Banking on High School Ballplayers

            Even though he is currently recovering from a knee injury, Chicago Bulls point guard Derrick Rose has been working hard off the court. Rose appears in advertisements ranging from national television commercials for Adidas to local billboards for Chicago-based pizza chain Giordano’s. For his participation in these campaigns, Rose is compensated with a 14 year, $250 million deal by Adidas and has become an equity partner in Giordano’s.

            While Rose makes millions from sponsorship deals now, that was not always the case. As a star player at his high school, Simeon Career Academy in Chicago from 2004 to 2008, Rose provided significant increases in brand awareness, exposure, and perception by wearing a jersey made by Adidas rival Nike. Simeon’s deal with Nike has continued with the school receiving $26,000 per year in “gear” annually in large part because of its latest star player, Jabari Parker. Simeon’s senior small forward has committed to play at Duke University next year.  Parker’s skillset has landed him on the cover of Sports Illustrated and caused “300 people [to come] for the made-for-TV news conference announcing where Chicago's best high school basketball player since Derrick Rose will spend the nine months preceding the 2014 NBA draft.”

            The combination of this national attention combined with being both “articulate and charming” has made Parker an attractive company spokesman for brands focusing on the teenager and young adult demographics. In article posted yesterday entitled “Skullcandy gets the better end of Simeon sponsorship deal”, the Chicago Sun-Times examines the relationship between headphones manufacturer Skullcandy and Simeon. The Sun-Times claims that “terms of the contract essentially call for Parker and his teammates to be unofficial spokesmen for the company.” As a result, Simeon receives, “headphones for its media lab and $1,000 a year through its five-year contract. Additionally, the girls basketball team, which is without stars, has received headphones.”

            The Sun-Times is absolutely correct that this is a great sponsorship deal for Skullcandy, which has identified and taken advantage of a very valuable business opportunity.

While Parker may not (yet) be as famous as Rose, Parker (and Simeon) have high brand recognition among Skullcandy’s target demographic in Chicago. More importantly, the thousands that Skullcandy pays Simeon in cash and merchandise is far less than the hundreds of millions of dollars that Rose receives for his endorsement deals. Skullcandy recognized that inner city high schools, like Simeon, often struggle to provide the resources for its students and its athletes to be successful. As Simeon coach Robert Smith says, “We’re an inner-city school. We have to be thankful for whatever we can get.”

There is no financial reason that companies thinking of using athletes to target key demographics should not consider entering into contracts like Skullcandy has done with Simeon.

There is, however, an ethical dilemma.

Parker is clearly the primary reason that Skullcandy entered into the agreement. In fact, Parker already has appeared in a promotional video for the company. Yet, traditional high school and NCAA rules prevent Parker (or any of his teammates) from being paid by Skullcandy if he wants to compete as a high school or collegiate athlete. For years, compensating NCAA athletes has been a huge issue in collegiate sports. In addition to ESPN and the NBC Sports Network spending entire programs on this issue, numerous lawsuits have challenged whether players should receive compensation for the likeness and image being used to sell products such as video games.   

            Yet, collegiate athletes at least have the opportunity to receive scholarships for their participation in their chosen sports. At a private institution like Duke, tuition, room, and board would cost a non-athlete at least $200,000 for a four-year education. Because Simeon is a public high school, Parker does not need tuition assistance. While some private high schools provide athletic and merit-base aid to athletes, many high school athletes will receive little, if any, compensation. For example, Parker and his teammates expect to “keep the headphones customized with their jersey numbers” as their part of the compensation with this deal.”

            In many instances in the past B6A has demonstrated where the right ethical decision translates to the right financial decision.

For sponsorships involving high schools, however, this does not appear to be the case for athletes. The companies partnering with high schools, particularly inner-city schools such as Simeon, will receive tremendous amount of value for their sponsorship dollars. High schools will receive at least some amount of money and merchandise. The players, usually the primary drivers of high school sponsorships, will receive almost nothing in these deals given the current student-athlete environment.

The one recent development that may change this dynamic is a class action lawsuit against the NCAA lead by the former UCLA All-American basketball player Ed O'Bannon. If successful, former NCAA players would receive "billions of dollars in television revenues and licensing fees" for the NCAA using their likeness and image. This suit "could also force the development of a more equitable system in which the [student-athletes] who do the work get a decent share of the profits. All the profits." However, this case is not scheduled to go to trial until July 9, 2014. In addition, it is not clear how a favorable ruling for college players would impact high school students. Because the NCAA is currently not currently using the likeness or image of high school athletes in its products, it would appear that current high school students might not have legal standing to challenge the organization in this type of suit. And it would be unlikely to change this type of rule that allows high school athletes to receive compensation unless required to be law.    

Even if high school students ultimately are allowed to receive compensation, however, it will likely take years for this occur. The professionalization of amateur athletes, particularly at the high school level, is understandably tough to stomach for many people. However, it is clear companies and organizations are already monetarily benefitting from these teenagers. As deals like Skullcandy’s with Simeon continue to grow in number, playing professionally instead of attending college would make it much easier for high school athletes to be fairly compensated for their sponsorship value.