License To Play
By Dave Vagnoni
A top end-user market (education) plus the number-one product category (yes, apparel) can equal big opportunities for distributors. But to tap into the college apparel market, distributors need to know how to navigate the licensing process. Here’s a primer.
For Rob Bragonier, it was the best business mistake he’s ever made. It happened a dozen years ago when Bragonier’s shop, Altoona, PA-based Pro Active Sports (asi/299632), decorated some apparel using a collegiate logo. “We had done a job for Penn State and I was naive and didn’t know we needed a license,” Bragonier says. “A local competitor turned us in.”
It wasn’t long before Bragonier’s phone rang. On the other end of the line was a representative from Penn State’s Office of Licensing. “She told me we were in violation,” he remembers, “but she was extremely nice and helped me through the process of getting a license.”
Bragonier knows he could have been slapped with a fine or been the target of legal action. He got a well-timed, business-changing break. And to his credit, he’s taken advantage of it. Since that first unauthorized order, Pro Active Sports has secured a steady flow of Penn State-related work. “One of our best clients is Penn State-Altoona,” says Bragonier, whose 10-person company produces annual revenues in excess of $1 million. “We do T-shirts, sweatshirts, jackets. After trying desperately for a while, we got into the main campus, too. Through a referral, we now do work for the basketball program at PSU. We’ve been very fortunate.”
Scripted with a happy ending, Bragonier’s story is both incredibly unique and incredibly common. Unlike most, Pro Active Sports avoided a penalty after a clear licensing violation. Yet, like many, Bragonier was unaware of the increasingly complicated collegiate licensing process. “It’s still a bit embarrassing for me,” he admits.
Understandably, to even well-versed and longtime distributors, collegiate licensing can be a bit tricky. At worst, though, it’s a migraine-generating, paperwork-driven torture test. That’s where Counselor comes in. We’re here to help take away the pain. With the expertise of university administrators, key trademark industry players and “been there, done that” distributors, Counselor has compiled this straightforward, how-to collegiate licensing guide.
Let’s say you’re a distributor in the college and economic hotbed of Raleigh, NC. You’re interested in obtaining a license to sell apparel printed with the locally popular logos of Duke, UNC and NC State. Your first thought might be to call the schools for information. Don’t bother. “We get a lot of calls from first timers and we send them right to the LRG website,” says Gregg Zarnstorff, director of trademark licensing for NC State. “That starts the process for them.”
If you’re unfamiliar with the terminology, LRG is the Licensing Resource Group, one of the two major collegiate properties associations in the country. LRG represents about 160 colleges and universities, from NC State to Bemidji State. CLC, or the Collegiate Licensing Company, is the older of the two firms, representing schools with powerhouse athletic programs like Alabama, Texas, Penn State, Kansas and Duke.
For these two firms – and the sports apparel distributors that can tap into the business – the market is immense. Only taking into account athletics, collegiate licensing generates about $4 billion in revenues annually, according to research firm IMG Worldwide. “It’s a dynamic industry that never goes on strike and has a huge fan base,” says Lisa Tomlinson, vice president of marketing for LRG.
Because the trademark business has gotten so big, if you want a license from just about any school, you must first apply with LRG or the CLC. And, since schools can choose which agency they want to be affiliated with, you might have to apply to both LRG and the CLC for licenses. Indeed, in the example of Raleigh, NC, anyone who wants to sell logoed apparel to Duke, UNC and NC State would have to apply to both agencies for licenses.
Applying For A License
Both LRG and the CLC provide extremely detailed applications that include questions about a potential licensee’s marketing plans, sales force, industry experience, current liability insurance, manufacturing locations and geographic selling niches. Entire application sections focus on social responsibility and factory disclosure, obligations and fees, as well as product enhancement programs. “We try to be very upfront and not make the process hard or have applicants feel threatened,” says Tomlinson. “We welcome new companies and we work to treat the process like a partnership.”
While LRG and the CLC may view licensees as partners, their clients are the schools they represent. That means the agencies are responsible for finding the best licensees to fit within a school’s pre-established parameters, with different colleges prioritizing different areas. For example, administrators at Gonzaga might want to expand their notoriety outside of the Pacific Northwest by granting licenses to companies in the Midwest, while decision-makers at NC State might want licensees that can provide more eco-friendly apparel options. “We’re looking for unique products,” says Zarnstorff. “I see eco-fabrics as a coming trend. Right now, there are a lot of cotton tees out there.”
In the case of a T-shirt, Tomlinson believes companies can set themselves apart by offering creativity and full-service options. “We’ll look at the cut, the fabrics, whether they have women’s products, the method of decoration, whether it’s fashion-oriented and if it’s made in America,” she says.
The application to become a licensee can put a distributor through several phases. After filling out pages of paperwork, potential licensees are asked to submit designs and samples incorporating a school’s marks, complete product specification sheets and show how they’ll meet labeling requirements. In a third phase, companies are asked to agree to labor codes of conduct and pay advance and administrative fees. The entire process usually takes up to 90 days before a license is either granted or denied.
“In the past, it was a much easier process,” says Dennis Edwards, president of South Carolina-based Bobby Edwards Enterprises (asi/186040). “We were one of the first ever to be licensed with the CLC. In the beginning, deals were done with a friendly handshake. Now there’s a lot more legality to it.”
Types Of Licenses
A company can apply for one of three types of licenses. A standard license allows a company to produce items for extensive resale, usually with permissions from several schools. An in-state license allows a company to produce items for resale for one local school only. Lastly, a restricted or internal use license allows a company to produce non-retail items that are sold directly to an individual school. All licenses are reviewed annually. “We review companies based on their merits, not based on money,” Tomlinson says.
Even so, licensees are greatly segmented based on the value they offer to a school and their effectiveness in generating revenue. That means standard licenses are most commonly granted to larger manufacturers – think adidas and Nike – or medium-size businesses that specialize in collegiate apparel programs. In-state licenses are the preferred choice for companies with close ties to a local school, particularly its athletic department. Restricted or internal use licenses might be acquired to accommodate several annual orders that may be placed by an alumni association or a student group.
“Don’t be mistaken, this can be an intimidating and cumbersome process,” says Terry McGuire, senior vice president of marketing at Counselor Top 40 distributor Halo/Lee Wayne (asi/356000), which holds licenses for about 75 collegiate schools. “If a distributor is just doing a few orders, I wouldn’t go through it. Now, if a distributor has a very good working relationship with a school, it can be very, very worthwhile.”
And, while that license is definitely worthwhile to the serious collegiate-apparel distributor, it can also be costly. Because of processing, administrative, fair labor and auditing fees, plus insurance costs, a license costs about $500 annually. “Really, many of these fees are meant to ensure that a company is serious about licensing,” Zarnstorff says.
Licensees will also be charged royalty payments, which are generally about 10% of net sales. These payments are typically made quarterly through a licensing agency, which then sends the royalties to the appropriate school. Advance royalty fees, considered a deposit on future payments, are often required for apparel contracts. The larger the school, the larger the advance guarantee, with $500 being a common deposit for major athletic conference programs.
Reasons To Consider Licensing
Rapidly growing apparel distributor Kotis Design (asi/244898) was started seven years ago by three innovative and passionate University of Washington students. “I love what college represents and I know the college market,” says Jeff Becker, one of Kotis’ co-founders and current president. “We’re very aggressive in getting licenses.”
That strategy, which includes applying for 12 licenses annually, has helped Kotis become a leading provider of collegiate logoed apparel. With sales climbing into the mid seven-figure range, Kotis has achieved a three-year growth rate of 187%. “We feel like we have the best products and we have amazing people who work here,” says Becker, who has a 37-person staff.
Not only does Kotis hold licenses with 50 different colleges and universities, it also holds trademark rights for fraternities and sororities. That means Kotis can produce a T-shirt for a Delta Gamma charity softball game with both a school’s logo and the corresponding Greek letter logo. “We sell a lot to fraternities and sororities,” Becker says. “It’s about a third of what we do.”
Because Kotis holds multiple licenses, the company can accept orders other distributors can’t, all the while building a word-of-mouth referral network in hundreds of Greek houses across the country.
Now, while the licensing payoff has been huge for Kotis, the initial costs it must pay are also steep. The company pays royalties, including advance fees, of 10% to both collegiate and Greek life licensing agencies. “It’s really expensive, so you have to bring in revenue,” Becker says.
That’s why Kotis’ staff tries hard to be selective in submitting collegiate licensing applications. “I’m not going to apply for a license at Notre Dame,” Becker says. “I know we’re not going to get it. But it’s about relationships. We recently got a license at the University of Utah because people kept asking us to do it. We know we’re going to get sales through that.”
Of course, Kotis’ sales growth is just one example of how licensing can benefit a company. Two years ago, Tennessee-based Sommet Promotions (asi/349742) teamed up with ISP Sports, which holds the broadcasting rights for Vanderbilt University athletics. Combining its license with a strong relationship with ISP, Sommet (formerly known as BrandCentrik) has begun providing game-day basketball, baseball and football giveaways, including T-shirts. “We designate one game per season and we co-brand our logo with Vanderbilt’s logo,” says Jeff Sowell, chief marketing officer for Sommet.
Two states away in Indiana, Fine Promotions (asi/194115) holds licenses for IU and Ball State, successfully selling apparel to the latter while avoiding royalties. “We’ll do work for the president’s office at Ball State,” says Robb Fine, CEO. “Maybe they’ll want nice polos or jackets, or even ties with the school’s logo on there.” Because the products Fine provides are for internal university use rather than resale, he’s exempt from royalty fees.
In Dodge City, KS, Gavin Unruh has enjoyed a history of licensing success with a smaller school. “Fort Hays State had an active recruiter in our area,” says Unruh, co-owner of EmbroideMe of Dodge City (asi/384129). “They had major sponsorships with golf tournaments and we’d do golf polos for them. It got us some exposure.”
Finally, while good planning, close client relationships and hard work matter greatly in selling licensed apparel, location is no doubt key, as well. No area in the country is friendlier to licensees than Tompkins County, NY, home to unaffiliated Ithaca College and CLC-affiliated Cornell University. “I do T-shirts, hats and sweatshirts for local retailers,” says Sharon Gold, owner of Gold Screen Printing (asi/209299). “I’ve never had to pay any royalties because we’re in Tompkins County.”
As a way to support local businesses, school administrators decided many years ago to waive royalty fees for county licensees. “CLC tells us Cornell is the only school in the country that does this,” says Mike Powers, spokesman for Cornell’s university communications office. “It’s been that way as long as I can remember and it probably will always be that way.”
Appleback LLC (asi/123011) is one of the busiest screen-printing shops in New Jersey, evidenced by the fact that owner Jill Valentino only averages about four hours of sleep every night. “My friends call me the Energizer Bunny,” she jokes. Yet, when the topic switches to the collegiate licensing process, she is no longer in a joking mood. “It’s the biggest hassle in the world,” she says. “I don’t know if it’s worth it.”
It was March 2009 when Valentino applied to become a licensee for Rutgers University, which is affiliated with CLC. For reasons Valentino still can’t explain, it took until December for Appleback to receive a license. Then, when she was finally set up for her first order, a communications mix-up led to some strange-looking pants.
“I was given verbal approval for a Rutgers hockey logo,” Valentino says. “Then later they came back and said I had to add ‘ice’ before ‘hockey.’” The confusion meant, in limited time, that Valentino had to insert the word “ice” in a vertical design on pairs of flannel pants. The design already included the large Rutgers’ “R” that’s commonly used as the university’s main logo. “Those pants that read Rice hockey, yup, that was us,” she says, with a bit of disgust.
Besides the artwork snafu, Valentino has also been challenged by the costs she’s incurred as a licensee. “I’ve spent $800 to $1,000 already and that’s not counting all the time I’ve spent on paperwork and on the phone,” she says.
While Dave St. Clair respects licensing agencies, he can relate to the angst felt by Valentino. At one time, St. Clair’s company, then known as Midwest Embroidery, was one of the top 20 CLC licensees in the country. But, during the 1990s, the licensing landscape changed. “It just got to be a commodity business and it wasn’t as exciting for us,” laments St. Clair, now vice president of South Bend, IN-based St. Clair Apparel (asi/332918). “I would consider getting back into the collegiate licensing business, but I would be careful of the partners I chose, meaning retailers.” And yet the opportunities are too great to pass up. Despite industry changes, St. Clair Apparel still works on smaller projects for IU, Purdue and Notre Dame. “We still have our hand in the game, but we don’t resell,” St. Clair says.
While price is one obstacle to overcome, there are further challenges to consider. The collegiate licensing industry is exceptionally detail-driven, with universities growing increasingly protective of their trademarks. Sizes, slogans and colors must be exact. “Kansas State is very, very particular about the purple used for its logo,” says Luke Scoby, a salesperson for Kansas City-based Custom Specialties (asi/173252). “There really aren’t that many purples, but it has to be right.”
While careful treatment of school trademarks is important, so is the issue of social compliance and fair labor. As an example, more than a dozen schools cut ties with licensee Russell Athletic in 2009 after questions arose about the company’s labor practices at a plant in Honduras. “Suppliers have done a good job with product safety,” says Halo’s McGuire, “but there are some that are still learning about social compliance.” Before a business can become a collegiate licensee, it may have to join the Fair Labor Association and pay yearly dues. “About one third of the major universities are part of the Fair Labor Association,” McGuire says.
Dave Vagnoni is senior writer for Counselor.
|Common Licensing Application Questions
- Does your company have a corporate social responsibility program?
- Have you ever been involved in a product liability claim?
- What distinguishes your company from the competition?
- How will your product be packaged?
- Have you ever been denied a trademark license?
- Courtesy of the Licensing Resource Group
Supreme Court Weighs In
In a landmark licensing case decided in May, the U.S. Supreme Court rejected the National Football League’s request for broad antitrust law protection. Justices unanimously overturned a lower court decision, ruling that the NFL isn’t a single entity, but rather a consortium of 32 separately owned teams. The ruling is a major victory for plaintiff American Needle, an apparel manufacturer, which brought suit against the NFL after the league awarded Reebok with an exclusive apparel license. The High Court decision could affect the future of licensing in the following ways:
- Individual NFL teams may be allowed to negotiate separate apparel contracts with a manufacturer of their choice. Currently, Reebok is the only manufacturer licensed to produce NFL apparel.
- Other major sports leagues may be more hesitant to designate an exclusive apparel licensee, fearing a lawsuit from a spurned manufacturer. At the very least, more companies will likely be allowed to bid for exclusive contracts.
- Major League Baseball is now likely to permanently remain the only professional sports league to enjoy a broad antitrust law exemption, meaning the league’s licensing decisions cannot be challenged in court.