April 18, 2008

The Seattle Sonics Are Moving Their Multichannel Brand To Oklahoma City

NBA owners voted 28-2 to allow the Sonics to move to Oklahoma City. Only Paul Allen of the Portland Trail Blazers (obvious Seattle ties) and Mark Cuban of the Dallas Mavericks felt that forty-one years of fan loyalty mattered a little bit.

Ultimately, a sports team leaving a city is no different than Sears electing to close down an unprofitable store, though a Sears store doesn't bring together a community like a sports team does.

"Back in the day" at Eddie Bauer, President and CEO Rick Fersch footed the bill for a suite at Key Arena. Mr. Fersch allowed garden variety employees (like me) the opportunity to enjoy a smattering of games in the suite. If you were lucky enough to attend, Mr. Fersch was democratic about seating in the suite. He required attendees to switch seats at the end of every quarter so that all employees could enjoy each other's company, and enjoy the perspective of different areas of the suite. This is one of many reasons I fondly remember the leadership of Mr. Fersch.

I was lucky enough to attend two Sonics games in my four years at Eddie Bauer. One was a playoff game in 1998 against the Los Angeles Lakers, an elimination game won by Los Angeles. Actor Leonardo DiCaprio, donning a Lakers jersey, was sitting about ten rows below the Eddie Bauer suite. He had just starred in a movie (maybe you heard of it) called "Titanic".

During a timeout in the second half, when it appeared that the Sonics were going to lose, the crowd became depressed and quiet. Suddenly, one of Mr. Fersch's teenage daughters uttered a high-pitched, ear-piercing scream heard as far away as Bellingham ... "LEONARDO ... I LOVE YOU!". Mr. DiCaprio turned around, identified the young lady who seconds ago joined Mariah Carey as one of only two females to ever reach that octave, and politely nodded his approval.

We were told that if every seat for every game were sold, the Sonics would still lose money.

The Sonics had multiple channels to generate revenue. Corporations could purchase expensive seats. Corporations could purchase sponsorships. Wealthy fans could purchase season tickets. Garden variety fans could purchase individual game tickets. Any fan could purchase concessions, or souvenirs. Revenue came in via a local radio contract. Revenue came in via a local cable television contract. Revenue came in from at least two national cable broadcast stations and one national television network. Taxpayers funded a renovation of Key Arena in the mid 90s to improve the revenue generated from the stadium. I'm sure I'm missing another dozen channels that the Sonics harvested for revenue.

We're told that "multichannel customers are the best customers". In Seattle, multichannel customers (radio, television, in-game attendees, concession stand shoppers, etc.) couldn't generate enough revenue to keep the team here.

This will someday become a problem for our humble little multichannel brands. As we expand our online presence, as we build stores, execute direct mail and e-mail campaigns, manage paid search programs, participate in social media, treat our sites like entertainment brands, we will demand that our customers return the favor by providing us with more and more cash. In the NBA, player costs increase. In multichannel cataloging, the USPS increased costs, and may make life more challenging in 2009. Importing goods from China will cost more. Fuel will cost more. We'll demand that our customers pay the freight, just like an NBA owner demands that the residents of his geography foot the bill.

We're likely to learn, like the NBA in Seattle learned, that no matter how many channels we offer our customers, customers only have so much they can spend. We'll need to be very thoughtful about how we approach using incremental channels to generate sales and profit.