How Orbitz Success and Failure With Data Mining Impacts Sports Organizations

            It has been a tough few weeks for users of Mac computers. First, Apple had to revise its official stance on its computers’ ability to prevent all viruses when 600,000 Macs were infected with a various called “Flashback” or “Flashflake”. Then, The Wall Street Journal reported that Orbitz was showing Mac users “different, and sometimes costlier, travel options than Windows visitors see.” Orbitz decided to use this segmented pricing strategy because it found that customers who use Mac computers spend up to 30% more per night on hotels because they were more likely to book four and five start hotels. This equated to $20-$30 more per night in bookings. Providing Mac users with higher priced hotels as the default option likely meant more revenues for Orbitz.

            Orbitz discovered that Mac users generated more revenue after reviewing purchasing behaviors of their customers. Only by having and mining the data did Orbitz identify a new opportunity to create a different customer buying experience for a particular demographic – in this case Mac users.

            Sports organizations can follow Orbitz example to try to maximize the revenue coming from more lucrative demographics – particularly when it comes to in-game attendance. Pricing has traditionally been a tricky problem for sports organizations to solve. In the past, many sports organizations have predominantly priced season and individual game tickets at the beginning of a season or academic year. Yet, demand for tickets is rarely static for a variety of reasons (i.e. team performance, rise of star players, weather, etc.). Therefore organizations have often not been able to capture the value that comes with the fluctuation in demand for tickets to games, events, or contests.

            The rise in popularity and security of the secondary ticket market created by companies like Stubhub has shown how ticket holders and organizations can monetize changes in demand. In addition, numerous sports organization, most notably the San Francisco Giants, have implemented dynamic ticket pricing technologies from companies like Qcue that monitor ticket demand and change pricing for individual game tickets.

            However, the secondary ticket market and dynamic pricing are more macro targeting strategies focused on increasing gameday revenue from a larger audience. from numerous different types of consumers for a game.  What Orbitz has done is implemented a microtargeting strategy focused on one specific demographic – in this case Mac users. B6A has written about a microtargeting in a previous post, but Orbitz shows exactly how sports organizations can use this practice to generate revenue. More importantly, it shows the affects of being able to collect data from online users who are making purchases on the company’s website. Sports teams and leagues often receive a significant amount of traffic to their sites both during the season and during the offseason. It is critical for organizations to capture this information using some form of analytics platform (most sites use some form of Google Analytics) to better understand and predict consumer behavior in similar way that Orbitz had done with Mac users.

            While it should be credited for using data mining to increase revenue from a specific demographic, Orbitz communication strategy has not matched the success of its new pricing tactics. A Reuters article proclaimed “Orbitz Sends Mac Users to More Expensive Hotels” and claimed “You have to pay a premium if you're a Mac owner.” CNBC asked is this “smart marketing or can it be perceived as misleading?” while Apple focused blog 9to5 Mac started its post about the topic by saying “Smug Alert: Orbitz shows Mac users higher priced hotels by default”. Upon hearing the news, many Orbitz customers left critical Facebook comments including “You hide the cheaper hotels so basically you are misleading the Mac customers. HOW DARE YOU!! I will never use Orbitz again!!!"

            CEO Barney Harford led Orbtiz efforts to try and complete damage control after the release of The Wall Street Journal article by focusing on how the new policy would enhance the overall user experience. For example, he stressed that Orbitz was improving its recommendation engine to provide its users with the best and cheapest options. For Mac users, four and five start hotels often better fit their lodging preferences. Yet, the company’s efforts at crisis management were mostly reactive and even though it knew article about this controversial pricing tactic would be published (its Chief Technology Officer was quote by The Wall Street Journal). By this point, the damage had been done and Orbitz has done significant damage to its brand that likely surpasses its potential increase in revenue.

            Sports organizations should take note of what can happen when an effective revenue generating tactic is not accompanied by an effective communication strategy. The lesson learn from Orbitz should not be throw the baby out with the bath water – i.e. do not complete data mining because their could be negative reaction to the results. Organizations should do the best possible job of anticipating criticism to determine the best proactive and reactive responses to potential criticism. By completing a thorough audience analysis of all key stakeholders (i.e. fans, media, sponsors, and employees) before implementing a decision based off data mining, sports managers can more likely mitigate blowback and fully take advantage of new revenue generating opportunities.  

Media Rights Deals Continue To Heat Up

            Almost two years after signing the “Big Three”, the Miami Heat are on the verge of winning the organization’s second NBA Championship. Since no team leading 3-1 in a seven-game NBA Finals have ever lost the series, it is safe to assume that we should see LeBron James, Dwayne Wade, and Chris Bosh “taking their talents” to some of Miami’s most famous clubs to celebrate the title.

            Yet, winning the title will be only one piece of good news that Miami Heat organization should receive over the next few days. Forbes reports that the Heat is close to signing a new television rights agreement with Fox Sports Florida that will pay the team $80-100 million on an annual basis. This deal is expected to provide the team with the second most lucrative regional sports network deal in the NBA after the Los Angeles Lakers new deal with Time Warner Cable.

            We had previously discussed the importance of media rights deals to sports organizations in B6A’s blog post about the sale of the Los Angeles Dodgers. Yet, the Heat’s deal provides a new layer to the conversation. Many people thought that baseball teams would be the only organizations that could achieve large new television rights deals because they could usually provide at least 162 games to broadcast on a regional sports network (RSN). This means that a RSN could depend on achieving relatively high ratings on over 44% of their programming year. Yet, the Heat and Lakers deals show that RSNs are willing to pay close to eight and nine figure sums for teams that provide half the number of games as baseball (even if NBA games on average receive higher ratings than baseball games).

            And the trend of paying more for broadcast rights for sporting events outside of baseball does not seem to be ending any time soon. If anything, media rights agreements should continue to increase over the next five years. Not only are there more national broadcast sports networks and RSNs but also many RSNs, like the Pac-12 Network and Big Ten Network, are looking to expand into new markets to become national sports networks. More importantly, new national and regional media rights agreements are no longer confined to major professional and collegiate sports or conferences. The NBC Sports Network recently announced a new deal with the Ivy League to broadcast “10 football, 10 men’s basketball and four men’s lacrosse games a year” shows that there is demand for content that can appeal to niche, but lucrative, demographics.  

            Sports games and events have always held a unique appeal to broadcast networks as they are one of the few sources of content that DVR-proof. This occurs because once a fan knows the score of the game / contest then he /she is unlikely to watch on a recording making it significantly more likely fans watch games / contest live. Not only does this increase traditional ratings (and carriage fees), but also it makes more likely that television viewers will watch commercials.

The factors have allowed for the rise in the quantity and amount of new media rights deals and provide unique opportunities for sports property rights holders to vastly increase their annual revenue. The demand to broadcast games appears to be at an all-time high because of the amount of competition. Sports organizations at all levels need to be able to properly value their broadcast rights and then find ways to monetize this valuable asset. B6A can help sports determine the value of their broadcast rights using similar valuation techniques demonstrated in our Los Angeles Dodgers post.

            More importantly, it is time for sports organizations to make media rights agreements a higher strategic priority - particularly at the high school and small college levels. Many of these organizations spend significant amount of time, money, and energy attempting to have fans attend their games. Yet, the most lucrative asset these institutions have could be the broadcast rights to the games even if attendance is low. Working with RSNs or digital distribution providers could provide a significant new source of income for school districts and universities struggling to keep athletic programs afloat. As more and more state, county, and local governments struggle with overwhelming deficits, one of the first budget cuts made is to athletic departments. Therefore, finding new sources of revenue is crucial to the survival of these programs. While most high schools and colleges will not receive the multi-million agreements that the Heat and Lakers enjoy, exploring media rights agreements can help provide much needed cash flow to struggling athletic departments around the country. 

Bubba And Burritos

            On the night before the opening round of the U.S. Open, Bubba Watson tweeted, “Eating @ChipotleTweets for the 5th night in a row!” We at B6A were thrilled to see this Tweet for a two number reasons. First, we were happy that someone other B6A employees has eaten at Chipotle for more than five days in a row. Second, he included the hash tag “nomatterwhathappensitagreatweek”. We also believe that eating at Chipotle makes any day or week a great week.

            The only person who seemed to be a little unhappy with Watson’s tweet was CNBC’s Dan Rovell. When learning of Watson’s tweet, Rovell responded “Pic would make this a more valuable sponsorship”. Rovell has rightfully earned a large Twitter following because of his insightful posts on a variety of different sports topics. He has taken advantage of new social media outlets because he quickly saw the value in relating to fans in short and frequent content bursts.

            Yet, his response to Watson’s Tweet reflects an old way of thinking about the value of sponsorship. Why exactly would a picture of Bubba Watson increase the value of the sponsorship? As any Twitter follower knows, its best (and some would say worst) feature is that it allows you to express unfiltered opinions quickly to a large audience. Having the ability to hear from an athlete on a frequent basis and without having him/her go through traditional press or public relations outlets is one reason that sports fans love Twitter. Making Bubba take a picture at Chipotle could appear that his love of the quick serve restaurant was part of larger, coordinated PR campaign rather than his own feelings. The lack of perceived lack of authenticity would mitigate the benefit that a spontaneous post provides to Watson and Chipotle fans.  

From a narrative point-of-view, Rovell could state that it is possible to question that Watson actually loves Chipotle or attended one of its restaurants even if he ate five days in a row. Perhaps, he was just on a southwestern food kick because the U.S. Open was being played in California. A picture would confirm his passion for Chipotle burritos. Yet, one only has to do a quick Google search for Bubba Watson and Chipotle to discover that Chipotle is one of the options he is considering for next year’s Champions Dinner for the Maters. It would be hard to believe a picture of Watson eating a burrito would be necessary to confirm how much he loves Chipotle.

Finally, one could examine this Tweet from a revenue perspective. Would adding a picture really add economic value to Watson’s comments? Chipotle received an increase in brand awareness and brand perception from Watson’s fans by the Tweet. In addition, it is possible that Chipotle received new customer visits from the Tweet as Watson’s fans may have wanted to follow the culinary lead of one of their favorite golfers. Would Watson’s followers be more or less likely to attend Chipotle if they saw a picture of him eating a burrito rather than just reading about him going five times in a row? We find this to be very unlikely. The point of this Tweet is that Watson loves Chipotle so much that he ate the food five nights in a row. Do people really need to see him doing that to understand how awesome Chipotle is or his love of the Brand?

One of the biggest challenges of sports sponsorship today is coming up with approach to value its inventory. In the past, organizations have used pictures of sponsorships to prove the value they are delivering to corporate partners in what is generally referred to as the recap process.  Block Six Analytics proprietary Corporate Asset Valuation Model goes beyond showing pictures of a sponsorship to demonstrate value to corporate partners. Instead, we examine how sponsorship can increase revenue and meet partner goals through targeting specific demographics and focusing on specific channels. Being able to target younger consumers through an organic Twitter post would drive significant value to Chipotle whether or not a picture was included.     

B6A Welcomes mbaMission As A New Client

Block Six Analytics (B6A) has been selected by mbaMission to implement a cloud-based billing solution for the MBA admissions consulting firm. B6A’s proprietary Billing Platform will provide mbaMission with the ability to completely automate all phases of its billing lifecycle including sending invoices to clients, tracking all internal and external payments, and providing real-time reporting.

“We are excited to be working with Block Six Analytics,” mbaMission President Jeremy Shinewald said. “This solution will significantly reduce our billing costs while allowing us focus more on revenue generating activities. Block Six Analytics technological and process management capabilities in this space were exactly what mbaMission was looking for with this type of solution.”

Block Six Analytics provides its clients with innovative technological and consulting solutions that allow for organizations to identify new revenue generating opportunities while eliminating operational costs. Its proprietary solutions include the Partnership Scoreboard™, Media Spend Module, CRM Platform, and Billing Platform. For more information about B6A service offerings, contact Adam Grossman at adam.grossman@blocksixanalytics.com.