Strategic Alliances

Three ways typically exist to grow a business: internally by ramping up, through a merger or acquisition, or via the creation of a strategic alliance. Strategic alliances are simply business-to-business relationships designed to enhance, among other things, joint marketing, sales or distribution, production, design collaboration, technology licensing, or research and development activities. Strategic alliances are prevalent throughout today's business landscape because companies seek out and enter into partnerships in an effort to diversify risks and increase benefits.

Analysts estimate that in the year 2000, 20 percent of all business conducted was done so through alliances a fivefold increase from 1990. Significantly, this percentage is expected to double, reaching 40 percent by 2010.

The move toward strategic alliances is pervasive because three powerful forces today are simultaneously assaulting so many industries. First, competition is becoming more intense than ever. Next, many companies seek to conduct business globally. Finally, many operate in industries that are rapidly converging.

Whether an alliance is structured vertically between a vendor and a customer or horizontally between (local, regional, or global) vendors, many are formed to achieve economies of scale, increase competitiveness, or improve product development. Still other alliances are established with an eye toward business development, penetrating new markets, or reducing costs, among other factors.

In addition to these potential advantages, disadvantages also exist. Key among them is the reduction in control and the damage this causes. In baseball, this might be best characterized by the fly ball hit into the shallow portion of the outfield. When converging on the ball, the last thing a second baseman wants to hear from the outfielder is, "I got it you take it!"

Further, issues relating to the hasty formation of alliances, as well as differing corporate cultures (and personal chemistry), and increased government oversight also provide challenges. To avoid these problems associated with strategic alliances, it is important to develop search criteria that dovetail with the business objectives sought through an alliance. When conducting the search for an ally it is constructive to bear in mind the essential building blocks to any well-structured alliance: ^[1]

^[1] http://www.strategic-alliances.org/pubs/BPWBpreview.pdf. Reprinted with permission from the Association of Strategic Alliance Professionals, Inc.

• Complementary interests

• 1+1 had better equal 3 (or more)

• Great chemistry

• Both sides earn a "W"

• Compatibility

• Quantifiable opportunity

• A clear game plan

• Commitment and support

Complementary Interests

Companies are measured, and by extension, their share prices determined, by how strong their relationships are with employees, customers, and competitors. They are also valued by the strength of their alliances. For an alliance to be successful, each company must complement the other, both strategically and operationally, if they are to take advantage of industry developments that impact employees, customers, and competitors.

Jim McCann bought the telephone number 1-800-Flowers in 1986. After opening 14 flower shops in a relatively contained New York area, McCann began to envision a nationwide network of florists that would fall under the 1-800-Flowers umbrella.

Today, 1-800-Flowers only owns about 150 stores, but the company has become an extraordinary brand thanks in large part to a brilliant strategic alliance with more than 2,000 independent local florists that, when an order is placed in their assigned region, quickly accommodate it. This enables 1-800-Flowers to markedly reduce both rent and delivery costs.

When searching for a florist, many consumers immediately think of the 1-800-Flowers brand, yet have little or no idea about the local florist involved in the process. However, both 1-800-Flowers and the local florist share in the revenue generated, which helps foster an atmosphere of cooperation.

Still, for the partnership to work, the local florist has to be as willing to commit itself to the same level of customer service for the 1-800-Flowers orders as it would give its own in-house orders. Because 1-800-Flowers is the company the customer has placed the order through, 1-800-Flowers has to make sure that the local florist is conducting its job professionally because it's not the neighborhood florist that loses the business if an order is misplaced or delivered late. Rather, when something is wrong with an order it is the 1-800-Flowers name that wilts.

McCann's interests are closely aligned with those of mom-and-pop florists nationwide. Each delivers critical strategic and operational benefits to the other, leveraging the alliance's merits to increase their combined clout through increased market penetration and cost containment. Sports apparel and equipment makers recognize the same opportunities within their industry.

Nike dabbled in the golf industry for years, lurking on the fringe waiting for the ideal opportunity to emerge. Since the mid-1980s it had make golf shoes and, with the signing of Tiger Woods in 1996, Nike developed a clothing line and debuted a slew of company-branded golf novelty items that appealed to the casual golfer. However, in 1999, Nike determined that it should provide products aimed at the serious golfer. It selected golf balls as the product it would use to penetrate the "serious golfer" market.

Initially uncertain about its prospects to achieve success in the $800 million golf ball market, Nike chose not to allocate significant internal resources, either financial or human, to the cause. Rather, Nike golf formed an alliance with Bridgestone, a Japanese company that was third in market share behind Titleist and Callaway, to make its balls. Bridgestone complemented Nike in that Nike didn't have to start from scratch and that it had partnered with a premium golf ball company. At the same time, Nike complemented Bridgestone by allowing it to align with Nike's potential success, positioning Bridgestone to produce more balls as the venture grows.

Although the average golfer didn't know of the alliance, it was heavily debated in the golf trades. Some questioned why Bridgestone, which owned 13 percent of the premium ball market, would make a ball that might be better than its own and possibly cannibalize its own brand in the process. Others questioned whether Nike's ball was merely an imprint, like a generic supermarket brand made by a company with a sizable share in the market, and whether Nike's own research and development made the ball any better than the Precept, the name of the Bridgestone model.

Nike knew that the company could not merely slap a swoosh on an inferior product, for doing so could ultimately harm its reputation and diminish its brand name. However, the company also believed that when someone sticks a golf tee in the ground they don't care who owns the factory.

In the early going, Nike executives were sworn to secrecy so as not to expose that Bridgestone was producing the balls. However, when Tiger Woods switched from Titleist to Nike in the summer of 2000 and won the 100th U.S. Open by 15 strokes, the company which only had a 1 percent share of the market was clearly on the rise, as pro shops and retailers called from around the world to place orders for the Nike balls. Bridgestone reportedly wanted to take credit but Nike executives wanted consumers to think that the product was entirely Nike's.

Bridgestone's response was a typical one in a strategic alliance where suppliers do well due in part to the name behind the visible brand. It causes some tension, but the bottom line is that this relationship allowed Nike to develop new business opportunities and increase exports, and Bridgestone improved its competitiveness and positioned itself favorably to extend its position in the golf industry.

1+1 Had Better Equal 3 (or More)

If a strategic alliance is to be mutually advantageous, the organizations must have complementary strengths that allow the whole to be greater than the parts. Such strategic synergy puts allies in a favorable competitive position.

Few alliances since peanut butter met jelly have rivaled the symbiotic relationship enjoyed by sports and television. Baseball, in particular, has become a strong ally of media companies hoping to use the sport's history and tradition to increase the value of their collective programming assets. Today, media conglomerates including News Corporation (Los Angeles Dodgers), the Tribune Company (Chicago Cubs), and AOL/Time Warner (Atlanta Braves) own MLB teams.

Economists routinely argue that these alliances allow baseball teams, many of which seem to claim financial losses each year, to transfer profits and losses to the media company when it suits their purposes.

George Steinbrenner, the shipping magnate who purchased the New York Yankees from CBS in 1972, understands the power of strategic alliances that involve media interests. In fact, the alliance Steinbrenner formed in 1999 has drawn considerable attention in sports business and media circles.

Initially, confusion marked the announcement that the New York Yankees and the New Jersey Nets had merged to form YankeeNets. Analysts questioned why Steinbrenner would want to align his team's global brand, one with a rich tradition on and off the field, with the pitiful Nets, who only drew crowds by marketing its opponents' players.

Steinbrenner formed the alliance because he was looking ahead to the end of the 2000 baseball season, when the Yankees' longtime cable partner, the Madison Square Garden (MSG) Network, would have its contract expire. Steinbrenner, interested in securing programming content for his own Yankees regional sports network, believed the Nets could fill a seasonal void.

By establishing a sports channel that carried the games of multiple teams in the nation's largest TV market, media analysts predicted that the Yankees local television revenue, which equaled a MLB-high $56.7 million in 2001, could double within a few years.

In this strategic alliance, Steinbrenner would still have complete control of the Yankees and the Nets owners, Lewis Katz and Ray Chambers, continued to have complete autonomy over their team's business decisions. The two would own a combined 60 percent of the new network, and the rest would be owned by a series of investors including Goldman Sachs.

MSG paid the Yankees an additional $52 million for the right to broadcast games in 2001 but, by the 2002 season, YankeeNets debuted its Yankees Entertainment and Sports (YES) Network, which televised 125 Yankee games. Because the Nets' contract with Cablevision expired at the end of the 2001 2002 season, YES started its 75-game Nets schedule immediately after the final Yankee games of the season.

In part to secure more television programming and in part to ensure the long-term viability of the struggling Nets, the YankeeNets holding company purchased the NHL's New Jersey Devils from John McMullen in 2001. By acquiring the Devils, a team that won two Stanley Cups in the 1990s and had the second best record in the league during the decade, YankeeNets would now control three prominent New York franchises. This acquisition enabled YankeeNets to speak with a single voice when asking for what it believed would ensure the financial viability of the Nets and the Devils in New Jersey a new arena.

Although the YankeeNets organization understood that getting a new arena would be difficult, both politically and financially, it positioned itself more favorably by developing a strategic alliance that afforded it added leverage in the negotiations.

The formation of YankeeNets and the huge increases in revenue it anticipated provided additional benefits. It afforded YankeeNets an opportunity to mitigate detrimental and potentially crippling sports industry developments, and trends, most notably labor strife and soaring player salaries. In short, YankeeNets' impressive revenue growth enables it to absorb any short-term losses created by strikes or lockouts, occasional losing seasons, and an increasing investment in player personnel.

The creation of YankeeNets and its structuring of numerous strategic alliances was originally undertaken in an effort to deliver economies of scale to the region's largest sports management company. However, the ultimate goal of the collective alliances was to create a new business, YES. As it turned out, in YES' first full year, the once-pitiful Nets advanced to the NBA Finals, and the Yankees, the supposed anchor of the alliance, was embroiled in a nasty lawsuit that prohibited the televising of its games on Cablevision. YES wanted Cablevision to provide Yankee games to all its customers, but Cablevision was reluctant to do so for economic reasons. So the two went the entire 2002 baseball season without each other. YES was forced to reduce the advertising rates it charged because the network's reach was reduced, and Cablevision simultaneously lost subscribers.

Beyond the creation of a new business, strategic alliances can be utilized to extend an organization's presence with the help of a higher profile partner.

The Poore Brothers company has to wish that its name could be more prominently featured on the TGI Friday's licensed snack chips. Debuting in late 2000, the license it was granted by TGI Friday's became the Poore Brothers best selling brand. Licensing arrangements such as this one are really thinly veiled alliances where each party hopes to improve its position with the assistance of the other. Although Poore Brothers sells its own branded product, it might not have been able to achieve the distribution enjoyed by TGI Friday's, given the restaurant's extensive brand recognition.

TGI Friday's is one of the most aggressive chain restaurants in the licensed supermarket food market. Two years earlier, Carlson Restaurants Worldwide, the restaurant's parent company, also granted a license to Anchor Foods, the leading manufacturer of breaded frozen appetizers in the world, to make its frozen snacks and dips.

Whether a player in the supermarket food market or professional sports, alliances can help increase market penetration and expand market development.

However, for major brands, licensing cannot be a one-way deal. Companies must not merely grant use of their corporate identities in exchange for licensing fees. Licensors have to protect their brands at all costs because if the licensee cuts corners in the manufacturing process or abuses the stipulated uses of the marks, it's the brand name that suffers.

For instance, in 1994, the NFL granted a league-high 454 licenses to companies to use the NFL marks on their various products. Less than a decade later, only about 250 companies were granted licenses in part because of the league's desire to better manage the brand by protecting the league's marks.

Not only does the licensor have to protect its own brand, but in a strategic alliance such as a licensing arrangement, the licensor must optimize the number of relationships to ensure product integrity and consistency by limiting the number of licenses and policing possible counterfeit or inappropriate uses of the license. Integrity and consistency are two attributes that enhance long-term product development and make one plus one equal three.

Great Chemistry

Companies that seek business allies must have both a managerial ability to work together and the cooperative spirit to get things done. Chemistry is the result of positive, team-oriented, trust-filled relationships between key players. In sports, rarely is a championship team described without a reference to great chemistry among coaches and players.

Before a strategic alliance is formed, making sure that an appropriate amount of chemistry exists is vital, for not adequately doing so can lead to highly public fallout. Jen Davidson and Jean Racine were two female bobsledders who supposedly had a strong chance to win a gold medal in the 2002 Winter Olympics in Salt Lake City. They were competitive in a brand new sport, they were American, and they were good-looking.

Accordingly, their agent, Evan Morganstein, had little difficulty securing $500,000 in endorsements for the pair prior to the Games. Strategic alliances were formed with Kellogg's, Northwestern Mutual Insurance, General Motors, and Visa. Nike invested in Davidson, and Racine was sponsored by adidas.

They appeared on NBC commercials together. The two bobsledders, along with Olympic track star and two-time gold medalist Maurice Green, were designated to present President George W. Bush with a USOC blazer in the Oval Office. The following day they were on The Today Show, and later in the week they did a photo shoot for Glamour magazine.

Morganstein was also looking to shop their book rights. Little did he know that someone would want the book for the dirt and not for the glory. That's because less than two months later Davidson filed a grievance with the U.S. Bobsled and Skeleton Federation against Racine, who had dropped her as a partner one week before the Olympic trials, thus leaving Davidson completely out of the Olympics.

The pair's Web site, www.bobsledgirls.com, quickly degenerated to "under construction" status. Also left out in the cold were all the partners that worked so hard to plan campaigns, extensively using the two as marketing and promotion platforms. For these sponsors, the ugly break-up caused tremendous collateral damage. Despite the developments, Racine and Davidson continued to be featured on Crispix and Mini-Wheats boxes, creating high-profile opportunity cost for the companies that, had they known of the pending rift, would not have so prominently featured the bobsledders.

Although it might have been extremely difficult for sponsors to assess the inner dynamics between Racine and Davidson, the inability to do so left them vulnerable. When all was said and done, Racine and her new partner, Gea Johnson, placed fifth, failing to earn an Olympic medal.

Golfer Ian Woosnam gave his strategic alliance with his caddy every possible chance to succeed, but it never did. On the second tee in the final round of the 2001 British Open, Woosnam was tied for the lead heading into the second hole. That's when his caddy, Miles Byrne, told Woosnam that he was carrying an extra club in his bag. As a result, Woosnam was penalized two strokes and eventually forfeited approximately $340,000 in tournament winnings.

Woosnam indicated that not only was it the biggest mistake Byrne would ever make, but that he would be severely reprimanded but not fired for the error. Woosnam also said that, although he supposed he should have checked on the clubs himself, he believed doing so was what caddies get paid for.

Unfortunately for Byrne, two weeks later, he overslept and missed the tee-time for the final round of the Scandinavian Open. When he finally appeared, it was too late. Woosnam had another caddy with him and, after he finished his round, he terminated Byrne because he could no longer assume the risk associated with a caddy whose attention to detail was not up to Woosnam's standards.

Without proper chemistry, strategic alliances, whether between athletes or companies or both, cannot maximize their potential. The inability to strike the requisite level of chemistry between allies not only affects their ability to succeed, but also causes damage downstream to those organizations conducting business with those in the alliance.

Both Sides Earn a "W"

If a strategic alliance is to be a win win situation for both sides, the alliance's collective operations, risks, and rewards must be fairly apportioned. Allies must be willing to address new risks, be committed to flexibility and creativity, and be ready to transform the alliance structure.

The economic and cultural impact that professional sports franchises bring to communities is frequently debated, with local and regional governments skeptical about the benefits a city enjoys from having a team in its town. Although many corollaries exist when discussing the merits of college football to communities, properly structured alliances between municipalities and college football bowl games can reap dividends for both the participating universities and the host city, as well as local businesses associated with the tourism industry.

The Oahu Bowl, historically played in Honolulu, relocated to Seattle in 2001 and renamed itself the Seattle Bowl. At a time when many of the secondary bowls were struggling due to a lack of interest and, by extension, sponsorship revenue, the Seattle Bowl's alliance with college football for the formation of this revamped bowl game was successful, especially given the fact that the relocation was approved only eight months before the game.

In anticipation of the game and in an effort to fully leverage the game's exposure for the region, King County (WA) Executive Ron Sims signed a proclamation officially declaring December 21 28 Seattle Bowl Week in King County.

An announced crowd of 30,114 attended the inaugural Seattle Bowl on December 27, 2001, and an additional 1.8 million households nationwide watched the game between Stanford and Georgia Tech on ESPN. Played at Safeco Field, home of the Seattle Mariners, the Seattle Bowl succeeded in gaining national exposure for a region primarily known for Starbucks, rain by the buckets, and Ichiro.

The Seattle Chamber of Commerce and local vendors were pleased with this outcome, particularly considering that the game was played during a traditionally slow week for businesses relying on tourism to prosper. Hoteliers believed that whereas some of the hotels would be operating at 20 to 40 percent of capacity in the past, the bowl game could increase capacity between 15 and 50 percent, a sizable increase during an otherwise slow period.

The following January many were pleasantly surprised when bowl organizers said the event was profitable, no doubt thanks in part to a last-minute title sponsor, 989 Sports, which agreed to terms only five days before the game.

In addition to Seattle benefiting from the alliance, the participating schools also earned a win. Both schools earned $750,000 for their participation in the game. Although many universities actually lose money on bowl games because they are required to purchase large blocks of tickets and transport boosters and marching bands, they are willing to underwrite them because bowl games serve as both a recruiting platform and as a "thank you" for a job well done to those associated with the football program, namely players and their families.

This much-needed revenue and TV exposure would not have existed if the Oahu Bowl had simply folded. Rather, college football and bowl organizers each assumed risk and succeeded in transforming the alliance, ultimately to the mutual benefit of both the schools and the region.

Although the Seattle Bowl's relationship with the Pac-10 and the Atlantic Coast Conference (ACC) ended after the inaugural bowl, in May 2002 the Seattle Bowl was able to enter a new strategic alliance with the Mountain West Conference while maintaining the ACC. The fourth seed in the Mountain West is now scheduled to play the fifth or sixth choice from the ACC. The bowl's position of strength was further reinforced in July 2002, when the Seattle Bowl announced a five-year deal to play the game at the Seattle Seahawks' new stadium.

Anticipated win win relationships are not relegated to regional alliances, as demonstrated by the NBA and AOL Time Warner.

As the economy continued to soften throughout 2001 and well into 2002, the NBA found itself in the midst of negotiating its new TV contract with existing rights holder NBC, as well as AOL Time Warner cable channels TNT and TBS. With TV ratings for the sport waning and the advertising dollars associated with these ratings also declining, the NBA had to consider a new business model in which future risk and return would be shared.

Given the size, success, and new media platforms historically enjoyed by AOL Time Warner, the NBA was eager to continue its relationship. So, too, was AOL Time Warner, which appreciated the NBA's brand strength and the credibility the league brought to it.

Rather than solely buying rights to air NBA games, AOL Time Warner offered to give the NBA an equity stake in a newly created channel instead, establishing a unique strategic alliance in the process. In exchange for its equity position, the NBA intended to allow the network to air several live NBA games a week. The new TV deal was to change the fundamental broadcast rights paradigm; what was once a transaction-based relationship would evolve into a potentially lucrative partnership for both entities.

The NBA viewed the anticipated launch of a new NBA channel as a good investment that could expand the NBA brand on TV while strengthening its ties with the biggest media company in the world. AOL Time Warner, for its part, anticipated that NBA games would attract new viewers to its family of online and broadcast properties. What neither fully appreciated was the increasing reluctance on behalf of cable operators to carry the new channel. Consequently, this alliance was tabled due to too few channels of distribution (i.e., cable operators) and the inability to craft a win win win relationship.

Compatibility

Successful strategic partnerships have compatible styles of operations and methods of management. Companies with similar goals, rewards, methods of operations, and corporate cultures tend to make better partners. No matter how compelling an alliance appears or how compatible the two entities seem to be, if the alliance's product is weak, failure is inevitable. The XFL has proven to be an extraordinary case study where a great alliance at least on the surface failed.

In 2000, NBC President Dick Ebersol shocked the sports world when he announced that NBC was entering a 50 50 partnership with Vince McMahon's WWF to launch a new professional football league, the XFL.

On paper, the alliance appeared reasonable. After all, NBC had relinquished its broadcast rights to the NFL two years earlier and was looking for an entertaining, "real" sport that, with in-game interviews of players and coaches, as well as on-field cameras, would mesh with the increasing popular reality TV shows, like Survivor and Big Brother. For the WWF, NBC was positioned to provide the automatic legitimacy that the XFL needed if the upstart league was to be taken seriously. Armed with a prime-time Saturday TV slot that began the week after the Super Bowl, in February 2001, and running through late April, the XFL had the best television exposure of any new sports league in history.

Unfortunately, the WWF deviated from its core competency. The WWF's primary strength rests in its ability to create and control the plot lines, develop characters, and deliver drama. However, with its stated intention of providing unscripted entertainment (i.e., "real" football), the WWF moved away from what it did best, and alienated critics and true football fans in the process. It was not as if the XFL didn't attempt to develop drama. In several games during the season, then Minnesota governor and former wrestler-turned-XFL-announcer Jesse Ventura tried to pick fights with New York Hitman coach Rusty Tillman. The problem was, Tillman wasn't getting paid to act he was getting paid to coach so he wasn't easily baited into an altercation.

Although it was believed that the WWF could deliver its target market of 12- to 24-year-old boys and young men to NBC, this demographic wasn't typically home on Saturday nights to watch the games.

NBC viewers were accustomed to watching NFL-quality football on Sundays, and hard core wrestling fans were accustomed to "pure" wrestling. A critical mistake was made in thinking the two fan bases were similar when, in fact, they proved to be quite different. Wrestling fans bring with them a willing suspension of disbelief. Pro football fans are realists. The wrestling crowd wrongly suspected that football fans wanted to hear the players vent, gloat, and mock. They didn't. Instead, these fans thought it bad form. The XFL, trying to be all things to all sports fans, succeeded in delivering a product that neither demographic base wanted to watch.

Additional attempts to lure the targeted fan base also fell short. Microphones in the huddles and all-access locker rooms during halftime weren't as compelling as they once seemed. Nor were the on-field live interviews with players following big plays.

The constant pomposity and arrogance about the league's self-proclaimed advantages over the NFL made many including sponsors, advertisers, and industry observers, squeamish. One prominent Hall-of-Famer even suggested that the XFL spent so much time and so much money bashing the NFL, telling everyone how bad it is, that they forgot they had to play football.

TV ratings plunged and sponsors pulled out. On May 10, 2001, after just one season, and citing losses of $35 million each, the WWF and NBC (owned by GE), both public companies, officially pulled the plug on the XFL. Approximately a year later, TV Guide ranked the XFL as the third worst TV show or programming in history behind only The Jerry Springer Show and My Mother the Car.

When NBC and the WWF aligned to create a new product, each misunderstood not only the compatibility of its respective organization's cultures, but each also miscalculated the demographic or cultural connection between the product and its customers. In 2002, NBC signaled that it had identified a more compatible football partner with whom it could structure a mutually beneficial alliance by acquiring the broadcast rights to the Arena Football League.

Quantifiable Opportunity

If strategic alliances do not position each organization to materially and measurably improve their standing, whether measured in terms of sales, brand awareness, or shareholder value, the alliance might not prove worthwhile. Even in cases where an alliance appears to be able to deliver the requisite results, it cannot do so until or unless one of the allies is uniquely positioned with the know-how and reputation to take advantage of that opportunity.

For years, Sears maintained an alliance with college athletics, most notably by sponsoring the Sears Trophy, a $30,000 Waterford crystal football that is presented to the No. 1 college football team as determined by coaches and by awarding the winning school $20,000. However, in 2002, Sears just days after the Sears Trophy was presented to Miami following its Rose Bowl championship game win over Nebraska decided to discontinue the nine-year relationship.

Estimates placed Sears' financial commitment at between $10 million and $15 million per year on sponsorship and other marketing fees associated with its Sears Collegiate Champions Program. Although Sears believed the program had indeed increased brand awareness, it was unable to satisfactorily link its participation in the program to an increase in sales. Because the necessary quantifiable opportunity did not exist for Sears, it believed continuing to allocate dollars to the alliance no longer made sense.

Unlike Sears, which was unable to justify its ongoing involvement with college sports after quantifying its alliance with college sports, other companies have prospered.

A vivid example can be product placement that helps authenticate sports-themed movies. For example, the sports nutrition company, Met-Rx, was prominently displayed in the movie Any Given Sunday. Any Given Sunday, Oliver Stone's 1999 film about the underbelly of the world of professional football, was looking for companies to help add believability to the movie by giving it the same look and feel, particularly in the area of corporate sponsorship, as a professional football league presumably the NFL.

In the script, the Miami Sharks emerging quarterback Willie Beamon films a commercial for a nutritional supplement. For less than the price of a billboard or even a magazine ad, Met-Rx became the product that Beamon pitched throughout the movie. Met-Rx fit well because not only did Warner Brothers believe that Met-Rx made an authentic partner because many athletes, former Dallas Cowboys QB Troy Aikman among them, used and endorsed its products, but also because Met-Rx felt that the movie's audience would be most likely to buy its products.

Met-Rx further capitalized on the strategic alliance by inserting reminders about the film in its Protein Plus Bars. Not only did sales of the bars increase by 33 percent while the movie was in theaters, but Warner Brothers apparently believed that the in-store promotions helped Any Given Sunday make its way back up the charts after an initial fall from the top.

Met-Rx executives noted that even though the movie rose to third place in the box office and then dropped down, the company kept running its promotion. After speaking with Warner Brothers, it became clear to Met-Rx that the entertainment giant would like to do more product placement with Met-Rx. Met-Rx executives believed the product placement worked because only that particular product from its whole product line witnessed an increase in sales during that period.

By quantifying its successful return on investment from the product placement in Any Given Sunday Met-Rx decided to return to the screen two years later with an appearance in The Replacements, another football-themed movie. Its ability to quantify the results of strategic alliances improves Met-Rx's competitive position and it allows it a framework for considering future alliances.

A Clear Game Plan

Proposed strategic alliances that boast specific, concrete objectives, time tables, lines of responsibility, and measurable results are best suited for potential success. Partnerships that are well thought out and articulated in advance will yield a game plan for long-term success.

Boxing has offered numerous infamous examples of strategic alliances over the years, including many of those involving legendary promoter Don King. Although many of boxing's alliances, especially those between fighters and their promoters, have only provided promoters a game plan for long-term success, other have helped all parties involved.

For example, HBO and Showtime switched from being pay-perview (PPV) rivals to strategic partners in 2002. The premium cable networks negotiated a precedent-setting deal to split rights for a PPV telecast of the June 2002 heavyweight championship fight between World Boxing Council/International Boxing Federation champion Lennox Lewis, who had a contract with HBO, and challenger Mike Tyson, who had a contract with Showtime.

Before the deal could be signed, each network had to make sure the product they were jointly producing made sense for both parties. Issues dealing with the packaging and distributing of the PPV fight had to be resolved. This included the need to determine which network would actually telecast the fight, as well as how the PPV telecast would be branded and by whom it would be distributed. In the true spirit of cooperation, each network picked two broadcasters HBO selected Jim Lampley and James Brown and Showtime hired Bobby Czyz and Jim Gray.

For HBO and Showtime, this alliance allowed both to participate in the marquee match, sharing expenses and revenue, and doing so with the clear objective of reinforcing their industry-leading brand names to boxing fans and promoters alike. In essence, the two networks enjoyed the sports marketing equivalent of "naming rights" to the top bout of 2002. The fight, in which Lennox Lewis soundly defeated Mike Tyson, drew 1.8 million PPV buys, making it not only the highest grossing bout of all time with $103 million in revenue, but also a strategic alliance that worked well for both networks.

When a company considers buying more "traditional" naming rights to a sports arena or stadium, it has historically considered what's included in the package. In addition to literally putting their names on the building, being allocated extensive advertising space in and around the athletic facility, and being given a luxury suite from which the company can conduct business development, these deals were originally fashioned as integrated sponsorship packages.

Naming rights deals have become increasingly complex in recent years and many, including Federal Express' alliance with the Washington Redskins, valued at $205 million over 20 years, have become primary marketing platforms for companies. In the process, successful naming rights arrangements have evolved and many are now strategic alliances, offering incremental revenue-generating and brand-building opportunities for both organizations.

This may be best exemplified in Atlanta where TBS and Royal Philips Electronics (Philips) have forged a strategic alliance to share and develop a diverse range of projects and properties. This alliance included naming rights to Atlanta's 20,000-seat sports and event facility, the Philips Arena, home of the NBA Hawks and NHL's Thrashers.

The 20-year alliance, which was hailed at the time as the most comprehensive naming-rights agreement ever negotiated, was valued in excess of $185 million.

According to officials with both organizations, the alliance was significant because they were combining vision and resources at a time when mastering the convergence of content, services, and high-speed access with the new generation of digital electronics devices was critical.

To optimize the alliance between TBS and Philips, two intercompany teams were formed to identify and develop opportunities for sharing resources between the two companies: a technology task force and a marketing and new media task force. These teams focus on development in a variety of areas, including e-commerce, enhanced TV, interactivity, new media, and promotional and merchandising opportunities.

Furthering their commitment, each company pledged to integrate the other's products into its business operations. The agreement includes a broad-based media package for Philips with Turner and Time Warner properties and a supplier arrangement for the use of Philips products, from broadcast equipment and consumer and business electronics, to consumer appliances and lighting products.

Moreover, Philips' technologies and products are featured throughout the arena. More than 1,000 Philips video monitors are used in the arena and the adjacent CNN Center, and all video components and lighting sources in public areas of the new facility are Philips Electronics products. In addition, Philips Electronics occupies a 3,000-square-foot retail showcase within the complex.

Philips is uniquely positioned given this extensive marketing alliance to not only develop new business opportunities given the organization's access to the Time Warner family of companies, but also is poised to create new business units or products in the process. AOL Time Warner receives significant revenue while reducing certain costs.

Commitment and Support

Success in business always seems to get back to vision and leadership. By demonstrating to colleagues and employees precisely why an alliance makes sense and warrants total dedication and effort, senior management must communicate and reinforce the critical elements of the alliance to ensure ongoing buy-in by all vested parties.

The strategic alliance between Philips and AOL Time Warner was discussed as a relationship predicated on a solid game plan. However, not all naming rights partnerships, which are great out-in-the-open examples of alliances, are as well devised, developed, and serviced.

For naming rights alliances to be successful, both organizations must determine the impact on each brand resulting from the alliance. As the stadium naming rights craze that started in earnest in the 1990s swept the nation, groups of fans seemingly protested every new corporate moniker and newspaper columnists bemoaned the corporatization of sports.

Although fans in Detroit wanted to keep the name of their ballpark, Tiger Stadium, Comerica purchased the right to attach its name to the stadium for 30 years at a cost of $66 million. Initially, some fans indicated that they wouldn't do business with Comerica Bank because the company's approach to naming rights was too in-the-face of the traditional fan. Over time, however, the outrage over corporately named arenas and stadiums such as the Target Center (Minneapolis), United Center (Chicago), and Pac Bell Park (San Francisco) faded. However, negative sentiment lingered in many sports towns where the connection of the teams to the community remained strong.

This was the case in Denver where the Broncos debuted their new football stadium in 2001. Leading up to its opening was a heated debate over whether naming rights should be sold to Mile High Stadium, one of the most storied venues in the NFL.

Some Denver citizens, including its mayor, Wellington Webb, said absolutely not, even though some proceeds of the sale of such rights would go toward reimbursing taxpayers for the money used to construct the stadium. Others didn't seem to mind as much, given that it was a new stadium and, with future Hall-of-Fame quarterback John Elway settling into retirement, a new era was beginning in Denver anyway; out with old and in with the new was these citizens' prevailing attitude.

After months of heated debate, the Metropolitan Football Stadium District decided to sell the rights to Denver-based mutual funds company Invesco. Even after Invesco paid $60 million for the right to call the stadium Invesco Field at Mile High for 20 years, the debate continued to rage. The Denver Post announced one week prior to the stadium's opening that it would refer to the stadium merely as "Mile High," refusing to honor the corporate name.

Fans, too, got into the act by filing a lawsuit months before the grand opening in hopes of voiding the deal. Regardless of whether Invesco believes "that all press is good press," what cannot be denied is that the company was forced to sustain months of negative press and mounting ill will. It might take the entire term of the naming rights agreement to determine if the alliance with the stadium was indeed mutually beneficial.

Ensuring a partner is financially solvent and has a sound business structure is also prudent when considering a strategic alliance. Due diligence is critical because once the deal is consummated, the two organizations become intertwined in the minds of many customers and shareholders. If one files for bankruptcy, you can assume the other's reputation will be influenced.

Internet investment firm CMGI paid $120 million in August 2000 for a 15-year naming rights alliance with the new New England Patriots stadium, scheduled to open for the 2002 2003 NFL season. At the time the deal was signed, CMGI's stock was trading at $43.90, down from its all-time high of $326.43 eight months earlier. One year after agreeing to the alliance and just one year before the debut of CMGI Field, the company's stock price was less than $2 a share. Although CMGI and the Patriots continued to state that the deal remained prudent for both organizations, each no doubt began questioning whether it would materialize as originally intended. About a month before the stadium was to open, CMGI was let out of its deal and the stadium was renamed Gillette Stadium.

A somewhat similar situation has already played itself out in St. Louis, where the NHL's Blues play in the Savvis Center even though Savvis asked out of its naming rights agreement. Just down the street from the Savvis Center, the St. Louis Rams changed the name of their stadium in 2001 to The Dome at America's Center after its former strategic ally, TWA, filed for bankruptcy and defaulted on its naming rights deal. Before the end of the year, the Rams announced a long-term strategic alliance with financial services firm Edward Jones for what would then be called the Edward Jones Dome.

Of course, fans still go to the games and no one believes that the Rams, a perennial contender in the NFL, will be immediately compromised on the field because of the association with TWA. Nonetheless, the Rams have compromised themselves because the more often a venue is forced to change its name the less value that name has for a presenting company, resulting in a probable decline in naming rights revenue for the team over time.

Then there was the home of MLB's Houston Astros, Enron Field. Because Enron had prepaid its naming rights fee through April 2002 for the ballpark that opened the prior year, there was little the team could do because their agreement with the failed energy company did not contain a "good citizen" clause. This forced the Astros to maintain the name of the stadium despite the marketing and community relations albatross the name created.

Once it became apparent that Enron was fully embroiled in a corporate scandal the likes of which had not been seen in American business, the Astros wanted to shed the ballpark's corporate name as soon as possible. After all, with so many local people affected by the company's deceit, who would want to go to a game at Enron Field?

Following rapid negotiations, the Astros were able to buy their way out of the alliance for $2.2 million and, due to quick work, were able to remove any semblance of Enron from the ballpark prior to opening day 2002. During the 2002 season Minute Maid, a Coca-Cola brand with corporate headquarters in Houston, acquired the stadium's naming and pouring rights for more than the original Enron deal, bringing to a close an extraordinarily awkward sports marketing crisis.

Comerica, Invesco, CMGI, Savvis, TWA, and Enron all intended to leverage their naming rights alliances to drive various aspects of their businesses. However, due to myriad reasons and circumstances, each's ability to increase market penetration and gain competitive advantages was comprised due to lower than anticipated levels of commitment and support.

For strategic alliances to be successful, senior management must also elicit buy-in by all vested parties, including employees or athletes. In 2001, some sports teams, including the New York Mets, began selling the exclusive right to be their teams' "official medical caregiver."

The Mets sold this designation to New York University Hospital for Joint Diseases (NYUHJD) after David Altchek, the Mets' team physician for 10 years, refused to bid on the account.

Turk Wendell, one of the Mets' pitchers at the time, summed up his concern over such an alliance one apparently predicated on making money by posing a rhetorical question. He was curious if a team with a $90 million payroll was going to go with the highest bidder or someone it believed was the best possible doctor. No knock on those (NYU) doctors, commented Wendell, but why change doctors if you have a guy who knows the players and their (medical) histories, and the players like him?

The reason for the change, as articulated by Mets management, included, but was not limited to money. The team felt that the deal provided the organization with a stronger business relationship while still maintaining the high quality of care needed for Mets' players.

However, players were so concerned about the change thinking it could compromise their health care they contacted their union to express their dismay. Clearly, professional sports franchises would not knowingly sacrifice the quality of the health care provided to their athletes for a few extra dollars. The appearance that this might be occurring limits the team's ability to gain buy-in from arguably the most important party to the deal the players.

Until this buy-in occurs, NYUHJD cannot fully capitalize on the relationship and leverage its connection to the team because one set of employees has not been made fully aware of the importance of the partnership.