UI, ISU outsource their sports merchandising

IOWA CITY - Two state universities recently signed deals that guarantee revenue by outsourcing athletic merchandise sales. Those deals put the schools at risk of losing out, though, on the big money that usually accompanies demand for gear in championship seasons.

Hat World Inc., an Indianapolis-based company, partnered to sell Hawkeye and Cyclone merchandise in brick-and-mortar stores, sports venues and online stores linked to the athletic departments' websites.

Although the deals were inked within months of each other, the University of Iowa's guaranteed cut of sales is 10 times higher than Iowa State University's.

Hat World provides UI a percentage of gross sales, with a guaranteed minimum of $600,000 a year for five years. The university also gets a $50,000 signing bonus, $2,500 a year in merchandise, 1,000 T-shirts a year and a 40 percent discount for the athletics department, according to the July 1 contract obtained by The Gazette through an open records request.

For ISU, Hat World promises to pay a percentage of net sales (ranging from 4 percent to 25 percent) from gameday venues, the off-campus store and online. The only guaranteed payment is a $60,000 commission for merchandise sold at sports venues. The athletic department gets a 25 percent discount, according to the five-year contract signed in April.

Guaranteed minimum vs. potential jackpot

The UI gives up responsibility for the Hawk Shop location it has operated for years, as well as the possibility of huge payoffs in years when the Hawkeyes perform well.

“A lot of it depends on the success of the football team,” said David Grady, associate vice president and dean of students. “On average, it's a better deal.”

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UI Hat World Contract

Herky's Locker Room is the new name for the former Hawk Shop at 1525 Second St., Coralville, and kiosks at Kinnick Stadium. Hat World also will sell gear at Carver-Hawkeye Arena, and it now provides the “Official Team Store of the Iowa Hawkeyes” with a link from the Hawkeye Sports webpage.

The UI made $450,200 from those sales venues in fiscal 2010 and $486,800 in fiscal 2011. The Hawkeye football team won bowl games in both seasons, which means merchandise sales were probably relatively high.

If the Hawkeyes were to win a national championship, however, merchandise sales likely would skyrocket, said Susan Geringer, a sports marketing professor with the Craig School of Business at California State University-Fresno.

“When Fresno State won the NCAA World Series, brick-and-mortar sales were up, but online sales were through the roof,” Geringer said. “You've got to make money when you're on top.”

Auburn University more than doubled its royalties from licensed merchandise from $2.5 million to $5.3 million after winning the national championship in 2010, according to Bloomberg news service. Merchandise sales are on top of royalties paid for use of school names and logos.

Contracts indicate future plans

The UI's cut of sales under the Hat World contract is 25 percent of gross revenue from goods sold at sports venues, 25 percent over $1 million for items sold at the Coralville store and 30 percent of web sales. The UI athletics department gets 62.5 percent of the license fee proceeds, and the University Book Store gets the rest. The bookstore will maintain a Hawk Shop within its location at the Old Capitol Town Center and will continue to sell merchandise at HawkShop.com.

ISU's 16-page contract makes clear the school expects Hat World to boost revenue.

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ISU Hat World Contract

“This product mix will address ISU's goals of increasing sales, offering hot market items in a more timely fashion and broadening the product mix that is offered,” the contract states.

Cy's Locker Room, 806 S. Duff Ave. in Ames, may be followed by stores in the Des Moines area.

But Cy and Herky will not be mixing it up in the locker room. ISU prohibits any other school logos or color combinations to be sold with Cyclone merchandise.

Outsourcing common in sports

Outsourcing parts of sports operations is common at Iowa universities and across the country. The UI's deal with Hawkeye Sports Properties, a subsidiary of Learfield Communications, provides the UI athletics department with more than $5 million this year for the rights to sell sponsorships associated with Hawkeye sporting events.

The Hat World contracts are short-term commitments that give ISU and UI time to see how well outsourcing works with merchandise sales, Geringer said.

“If the university is smart, they will go with this contract for five years, and if it's not profitable, they will take it back,” she said.

Hat World operates the stores within its LIDS Clubhouse division, primarily known for the LIDS retail brand that operates more than 975 stores across North America. The company has agreements with more than 25 professional teams, collegiate athletic departments and sports organizations, including the University of Washington, Texas Tech University, University of Kansas, New York Yankees and the Chicago Cubs, according to the company.

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