How Competition for Superstar Endorsers is Changing Sports Biz

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(from Sports Business Journal, October 28, 2013) Professional sports are no longer just a game. They are a booming business that is forcing athletes to focus on more than their performance; they too have to focus on business. Some athletes are taking “business” a little more seriously than others, one of which being LeBron James. Rather than being managed by a large management firm like IMG, James has his own startup known as LRMR. Some speculate that a superstar like James is doing this just to avoid the large commissions athletes pay to their management firms, but he says that it’s because he not only wants to run his own business, he wants to “be his own business.”

Another star, Andy Murray, has also made the jump to manage himself. Athletes claim they are tired of being handled like a transaction; they want partnerships, and managing yourself and others as an athlete makes that process much more personable. However, this process is easier said than done. LRMR and other’s like it do not have the resources, connections, and experience of larger, more established firms such as IMG. This hinders their ability to offer a full suite of services to other athletes and results in them not always making a deal. However, having the star power of someone such as LeBron James can help overcome these obstacles, and his connections with major brands such as Nike, talent agency CAA, and Fenway Sports Group are a plus as well.

Part of this new structure of superstar endorsement is a new compensation model. It used to be that when an athlete signed with a sponsor or endorsed a product they were paid a large sum of money up front. James is changing that with his 2K series video game endorsement, Nike apparel, and Samsung electronics; he is starting to demand a royalty for each of the products sold that are linked back to him. While this may sound greedy, it’s a business model that is being developed by athletes everywhere and is getting attention as the “new financial model for the 21st century athlete.” This is just the beginning of this rapidly growing model.