Sports is no longer just a pastime activity in schools to keep the students fit. It has become a foundation for most people who discover their talents while playing in school and for the schools, it has become an income-generating activity. The University of Kentucky Athletic Department has continually been ranked among the top in revenue generation. However, most of the revenue is by the Kentucky basketball team and here is how they generate millions annually for their school.
University of Kentucky (UK) and Nike have had a long relationship that dates to the late 1990s, and they later extended the contract in 2006 and 2013. The 2013 agreement was to have Nike provide the UK with $47 million in clothes and cash through 2024-25. While it is not much compared to the $160 million that Adidas signed with the University of Louisville, Nike has more exposure and does not need to pay schools as much to have them wear its logo. Usually, the value of a contract depends on student enrolment, how many times a team has appeared in the NCCA tournament, football stadium size and sporting events attendance.
If all these factors were considered, the UK would have received $6,680,423 in apparel and cash in 2017, but instead, they got $3,725,000. Under the 2013 contract, Nike pays the university $1.8 million as base compensation which totals to $21.6 million over 12 years. As for the uniform and other products, the university gets $2 million every year. However, the value of these products, that is shoes, uniforms, some equipment and workout clothes will go up such that in 2013, UK received $1,725, 000 but the time they get to 2024, they will be receiving $2,125,000. The university also received a signing bonus in 2013 worth $2.4 million.
Moreover, the contract includes termination clauses such that if the basketball team is not on TV, Nike cuts its base compensation 70%. Also, if NCCA bans UK basketball team from TV, then Nike will stop its support immediately. Further, an NCCA probation would have the basketball team left without Nike’s support
Trademarks and licensing of merchandise
Sports licensed merchandise have become one primary method of how teams rake in revenues, and the UK has not been left behind. Truth is the sports licensed merchandise is an industry in itself worth $4.6 billion in 2011. According to Bloomberg, Kentucky obtained $6.73 million in merchandise royalties in 2011, which was an increase of 40% from the previous year. By 2012, if you wanted your iPhone 4 case to be a Kentucky National Championship one, then you had to pay $29.95 while an officially licensed basketball jersey was going for $74.95.
In the contract with Nike, there is also an agreement for royalty payments to the University for sale by Nike of products that bear the school’s logo. In the deal, Nike pays UK 12% of licensed products, and the guaranteed minimum is $35,000.
In April 2015, UK’s contract with IMG expired; its value was $80.5 million over ten years. IMG wanted to extend the agreement by proposing to give the UK $246.25 million over 20 years. They also included a signing bonus of $5 million over the first four years of the contract and a $5 million extension bonus which would have been paid in 2025-26 calendar year. Unfortunately, the IMG proposal was not as lucrative as what JMI Sports offered the university. In these times when teams also have lots of expenses, then the game is all about numbers, and JMI Sports won with their offer of $210 million over 15 years. The deal started with guaranteed rights fee of $9.1 million in 2015-16 which increase annually, and by 2029-30, UK will be receiving $16 million annually.
The contract with JMI Sports was effective in the spring of 2015, and it came with a hefty signing bonus; $29.4 million to be precise. Inclusive in the deal was radio rights to the university’s men’s and women’s basketball teams.
Kentucky’s men’s basketball team, as well as the men’s football team, are the main drivers of revenue in the university even though whatever they bring in has to be shared among the entire athletic departments. Usually, the regular season is when they rake in lots of revenue. For instance, in 2016, the men’s basketball team brought in $19.5 million in ticket sales, while the football team generated $16.4 million. The basketball revenue is about fifteen times more than what the other 20 varsity sports bring in since combined they made $1.3 million.