what is truly a big market (New York, Chicago, Philadelphia, Boston, LA and San Fran). MLB is a salary driven league with few players making more than 10% of their total income off endorsements.

My assumption would be that players who come up into a larger market, stay there and become one of the game's superstars will make more money than if that same player had come up in Kansas City (i.e. Derek Jeter). BUT a player who leaves a smaller market for a larger one, may not see a huge increase in endorsement money. There needs to be some loyalty and a connection between the fan base and the player for companies to pay big bucks to have their product endorsed. A good example for this assumption would be Albert Pujols. He already makes good money in endorsements ($9 million, 43% of his salary) and that is primarily while playing his career in St. Louis. I don't believe he will see a huge bump in endorsement money just by moving to LA. BUT, were he to have began his career in LA I do believe he would be making more. I really have no number to back this, it is a theory.

The NFL is also very salary driven, particularly driven by guaranteed signing bonuses. Based on salary and guaranteed bonuses Mario Williams and Larry Fitzgerald combined to make over $51,000,000 in salary but just $500,000 each in endorsements. No surprise that Peyton Manning leads the NFL in endorsement deals. He earned his $13,000,000 endorsement salary while in Indianapolis (a very small market) but his personality and charm and on-camera demeanor is likely what drives his marketability. Of course it helps to be a superb player and future first ballot Hall of Famer.

Is all of this enough evidence to support or disprove the theory that the top athletes will make significantly more money by leaving smaller or mid-market teams for the mega markets and the bigger cities? Looking at the data in total (granted, this is just listing the top 50 players in all of sports so it isn't exactly comprehensive), I believe there is a very slight difference. There is a bit more opportunity in larger markets but that difference is slim. As stated with the baseball players, I think it matters more where you begin your career than it does what market you switch to along the way.

Endorsements are driven by corporations that need someone to help promote their product. When it comes to the companies that pay the most in endorsements to athletes I don't think location plays a significant factor. Nike, Adidas, Under Armour, Vitamin Water, Gatorade, soda and car companies, etc are looking for the most talented, marketable and recognizable athletes. Not just athletes in New York, LA and Chicago. Peyton Manning played in Indianapolis, but he is incredibly marketable anywhere. Kevin Durant is one of the three best players in the NBA and is recognized all over in spite of playing in Oklahoma City. LeBron James was making basically the same endorsement money in Cleveland (CLEVELAND!!!) as he is in Miami. Why? Because it is LeBron James, it doesn't matter what city he is playing in.

"Companies want to align themselves with the 'next best thing.' But more importantly, they are hoping to find that celebrity personality that also allows for branding and longevity." - Dwight Howard's agent, Aaron Goodwin

After the behemoth companies who typically use athletes to endorse their products have picked their superstars then comes the level of endorsement deals, that are still rather significant. I'm sure that Joe Mauer and Troy Polamalu are making good change from Head & Shoulders. Mauer also has companies such as Kemps and Sony to go with his Gatorade income. Brett Favre found a home with Wrangler. Aaron Rogers appears in some insurance commercial, maybe you saw it once or several hundred thousand times during the NFL playoffs. These are examples of small or mid-market guys who are making good endorsement money despite their lack of being in a larger market. The market size for these athletes is still providing them the opportunity to make plenty of endorsement money.

In today's world of instant gratification, instant news and the global marketplace that is ever shrinking, I'm just not convinced that leaving one market for the bright lights of another market are worth it from an endorsement and "brand marketing" standpoint. What you gain in population and media market you lose in brand loyalty and recognition. You may gain more Fortune 500 companies and opportunities but you have an entire fan base who needs some time to get to know you. Nationally you are equally as marketable as you were before, locally you may not be the best fit for product endorsement. If Joe Mauer were to have left Minnesota for Boston, Red Sox fans may have been more interested in what Kevin Youkilis or David Ortiz was selling.

There clearly is a difference between differently sized markets but I think it matters most where you start and establish your career more than jumping to the larger market mid-career. Maybe now my mid-sized market insecurity is being twisted into some sort of advantage or justification as to why great players should stay here. That of course isn't my intent. But I no longer believe the idea that players stand to gain significantly more than just a bump in salary by heading to the mega-markets as hard-core truth.