How the New College Football Playoff System Will Affect Corporate Sponsorships

Discover and Tostitos are dropping two of college football's biggest sponsorships, and more changes are in store.

Jun 11, 2014 at 7:32AM

This week, SportsBusiness Daily revealed Discover (NYSE:DFS) and PepsiCo's (NYSE:PEP) Tostitos will no longer sponsor the Orange and Fiesta bowls. An exact motivation is still unknown, but it's likely the moves were financially driven. Division I's new postseason format, the College Football Playoff, could cost title sponsors $5 million to $10 million more per year than the Bowl Championship Series. And more changes are coming.

A new playoff system
A successor to the much-derided Bowl Championship Series, the inaugural College Football Playoff will launch at the end of this season, and it should have far-reaching effects on the sport.

Fiesta Bowl

2010 Fiesta Bowl. Image via Sean Hobson, Flickr.

Disney's (NYSE:DIS) ESPN, which paid over $7 billion for exclusive broadcasting rights through 2025, recently released a primer on the subject. According to the network, the country's best teams will play in a four-team playoff, culminating in a new National Championship game. The condensed schedule is the system's most notable feature. ESPN explains:

Six of the most prestigious bowl games in the country will take place over 36 hours -- played as back-to-back tripleheaders on New Year's Eve and New Year's Day. This bowl marathon will include the Peach Bowl, Fiesta Bowl, Orange Bowl, Cotton Bowl, Rose Bowl, and Sugar Bowl...The bowls that will host the semifinals rotate on a three-year cycle.

The Rose and Sugar bowls will host the playoff semifinals this season, while Orange/Cotton and Peach/Fiesta pairings will follow in 2015 and 2016, before resetting. Cities will bid to host the National Championship game, mirroring how the NFL determines Super Bowl locations.

The dollars and cents
Estimates of the playoffs' financial footprint vary, but the rise in rights fees alone are worth noting. ESPN will pay a little over $600 million per year to televise the games and all related coverage, including the selection process. That's about five times the amount the network had paid to broadcast the BCS since 2011.

And for the new National Championship game, the Super Bowl comparison is apt. At the time the playoffs were announced, sports media consultant Neal Pilson told CBS Sports, where he once served as president,  "It will kind of be the Super Bowl's ... brother or sister," adding, "I call it the biggest American sports event that hasn't happened yet."

In terms of impact, he thinks advertising rates and TV viewership will be about half as large as a typical Super Bowl -- a potential audience of 50 million and 30-second ad rates of $2 million. By comparison, the 2014 BCS National Championship captured just 26 million viewers, and most 30-second commercials cost near $1 million. 

So why are Discover and Tostitos leaving?
It is understandable why bowl game sponsorships could be more expensive this year. But why the advertiser exodus? It's possible both brands believe the new playoff format isn't all it's cracked up to be. Two potential issues come to mind.

First, a condensed New Year's schedule could lead to bowl overload. Fans have already expressed concern with a diluted postseason in the past, and the CFP ups the total number of bowl games to 39 from 35. CBS Sports reports there will be 40 by the end of the 2015-16 season. Because the majority of the bowl schedule will occur before New Year's, some viewers could be burned out by the time the playoffs begin.

Second, and more importantly, the Orange and Fiesta bowls are now out of the National Championship rotation. In the BCS era, each bowl hosted the title game once every four years, and sponsors reaped the extra exposure. The 2013 game, for example, was officially the Discover BCS National Championship, while 2011's contest was linked with Tostitos.

The new playoff format eliminates this tradition. Sponsors are now downgraded from a championship rotation to a semifinal rotation, something Discover and Tostitos could've taken issue with.

The bottom line
Although the College Football Playoff has potential, success isn't a guarantee. Like the BCS, there will still be controversy over the selection process, and there will be years when matchups are less exciting than others. Given that sponsors like Discover and Tostitos are walking away, it's worth considering a scenario where the playoffs don't live up to the hype. Only time will tell.

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Jake Mann has no position in any stocks mentioned. The Motley Fool recommends PepsiCo and Walt Disney. The Motley Fool owns shares of Discover Financial Services, PepsiCo, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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