Lululemon Athletica, More Than Sportswear

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lululemon-Vancouver

A healthy lifestyle, which includes eating right and working out, is becoming more and more needed as well as advertised in today’s society. This boom of working out has frequently impacted people’s health, along with athletic wear. Popular athletic apparel companies such as Nike, Under Armor, and Adidas have been the go-to products for comfortable, stylish, clothing to workout in. However, there is a unique athletic apparel company making an impact on consumers in new ways than just style. Lululemon Athletica is a billion dollar company that has established its brand as a top yoga apparel wear and is also influencing the industry in a positive way.

An Established Brand

Lululemon Athletica , also known as LULU, is yoga-inspired apparel which also includes running, dancing, and other athletic pursuits. Its mission statement is creating components for people to live longer, healthier, fun lives. Lululemon’s primary target customer is sophisticated and educated women who understand the importance of an active, healthy lifestyle. They have recently expanded in men’s and youth apparel. LULU creates the athletic clothing to offer performance, fit and comfort while incorporating both function and style. According to Hoovers, it operates some 250 company-owned stores primarily located in North America. The popularity and expansion of its clothing is making the company a competitor in the sportswear industry.

The Canadian company was founded in 1998 by Chip Wilson and the first retail store opened in November of 2000, by the beach area of Vancouver BC called Kitsilano. The distinctive name was voted in a survey of a 100 people and includes a logo which is a stylizing “A” that represent the first letter in the name “athletically hip,” one of the names that was up against Lululemon.

According to LULU’s website, the main idea of the first store was for it to be a community hub where people could learn and discuss the physical aspects of healthy living from yoga and diet to running and cycling as well as the mental aspects of living a powerful life of possibilities. However, the popularity of the store grew, making it too busy for employees to help the customers with this concept. This was the determining factor that the company needed to grow.

The Revenue and Expansion

As of February 2015, there are 211 stores in the United States, 57 stores in Canada, 26 stores in Australia, and five in New Zealand. This year Lululemon opened its first store in the United Kingdom and one in Singapore. The company plans on expanding more stores in the UK and Singapore along with opening new ones in Germany and Asia. About 95% of Lululemon’s revenues came from North America in fiscal 2014, which is about $1.5 billion. As the company expands in Europe and Asia the international revenue will begin to climb.

lulu yoga

Lululemon has grown rapidly since its creation in 1998. The growth has influenced expansions for more stores in North America along with global expansion. According to its annual report, the net revenue has increased from $40.7 million in fiscal 2004 to $1.8 billion in fiscal 2014. Also in 2014, the company had an annual growth rate of 13%. Increasing from $1.6 billion in fiscal 2013 to $1.8 billion in fiscal 2014. The net revenue was $1, 797,213 billion in February of 2015.

The apparel company is definitely affected by seasonal trends and receives the most profit during its fourth quarter, which are from the strong sales during the holiday season. However, operating expenses are more equally distributed throughout the year. With this being the case, Lululemon’s substantial portion of its operating profits are generated in the fourth quarter of its fiscal year. For example, during the fourth quarter of the 2014 fiscal year, they generated approximately 42%, 39%, and 41% of its full year operating profit, making holiday shopping an important factor in its overall revenue.

Marketing a Community

The marketing structure of Lululemon is very unique. Mentioned earlier, their number one target is adult women who pursue exercise to achieve physical fitness and inner peace. Over the last couple years the company has designed clothing for men and athletic female youth who also exercise to achieve the same goals. The increase of the Baby Boomer generation seeking more longevity should also help lead to longer-term growth in the athletic participation. The company believes their consumers’ needs are driven by desire of a functional product and the wanting to create a particular lifestyle. Thus, Lululemon trusts their authentic brand is more than just for athletes, but for people who want to lead an active, healthy, and balanced life.

The community in which Lululemon operates in is an important factor for their business. The core of its marketing approach is very community-based and store-centric. LULU has no marketing team and is against advertising, very rarely will you see the brand in a commercial. The company wants to build loyalty and by doing this it creates local initiatives like its ambassador program. The ambassador program is evolved of 1,500 people and extends to unique individuals in store communities who provide the characteristics of the company. As other sportswear companies use star-athlete endorsements, Lululemon relies on the ambassador program in the same way. World-class athletes are a part of the program as well, such as cyclist Ryan Leech and 25 other Olympians. All ambassadors communicate with each other and the stores through an online forum. Social media is also another initiative that allows the company to market its brand.

There are three main channels in which the products reach customers. Corporate-owned retail stores, direct-to-consumer sales, which includes online sales, and wholesales. 80% of sales come from company-owned stores while 15% account from online sales and wholesales bring in the rest.

Lululemon’s mission is to provide technically advanced fabrics with a design team who works closely with their suppliers to incorporate innovative fabrics that create the particular product. Some of these product include shirts, tank tops, sports bras, spandex, long tights, leggings, and head bands.

LULU and Competitors  

The sportswear industry is definitely a competitive market. Lululemon competes against many large competitors with powerful worldwide brand recognition that also target women, such as Nike, Inc., Adidas, The Gap, Inc., and Under Armor, Inc. They also compete with other apparel sellers because of the uneven nature of the sports apparel industry. Many of the competitors have advantages because of their longer operating history, larger and broader customer bases, greater brand recognition, and other resources.

Competitors use traditional ways of advertising that are faster than Lululemon, which creates more sales for the competitive companies. This is a down side for LULU. In addition, the company does not own a patent or exclusive intellectual property rights for its products, which makes it easier for its competitors to sell products that have similar styles to LULU’s merchandises.

However, according to Lululemon’s annual report, the company is more profitable than its peers. The company’s retail-oriented model is a factor in the advantage, compared to other athletic goods sellers like Nike, Under Armor, Adidas, and VF Corporation. Sales are very marginal, products sell either through retail outlets or through its websites and phone sales.

Here is a graph that compares Lululemon Athletica with its peers:

lulu-pe

The information provide from the graph shows that LULU has mostly outperformed its peers based on price-to-earnings ratios, except for Nike.

 

 

 

 

 

 

A Happy Work Environment

Working at Lululemon is a distinctive experience compared to other sportswear companies. The goal of the company is to train its people so well that they could in fact positively influence their families, communities and the people walking into its stores.

An employee for Lululemon named Jade Grace went into detail about how the company and its work atmosphere are positive and different from normal retail stores. “Lululemon sets you up to follow your own passion and not necessarily the passion and goals of the company,” Grace said, “They encourage you to follow your own goals and what you want and are looking for in life. No other company does that.”

Grace also went into detail about how in the corporate world LULU has the highest fire and hire turnover rate because so many people are following their own passion. They get the opportunity to be part of a corporate business and then apply that to whatever life adventure they wanted to actually go on. “The company really encourages you to follow your own dreams and not theirs,” Grace said, “In return there is loyalty and compassion the employee will have for the company.”

She also believes attention to small detail is what sets them apart from other big sportswear companies. They always want customer feedback and will actually make changes to its products to make customers happy. It gives freedom and comfort to consumers who wear the clothing. LULU listens to what people want and creates better versions of a product instead of just coming up with an idea that consumers may want.

Positive vibes are constantly promoted throughout the store for consumers and employees. “Lulu believes that happiness is a choice,” Grace Said, “they believe people who chose to be happy are going to be happy.”

Continuing to Grow

ivivva_fb

The popularity and demand of Lululemon is forcing the company to make changes and expand. One revenue driver that the company is hoping to rely on in the future is Ivivva, a dance-inspired brand for young girls that was launched in 2009. These stores have increased aggressively and is a key growth driver for the company going forward.

LULU has had a tremendous impact on the US market and will continue to expand. Sales have increased in US stores because of improving labor market and lower energy prices. IN 2017, the company plans on opening 20 new stores in Europe and Asia.

However, as the rapid pace of growing continues, it could be a risk for the company. They may not be able to adapt to the demand and constant complexity of the business. If this were to happen, LULU may result in a loss of market share and a decrease in net revenue and profitability.

Lululemon heavily relies on its brand and the reputation and value it expresses. Though expanding may produce risks that can affect the company, the brand of LULU is what keeps it strong and moving forward in the competitive market. It wants to remain a positive influence in athletics and have an impact on people by being more than just athletic wear, but a way of living.

Black Friday: A Marathon, Not a Sprint

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arnold

In recent years, Thanksgiving meant more than just eating delicious food while surrounded by family and discussing what everyone is thankful for. The holiday is also the start of special sales and deals at popular retail stores. Instead of waiting until the Friday after Thanksgiving to start the discounts, retailers have developed the notion to start the sale hours before the big day. Giving people another reason to be thankful.

However, this year there seemed to be a decline on Thanksgiving shopping, shocking right? According to an article from the Business Insider called Thanksgiving shopping was a ‘bust,’ it went into detail about how the start of Black Friday shopping, which begins on Thursday, was slow and lower than usual. They found this information from a Black Friday team that was part of SunTrust, who went to different retail stores throughout the day.

What should be the rational reason for the slow start of the popular shopping is that people prefer to stay home with family on their day off instead of rushing to a store filled with excited shoppers racing to get the best deals. Though this might be a slight factor, it definitely is not the main reason. Online shopping is growing more than ever. A lot of retail stores also provide the same deals online. Instead of leaving family, staying up late, and waiting in line with hundreds of other, they get to stay at home and buy their items with a click of a button, no line involved.

Online shopping - clipping path

The Business Insider article went into the characteristics as to why the usually busy shopping day was slower than normal. Stating that traffic in the New York area seemed below last year both on-and off-mall. Parking was easier for consumers and crowds were more tamed than usual. Another interesting factor is that many consumers were discussing how deals were not as compelling as years past. Also, many retails closed at mid-night, when usually they open around that time for the start of Black Friday.

The popular lines appeared to be for electronics, which the article explained those lines were also half of what they were last year. However, Kohl’s was one store that consistently had long lines and customers making multiple item purchases. This may be because Kohl’s did not have the same deals online.

According to the article, the retailers who had a successful day were American Eagle, Old Navy, and Abercrombie & Fitch. The stores who did not have crazy lines were Gap (which owns Old Navy), Zumiez, and New York & Company.

Needless to say, maybe people are coming to the realization that Black Friday should only be on that day. Or perhaps, online deals are a better choice.

What Retail Looks Like this Holiday Season

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Since holiday shopping is about to begin, it’s important to know that consumer spending accounts for about two-thirds of GDP. This demonstrates that American consumers are a powerful force for the economy. However, large retail sectors are seeing shares crash. The occurring situation makes the holiday spending season a must needed event, even though it does not look that positive.

An article from the Business Insider called Here’s a Simple Explanation for Why the Retail Business is Brutal went into detail about the recent stock drops in high end retail stores. Macy’s stock fell 14% on November 11th and Nordstrom’s shares were down as much as 16%. Both these company’s earnings widely missed expectations and the future outlook is disappointing.

So why are these drops occurring? Well the retail business is a tough one to maintain and retailers are having to fight harder than ever for their share of consumer dollars this holiday season.

The article also mentioned why retail is a brutal business. “Retail has high fixed costs, high working capital intensity, fickle customers, low barriers to entry,” they wrote, calling the sector a case study for the worst-possible business”. It also mentioned that fixed cost are numerous for retail companies. It has to have the physical space, inventory, personnel, and supply chain to keep the whole system running.

Over time these costs change, usually becoming more expensive. In order to maintain a company profit, it needs to keep moving profits back into the business.

It mainly depends on the consumers and what they want to buy. It could be American Eagle one year and H&M the next.

retail

On a positive note, another article from the Business Insider called 5 Retailers that will Dominate this Holiday Shopping Season lists five retail stores that are ready to strive on sales this holiday season.

  1. Victoria’s Secret- This store is buzzing for the holiday season thanks to innovative products like a new push-up bra. Also, the store is not seasonal because women need under garments all year long. This puts Victoria’s Secret ahead of other retail stores that rely on sweaters and coat sales like Macy’s and JCPenney.
  1. Lululemon- The high end sportswear company is expected to grow sales as much as 12% this holiday season, according to Morgan Stanley. The new brand’s designs differ from other athleisure brands. Menswear is also beginning to gain attraction from Lululemon.
  1. Ross Stores- The discount outlets Ross provides makes consumers and their wallet happy. According to Morgan Stanley, the decline in gas prices will give the middle class more spending power, which will benefit the brand.
  1. Nike- With $28 Billion in annual sales, the company is the biggest player in athletic apparel market. Nike wants to focus on a few key demographics, such as women, runners, and student-athletes, which will help the company grow even larger. Morgan Stanley analysts expect the holiday season to drive growth.
  1. Best Buy- New technology is growing and it is more popular than ever. Some new products will drive sales up. Best Buy has better customer service than others, which benefit the company.

Money, Ethics, and College Athletics

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College sports are an important component of most universities. Football and, to an extent, men’s basketball are the two sports that are responsible for generating about 90% of the revenues for an entire athletic program. Universities receive millions of dollars in revenue from television broadcast deals and merchandise sales from these two sports. Without those powerhouse athletics, other less popular teams like soccer, tennis, and volleyball would have no chance in succeeding financially. However, the extraordinary amount of money universities and the National College Athletic Association receive from these television and marketing deals have current and former athletes concerned about the use of their names, images, and likenesses. These athletes want to be compensated for their success.

One man who stepped up and voiced an opinion is former UCLA basketball star and NBA player, Ed O’Bannon. In July of 2009, O’Bannon filed a lawsuit against the National College Athletic Association, arguing the organization violates antitrust laws by using former and current players’ images, names, and likenesses for commercial purposes. What sparked O’Bannon’s file suit was seeing his image in an Electronic Arts video game that he was not compensated for. The O’Bannon v. NCAA case insists players should be compensated a fraction of the millions of dollars college athletics generates from its huge television contracts. After six years the case has caused much controversy for the NCAA and universities. But just recently, some court decisions have impacted the case.

According to the NCAA website, it is a membership-driven organization dedicated to safeguarding the well-being of student-athletes and equipping them with the skills to succeed on the playing field, in the classroom and throughout life. With this in mind, the NCAA has created multiple rules to keep college athletics as amateur sports and control the eligibility standards for athletes. The division of a school determines the rules that follow the overarching principles of the NCAA. In this case, as an amateur sport, athletes are not allowed to be compensated for the use of their name, image, and likeness while attending the university. Punishments for infractions can be anywhere from losing playing time to being kicked off the team. For instance, during the 2014 football season, University of Georgia player Todd Gurley was suspended from the team for four games because he made money off his own autograph.

The NCAA believes college athletes should not receive compensation beyond their scholarship because it would ruin the amateurism status of athletes and goes against “eligibility” rules. The Ed O’Bannon case is fighting against this notion. One major concern among those who want to keep the current system in place is whether or not universities could generate enough money to pay athletes while also supporting them and contribute to other less popular sports. To run an entire athletic program for a competitive Division one school is over a 100 million dollars annually. Though universities may receive millions from conferences and television contracts, it does not all go to football, but to salaries, game expenses and facilities.

Recently some major decisions have been ruled in the O’Bannon v NCAA case. In June of 2014, a federal judge ruled that the NCAA cannot stop players from selling the rights to their names, images, and likenesses. This conclusion hit hard on the NCAA regulations, which prohibit student-athletes from receiving anything more than a scholarship. The court mandated that money generated from television contracts be put into a trust fund that college football and basketball athletes would receive after eligibility. The cap for the money would be up to $5,000 a year, and the most a player could make is $20,000 after four years. The NCAA of course disagreed with the ruling and fought against it.

On September 30th, 2015, The Ninth Circuit of Appeals confirmed the district court’s decision that the NCAA amateur rules violated antitrust laws. This of course was a big gain for O’Bannon but was not a complete victory. The court went against the injunction that would have forced universities to pay athletes up to $5,000 dollars a year. However, schools now must cover full cost of attendance, which is food, rent, books, etc., on top of scholarship. Which means universities must add anywhere from a $5,000-$20,000 addition to scholarship which will cover student-athletes attendance. An article from Sports Illustrated claimed that Judge Jay Bybee, one of three judges out of the panel, expressed concerns that cash sums beyond educational expenses would transform NCAA sports into “Minor League” status. However, many still believe the cost of attendance is not enough for college athletes whose universities negotiate million-dollar TV contracts.

The situation does not end there. Even though O’Bannon did not win the trust fund debate, the lawsuit is far from over and he is not the only one striking down on the NCAA. Shawne Alston, Martin Jenkins, and two dozen other former and current college and professional basketball and football players argue that the cap of athletic scholarships and cost of attendance are not enough and violate antitrust laws. They are fighting for a different compensation to go towards student-athletes. If the cap was demolished, universities may be forced to pay student-athletes market hyphen price scholarships, which could extend up to seven figures. This litigation will be heard in the U.S. District Court for the Northern District of California soon. That being said, let’s look at the possible financial decisions college athletics and universities would be forced to consider if athletes were required to receive money.

To help understand the current situation better, I sat down with USC Sports Information Director Jeremy Wu to discuss the conditions that have athletic departments in dismay.

According to Jeremy, the new ruling that declares that universities must pay full cost of attendance, food, rent, books, and more, is the first strain on schools financially. Some schools already provide this for football, such as USC, because they can afford it, but now are required for all sports. Other major and smaller universities are in the process of making this transition.

The money for funding full attendance does come from the ‘millions of dollars’ schools receive from television contracts. But what a lot of people have a hard time understanding is the money received from these contracts are not just supporting football, but an entire athletic program. “A lot of schools even with TV contracts don’t make more money than they lose,” Wu said, adding, “Even though contracts are huge, such as millions of dollars, funding a full athletic department is a lot and it is covering more than just football, but all the sports.” Wu also mentioned the money generated from TV contracts pays coaching staffs for all teams and buys necessities for the sports.

To help understand Wu’s argument better, here are some athletic financial examples. According to U.S.A Today, the University of Texas athletic program’s total expenses are $154,128,877. The Longhorns have the highest athletic expenses in public universities. It also receives $161,035,187 in total revenue which means the program generates over 6 million in revenue. Then there are universities like Coppin State whose athletic program’s total expenses are $3,953,265 but only receive $3,304,284 in total revenue. The university also receives $2,467,870 in subsidies, which illustrates that smaller programs lose money in athletics.

An article called Cracking The Cartel, discusses where the money for football is going. $156,647 is the median amount a division one school spends on a scholarship football player each year as of 2013. It is this high because of food, travel expenses, gear, education, exc. It also states that in 40 States, football and basketball head coaches are the highest-paid public employees. Alabama having the highest paid coach at 7 million.

football

If college athletes were to receive payments from universities, here are some of the worst case scenarios.

In order for the majority of universities to provide payment for athletes they would have to make some changes. The process would start with cutting smaller sports from athletic programs, such as golf or tennis. This leads to job losses not only for the people who coach the sport, but maybe a couple of strength coaches, a nutritionist, and perhaps academic advisers.

Colleges could decide not to try and cut athletic programs all together. The programs which are most likely able to perform this financial strain are the so-called Power Five conferences (the ACC, Big Ten, Big 12, Pac-12, and SEC), but even some say it may be too much and schools slowly would drop down to Division II. Jeremy discussed how small schools like South Dakota State, that don’t generate enough money off their athletic programs, would have no choice but give up its sports teams.

Even Title IX plays a heavy role and universities must still obey the rules that are enforced by it. If one women’s sports team is cut, then three men’s teams are cut as well. Title IX provides a unique experience for young female athletes to receive an education and achieve an athletic career. Financial struggles to pay athletes would not only take this opportunity away from women, but men as well.

As a student-athlete myself, this situation has me concerned. Though it is apparent that the NCAA needs to make some rule changes, paying college athletes certainly would revolutionize intercollegiate athletics. If universities were to act on the most dramatic possibilities from this event, college athletics as we know it, would cease to exist.

The Growing Exports of Air

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When cargo ships arrive to the Port of Los Angeles they are typically full, but what do the containers ship when they leave? When an Economist named Michael Keanan on a Port of Los Angeles boat tour was asked this question, there was no hesitation with his answer of “air”. Most often when cargo ships leave the Port of LA, there are many empty boxes, because China imports more than the U.S. exports back. With the recent setback of China’s economy, the rise of empty containers is at an all-time high for U.S. exports and has become a concern.

Michael Keanan elaborated on how cargo is brought in from Asia to provide for an entire nation, while the U.S. exports typically come from the mid-west and are in lower quantities. The economist continued explaining why cargo ships arrive full but half of them leave empty.  “When containers leave, half the containers are empty,” Michael said, “the other half are filled with low value items such as scrap metal, waist paper and agricultural products like soy beans, hay, and grains”. The items received from Asia are higher in number and more profitable then the goods leaving the U.S, which is one of the reasons why only half of cargo boxes are full.

Container_Ship

A recent article by the Wall Street Journal called At U.S. Ports, Exports Are Coming Up Empty made a statement about how one of the fastest growing U.S. exports is air. The article continued to discuss the current weak demand of troubled global markets and the tough sales American exports face abroad.

China’s cooled economy has effected outgoing exports and U.S. exporters find it tougher to make foreign sales. The Wall Street Journal article claims that the stronger dollar that makes American goods more expensive has a part in the slowing. When shipments leave the Port’s to return to Asia, they carry the waist and agricultural products that were mentioned earlier. However, these items have declined in loads.

The Port of Long Beach is one of the busiest ports in the country and September was the strait 8th month that empty containers leaving the port outnumbered those loaded with exports. Long Beach and the Port of Oakland both reported its exports of empty containers doubled and this year empties are up 20% from last year. The Port of Los Angeles empty outbound containers is up 21% compared to this time last year as well. These ports are suffering the most because they are heavily tied to trade with China.

An economist, named Paul Bingham, told The Wall Street Journal the decrease in exports that reflects economic weakness goes beyond China, it shows slowing demand in Europe as well. He also mentioned the Commerce Department stated that U.S. exports fell 2% in the month to their lowest level since October 2012.

While empties outnumbering loaded containers is beginning to be a concern, it will become a bigger issue if numbers don’t decrease within time and the U.S. continues to struggle with sales on its exports.

Money, Ethics, and College Sports

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College sports are an important fragment of most universities. Athletics create a sense of community and pride for the schools and can ultimately lead to more applications and alumni donations if a specific sport performs well. Those sports in particular are male football and basketball teams. Many universities receive millions of dollars in revenue from television broadcast deals and merchandise sales for college football, and to an extent, men’s basketball. It is no wonder why the question of “should college athletes get paid?” is in discussion as well as currently being discussed in court.

One man who stepped up and voiced an opinion is former UCLA basketball star and NBA player, Ed O’Bannon. In July of 2009, O’Bannon filed a lawsuit against the National College Athletic Association pleading the department violates antitrust laws by using former and current players images, names, and likenesses for commercial purposes. What sparked O’Bannon’s reason to be a lead plaintiff was seeing his image in an NCAA video game that he was not compensated for. The O’Bannon v. NCAA case is fighting against the college organization and believes players should be compensated a fraction of the billions of dollars generated by college athletics from its huge television contracts. After six years the case has caused much controversy for the NCAA and universities. But just recently, some court decisions have impacted the case.

The NCAA has created multiple laws to keep college athletics as amateurism sports. This includes that all athletes cannot be compensated for the use of their name, image, and likeness while attending the university. If such actions are performed, punishments can be anywhere from losing playing time to being kicked of the team. For instance, during the 2014 football season, former Georgia player Todd Gurley was suspended from the team for four games because he made money off his own autograph. It even goes to as far as former players, like Ed O’Bannon, not compensated for their image used in video games authorized by the NCAA.

The NCAA is fighting for college athletes to receive no compensation beyond their scholarship because it would ruin amateurism status of athletes and goes against “eligibility” rules. Others argue paying players would destroy the moral purpose of college athletics and drive spectators away. But let’s not leave out a big factor here, money. It has been debated whether or not universities could generate enough money to pay athletes while also supporting them and contribute to other less popular sports. However, these concerns still leave out the main point. People are arguing that it is the athlete’s own name, and ethically he/she should be able to make money from it. Several college players have testified that the sport they play in college is their occupation and the many hours they devote to the game makes it difficult to function as a regular college student. An article from the Business Insider discussed one of the O’Bannon v NCAA trials over a year ago and how O’Bannon viewed his student-athletic career. “I was an athlete masquerading as a student,” O’Bannon said at trial. “I was there strictly to play basketball. I did basically the minimum to make sure I kept my eligibility academically so I could continue to play” (Dahlberg). This statement from the article demonstrates the commitment student-athletes have and why many are arguing for players to receive payment.

Recently some major decisions have been ruled in the O’Bannon v NCAA case. In June of 2014, a federal judge ruled that the NCAA cannot stop players from selling the rights to their names, images, and likenesses. This conclusion hit hard on the NCAA regulations which prohibit student-athletes from receiving anything more than a scholarship. The court suggested an idea that money generated from television contracts be put into a trust fund that college football and basketball athletes would receive after eligibility. The cap for the money would be up to $5,000 a year, and the most a player could make is $20,000 after four years. The NCAA of course disagreed with this statement and fought against it.

On September 30th, 2015 The Ninth Circuit of Appeals confirmed the districts court decision that the NCAA amateurism rules violated antitrust laws. This of course was a big gain for O’Bannon but was not a complete victory. The court went against the injunction that would have forced universities to pay athletes up to $5,000 dollars a year. However, schools now must cover full cost of attendance, which is food, rent, books, etc., on top of scholarship. An article from Sports Illustrated claimed that Judge Jay Bybee, one of three judges out of the panel, expressed concerns that cash sums past educational expenses would transform NCAA sports into “Minor League” status. However, many still believe the cost of attendance is not enough for college athletes whose universities negotiate billion-dollar TV contracts.

The situation does not end there. Even though O’Bannon did not win the trust fund debate, the Lawsuit is far from over and he is not the only one striking down on the NCAA. Shawne Alston, Martin Jenkins, and two dozen other former and current players argue that the cap of athletic scholarships and cost of attendance are not enough and violate antitrust laws. If the cap was demolished, Universities may be forced to pay student-athletes market price scholarships, which can extend up to seven figures. This litigation will be heard in the U.S. District Court for the Northern District of California soon. That being said, let’s look at the possible financial decisions college athletics and universities would consider if athletes were required to receive money.

To help understand the situation better, I sat down with USC Sports Information Director Jeremy Wu and discussed the conditions that have athletic departments in dismay.

According to Jeremy, the new ruling that declares that Universities must pay full cost of attendance, food, rent, books, and more, is the first strain on schools financially. Some schools already proved this for football, such as USC, but now are required for all sports. Other major and smaller universities are in the process of making this transition.

The money for funding full attendance does come from the ‘billions of dollars’ schools receive from television contracts. But what a lot of people have a hard time understanding is the money received from these contracts are not just supporting football, but an entire athletic program. “A lot of schools even with TV contracts don’t make more money than they lose” Jeremy said, “Even though contracts are huge, such as millions of dollars, funding a full athletic department is a lot and it is covering more than just football, but all the sports”. Jeremy also continued to mention the money generated from TV contracts pays coaching staffs for all teams and buys necessities for the sports.

Before we dig in deeper, here are some interesting facts from the article, Cracking The Cartel, that talks about where the money for athletics is going:

  • $156,647 is the median amount a division one school spends on a scholarship football player as of 2013
  • $14,979 on a full time non student-athlete
  • In 40 States, Football and Basketball head coaches are the highest-paid public employees

football

The facts above demonstrate the expenses universities spend not only on athletes, but college coaches. If athletes were to receive payments, the money spent on coaches most likely will decrease.

In order for the majority of universities to provide payment for athletes they would have to make some changes that would create a scale-back. The process would start with cutting smaller sports from athletic programs, such as golf or tennis. This leads to job loss not only for the people who coach the sport, but maybe a couple strength coaches, a nutritionist, and perhaps academic advisers.

From the article, Cracking the Cartel, it claimed one reduction in programs would be a drop off in athletic scholarships. Universities provide 85 athletic scholarships for football and that could shrink to 45, just like an NFL team.

Colleges could decide not to try and cut athletic programs all together. The programs who are most likely able to perform this financial event are the so-called Power Five conferences (the ACC, Big Ten, Big 12, Pac-12, and SEC), but even some say it may be too much and schools slowly would drop down to Division II. Jeremy discussed how small schools like South Dakota State, who don’t generate enough money off their athletic programs, would have no choice but give up its sports teams.

Even Title IX plays a heavy role and universities must still obey the rules that are enforced by it. If one women’s sports team is cut, then three men’s teams are cut as well. Title IX provides a unique experience for young female adults to receive an education and achieve an athletic career. Financial struggle to pay athletes would not only take this opportunity away from women, but men as well.

As a student-athlete myself, this situation definitely has me concerned. Though it is apparent that the NCAA needs to make some rule changes, paying college athletes certainly would transform intercollegiate athletics. If universities were to act on the most dramatic possibilities from this event, college athletics as we know it, would cease to exist.

More than just Marihuana, It’s a Business

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The Medical Marijuana industry has been a controversy in the United States for years.  It is a touchy subject that maybe an old man and his son would get in an argument about because of the interesting changes that have taken place through the generations. However, many are making an entrepreneurial leap of faith and creating Medical Marijuana as a business that thrives. This is the case for Nate Taylor who is a Seattle native and has spent the last five years in the industry with his Medical Marijuana Company called Fweedom Collective. Nate has done more than create Fweedom Collective as a well-known million dollar business in Seattle. Fweedom Collective has benefited consumers, the city of Seattle, and influenced the legal changes that are being processed today.

Three years ago recreational Marihuana was legalized in Washington State. Since then, the government has started to regulate the Medical Marijuana by joining it with Recreational Marijuana and push it all into one system. Before the law was passed, Medical Marihuana was only loosely regulated. Though this may seem beneficial for Nate’s business, it has definitely takin a toll on the company.

On Sunday, September 13th, I gave Nate a call. It was 12 P.M. and Nate answered to the sound of a football game, Seattle Seahawks vs. St. Lewis Rams, which was playing in the background. Nate is an avid Seahawk fan who attends the games frequently.  The Seahawks were down by nine points, It was the third quarter, and when asked if the Seahawks would come back he said, “Oh, for sure!” While the game was still playing he was more than willing to answer the questions I had for him, with an occasional burst of excitement or dismay from the game.

Many economists are probably wondering: has the Medical Marihuana industry been impacted by cyclical or secular shifts? When Nate was asked this question he said that the answer was most likely secular. If the economy goes down, people don’t stop spending money on the product, it is a necessity to them. However, they may buy less of it at a time.

With the economy changing and new technology constantly being developed, businesses have to adapt. Nate said that over the last few years Fweedom Collective has had to make some beneficial changes. It increased its Search Engine Optimization, worked on improving and creating more online orders, and developed different apps that profit the company. The business also increased its hours of operation due to demand. Nate noticed early on that people get off work later and by creating longer hours improved sales. These changes helped Fweedom Collective stay on track with today’s basic needs for consumers.

Seattle is a booming city, and many businesses have either expanded or moved there for better opportunities. Some of these big local businesses are Amazon, Expedia, T-Mobile, and Microsoft. Nate mentioned as long as these companies are prosperous, steadily growing and no economic down turn, the city benefits, including his company. “As crazy as it sounds”, Nate said. “When professional teams in Seattle perform well, spending has increased at Fweedom Collective.” After the Seahawks won the Super bowl in 2014, sales dramatically went up at Fweedom Collective.

Of course being in the Medical Marihuana business is not easy, especially since it is loosely regulated. Mentioned earlier, Recreational Marihuana was legalized in 2012, though this might seem like it would benefit Fweedom Collective right away, it actually has presented many challenges. “My industry is at the end of an area, the probation of Marihuana, therefore making it a grey area,” Nate continued, “a lot of changes are being made.” Even though the law was passed over three years ago, the government is still in the process of making regulations for recreational Marihuana and should be resolved by 2016. With no heavy guidelines, many smaller recreational businesses have entered the market and have changed the prices of products. He elaborated on how he has seen products that were priced at $13 drop to $10. “We constantly have to change prices and adapt to the environment around as more businesses are evolved,” Nate said. He also believes many of these stores are in it for the money and only want to be open for a short period of time. In July of 2016 Recreational Marihuana should be fully regulated.

In some cases today, the economy does not look at Medical Marihuana as a legitimate business. Therefore interest rates or access to capital do not play a major role in Fweedom Collective, for consumers anyway. The company only takes cash or credit cards. Nate mentioned that he could get a loan through his business if necessary. However, what affects the company the most is business loans because banks and financial institutions will not grant them to a business like Fweedom Collective. Nate said its loans come from private investors. Most likely when regulations are officially submitted for Recreational Marihuana, banks will be more willing to loan money.

The most surprising news that can be learned from this interview is the impact Fweedom Collective has had on the community it operates in. Nate elaborated on the positive impact the company has on its small location north of Seattle. “With our business being there it has helped the neighborhood out a lot, cleaning it up, put illegal deals off the streets and into a legal business, and crime rates have dropped.” Nate also mentioned his business has brought money to an area that was demolished and made it more commercialized.

After eight years, Nate Taylor and two of his coworkers, Sky Nielsen and Tyler Godfrey, took an idea and brought it to life. Now at 28, Nate is a successful business owner who is looking to expand in other areas. Though his business is succeeding, the Seahawks are not. They lost 31-34 to the Rams.

 

nate

 

Optimistic Farmers Look Past Index Prices

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When Farm Prices are low, farmers aren’t necessarily pessimistic. Farm Futures’ first survey of 2016 demonstrates that farmers are eager to plant more crops on their acreage no matter the circumstances.

At the beginning of this month, the Department of Agriculture released an index of prices received from farmers for their current month.  This index measures crop prices, livestock, and product prices. The outcome is farm prices – m/m % change is down -1.9% with an overall -5.7% and farm prices – y/y% change is down -7.1 with and overall -10.0%. The drops in numbers are mostly because of poor weather conditions earlier in the year.

 

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Though the chart tells the public one thing, farmers express another.

Like the economy, there are many factors to farming that can affect its status. According to the article Farm Futures’ 2016, planting intentions survey shows low prices won’t deter grower’s conditions. Bad weather that occurred last fall interrupted crops like the red wheat in the Midwest. Wheat grounds in other areas could shrink, with farms predicting only to plant 40.4 million acres in the fall, which are about 220,000 lower than last year.

“While profit margins remain in the red, farmers are reluctant to cut acreage, knowing that volatile crop prices can turn around quickly if weather problems emerge,” said Farm Futures market analyst Bryce Knorr, who conducted the survey.

Even though the percentages of farm prices are low, the survey mentioned earlier, Farm Futures’ first survey of 2016, gives a different attitude for agriculture.

After farmers took this survey, it showed that they plan on planting 89.65 million acres of corn which raises the number 1% from 2015. Soybeans could have a jump in growth as well. The report indicates that Farmers would like to plant 86.32 million acres of soybeans, which raises it 2.4% more than was previously estimated.

The fact that farmers are finding other ways to be productive, even though farm prices are low, gives the future hope. Even when the market is not doing the greatest, it does not necessarily mean it will stay that way. Food is a basic necessity that humans need; therefore food products are extremely important. Farmers and economists know this and that is what makes The Farm Prices graph so interesting. Obviously, farming will continue and more products will be created no matter what the economy looks like. Farmers’ eagerness to expand their product and invest more in other produce is a sign of adapting to the economy and its demand.