Marginal revenue analysis of celebrity endorsements and profitability

Marginal Revenue and Over-Paid athletes and Celebrities

Celebrities both on the screen, entertainment and sport are revenue yielding business attractions. They are recognized as potential revenue creators. The law itself recognizes the rights with regard to the revenue for celebrities. The special economics that centre on the celebrity who has a great public following offers a venue for the celebrity to market the following. The Supreme Court of the United States deciding on the publicity right recognized the importance in terms of fiduciary equations, the celebrity as a marketing proposition. "In Zacchini v. Scripps-Howard Broadcasting," the court examining the right to publicity gave the opinion - "State's interest in permitting a 'right of publicity' is in protecting the proprietary interest of the individual in his act in part to encourage such entertainment." In other words, a celebrity enjoys a potential revenue fetching force that has to be exploited by the firms or institutions that market on the fame of the celebrity. If we therefore cede that a celebrity can and will fetch revenue by his or her participation, the question remains if the very high premiums paid for their endorsement or participation is thus justified. The question is if the revenue that accrues or the marginal returns from the payments justifies the cost or brings in additional revenue.

The celebrity endorsement and profits

In analyzing the economics of superstars and profitability, the CNN Money channel in a write-up "The economics of Britney Spears" comments that the star has created a new billion dollar industry. The industry is termed as the "gossip industry." According to the analysis, for many business houses, the fortunes of Britney fetched them money in a vicarious manner: "But the Spears story in particular, with a nearly every week, has become a very profitable sub-sector unto itself." In the first half of 2007, the revenue yield to the information sector, journalism and media on account of the Britney affairs was above two million Dollars. This income evolves from various sources such as photos, news, news columns, web marketing, and several different features which interests the public. There are several different costs which are being incurred over the usage of a celebrity in media and various other types of events, and these could be considered to be diversified as a result of the incidence which falls on the various entities. For example, the cost which is being incurred by means of the protection agencies with regard to the estate might tend to exceed over the revenue which is fetched. However the concern over here pertains to the returns from the celebrity endorsements and hence the cost that is being incurred by the state as also other agencies are required to be considered to be non-existent.

Looking at the Model

Celebrities come from various stations of life. Though they command economic power and have a value for their fame, which is marketable, in terms of analyzing the inequality of distribution of wealth, and the returns expected from the various participants of a game or event like a football match, the reason why a superstar commands more pay than the other team members ought to be seen not only in against the backdrop of inequality but also in terms of the potential of the player to bring in more revenue, or increase the marginal revenue from the event by his or her presence. The economy has diverse people of different economic strata performing the same functions. The top income bracket of the economy not only consists of businesses and hereditary affluent people. Most company owners, celebrities and professionals got there by activities in various professions, sport, movies or other popular ventures from a humble rung. "The economics of superstars" is important from the perspective of analyzing the inequality in wealth, and distribution of available resources and the marginal revenue enhanced by celebrities in organizing events. This is true of major league sports and movies.

This can be noticed more if we take the case of sports, which has various rungs of celebrities for different sport. In some one of the team players attracts the entire crowd, keeps the game running as is the case with football. Individuals who play solo tike Tiger Woods in Golf command a different type of fame and economic returns. The team games are often the difficult ones to predict. Any sport can be viewed as a commodity and so can any event and show. The importance of the sport today lies in its marketability, a feature that can be noticed more in today's team sports. Sports can be viewed as a commodity with a peculiar economics according to Walter Neale. Sports for example are vastly different from other occupations. Revenue from sports not only spring from the matches but also by the news, sale of endorsements, and even gossip. The lifestyles of the stars intrigue people which make them take special interest in the life of the stars. This by itself thus becomes a saleable commodity. The uncertainty of outcomes of a match, according to the BBC analysis, will be measured by the successes of the teams and individuals. If failure is a foregone conclusion in a series of events, then the "marginal supporter" will cease to have interest and opt out.

There are numerous considerations in the market of sport and celebrity marketing to take into consideration.

The competitive balance of each team and the competitiveness is more important to the managers especially of teams and personalities who are potential revenue earners who naturally have to be celebrities in the respective sport or activity. A formula to measure the revenue quotient is also derived by the possibility quotient and the status of the team. The stars are in a position to create revenue from television and "Inevitably, the financial gap between the top tier of football and the three tiers below it widened. Additional rewards from qualifying for European club competition (the Champions League and the UEFA Cup) generated further incentives for the very top teams to deepen the size and quality their playing squads."

By considering David Beckham in the team game of soccer and viewing him as a 'Marginal Revenue Product' it is unquestionable that for the last decade he was the biggest soccer attraction. Beckham is being paid two hundred million dollars as endorsement fee other than his fee of ten million as contract fee from the team- Galaxy which he plays for. There is the advertising side to this with the Citibank spending $49 million over five years for the jersey advertising rights for the Galaxy." It is naturally a question if the companies who spend that kind of money over the star do so without revenue returns. The answer lies in the fact that endorsements and results are calculated on the market reach of the endorsing star. It is based on the hit count, opinions, attendance and other significant factors that the celebrity has caused in the past and the public opinion on the future event on which the cost is incurred.

Conclusion

It is observed that celebrities are a marketable commodity by them. They command following, and many individuals aspire to imitate them and hold them as role models. The reach and influence of celebrities differ in the sectors that they attain fame. Persons in the media like Britney Spears command a different set of returns and create a totally new kind of revenue potential as do many film stars, and musicians. Their use is also for such economic concerns that deal with the media, entertainment and targeted sectors like the domestic sector and households where the charisma of the celebrity can win markets. The viability or returns to scale in terms of marginal revenue to the user of such celebrity power can be equated with the cost of using the celebrity and the difference in the marginal advance of the position of the variable they were trying to better- for example sales, customer base or readership. The return in terms of marginal increase of the revenue ought to be seen with a comparison of the return to another entity that did the identical marketing without the celebrity endorsement. If the difference in costs was justified by the vast chasm created in the marginal revenue of the two different campaigns, then the payment made to the celebrity and the cost incurred is justified. However the company or entity that embarks on a project leaning on the celebrity power must take care to see the effectiveness of the celebrity endorsement on the market for the product and suit the celebrity, endorsement and campaign for its target market. The fortunes of the celebrity will affect the system in the long run and therefore a change of persons of ten is also recommended. One method of lowering costs will be to identify potential stars and then encourage them with long-term contracts sponsoring the proposed star.

Citations

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Vincent M. de Grandpre. Understanding the Market for Celebrity: An Economic Analysis of the Right of Publicity. http://law.fordham.edu/publications/articles/200flspub6506.pdf

Vincent M. de Grandpre. Understanding the Market for Celebrity: An Economic Analysis of the Right of Publicity.

N.A. The economics of Britney Spears. 28 January, 2008. http://money.cnn.com/2008/01/28/news/funny/britney_economy.ap/

N.A. The economics of Britney Spears.

Dogan, Stacey L. Lemley, Mark a. What the right of publicity can learn from trademark law. Stanford Law Review, vol. 58, no.5. February, 2006. p. 1161.

Frank, Ackerman. The Political Economy of Inequality. Island Press. p. 34.

N.A. Measuring the competitiveness of sport: are the top teams getting too strong? http://www.economicsnetwork.ac.uk/archive/maths_worksheets/competitiveness_in_sport1.doc

N.A. Measuring the competitiveness of sport: are the top teams getting too strong?

Brian, Goff. How Seriously Do Teams Take the NFL Combine? 26 February, 2007. http://www.thesportseconomist.com/archive/2007_02_01__arch_file.htm

Scott Rosner; Kenneth L. Shropshire. The Business of Sports. Jones & Bartlett Publishers. 2004. p. 383.

Paul D. Staudohar. Playing for Dollars: Labor Relations and the Sports Business. Cornell University Press. 1996. p. 1

Staudohar, p. 1