Bobby S. Nyotta and Christopher S. Tang
With the NBA Finals and NHL Finals wrapping up and the FIFA World Cup starting, sports fans are buying jerseys to support their home team, favorite player, and country. At the same time, these jerseys are costly: they can be as much as $200 on fanatics.com — the largest retailer of jerseys in America.
Figure 1: The cost of US Men’s National Team jerseys is nearly $200.
This steep price can make fans think twice about purchasing. Since they are so expensive, purchasing becomes an investment in the player, team, or country. If the jersey style never changes (for example, the Minnesota Timberwolves changed their jersey design and logo before the 2017-2018 season – see Figure 2) or player never changes teams, then the investment has long-term value. However, if the logo changes or the player changes teams, then the jersey becomes “obsolete” and loses its appeal, and all of that money spent on the jersey is wasted. Wearing an outdated jersey is not necessarily a fashion faux pas, but most loyal fans want to be up-to-date with the current roster and team. So, what can jerseys sellers do to nudge fans to purchase their jerseys in the presence of obsolescence risks?
Figure 2: The Minnesota Timberwolves changed their jersey design and logo in 2017.
Here is an innovative initiative that NBA has just introduced. During the NBA Finals, we saw a commercial mentioning a joint partnership between fanatics.com, American Express, and the NBA for “Jersey Assurance.” This program allows fans to trade in their jersey of a player if the player is traded or the player signs with another team during free agency. Of course, not all changes are covered, such as player retirement or player suspension. The best part for the fan (consumer) is that Jersey Assurance (JA) is free AND shipping on the new jersey is free!
From an operations lens, this retailing policy brings up a few interesting questions:
- With JA, the risk of owning a jersey is reduced, so how much more can the jersey manufacturer charge for jerseys?
- The NBA is automatically including JA on all jerseys, but if they made it an optional (the same way the airlines offer travel insurance like Allianz at checkout), how much should they charge?
- What happens to all of the returned jerseys?
- How does this liberal return policy change the demand for jerseys when a player switches teams? For example, prior to the implementation of JA, say the manufacturer has a demand of 50,000 jerseys of a particular jersey, which comes from two main sources: (1) fans of the team and (2) fans of the specific player. However, after the implementation of JA, there is demand from several sources:
- Fans of the new team
- Fans of the previous team who want to exchange their jersey for an up-to-date jersey
- Fans of the player who owned the jersey from the previous team and choose not to exercise their JA option, so they buy a new jersey on the new team
- Fans of the player who owned the jersey from the previous team and choose to exercise their JA option, so they exchange the jersey for a new one
- Fans of the player who did not own the jersey from the previous team and want to buy a jersey on the new team
Since there are so many factors that go into the demand of a jersey with JA, predicting the demand seems like it becomes a much more challenging task and depends on:
- Estimating the percentage of buyers who support the team versus the player
- Estimating the percentage of buyers who will exercise the JA option and do the exchange. Considering that $41B in gift cards were not claimed between 2005 and 2011, it is quite possible that people simply will forget to use their JA privileges and never do the exchange.
Now, the question is how many jerseys should the manufacturer produce? Should the make 50,000 like they were doing previously? Or less? Or more?
One possible way manufacturers can combat this aforementioned demand uncertainty is to create generic, name-less jerseys for each team and then wait until the last minute, when demand is realized, to print player names and numbers. New advances in technology, such as 3-D printing, make this possible, which is exactly what Nike and HP are doing.
A final thought against the participation in JA:
An obsolete jersey has re-sale value because they are never made again. At some point an obsolete jersey can become “vintage” in which case the jersey is fashionable again, but the time for this to happen can be 10 to 15 years and only happens if the player has had a fruitful, successful career. Companies like Mitchell & Ness specialize in manufacturing these vintage or “throwback” jerseys, which can sell for over $350. Fans who hold on to jerseys for nostalgia or in hopes it will become a “collector’s item” probably would not want to participate in the JA program. So the premium that is added to the jersey cost because of JA could possibly prevent this customer class from buying a jersey. This is a good case for making the JA plan an opt-in plan that customers can purchase.
Here are links to other articles that discuss “Jersey Assurance”: