Upper Deck Looks For Plan B In Licensing Snafu

When the New York Times ran a story a couple of weeks ago about Major League Baseball granting Topps an exclusive license to produce baseball cards next year, officials from archrival Upper Deck found themselves in the unenviable position of trying to assure collectors that the sky had not fallen and the baseball card arena was not reverting to anything like the 25 years of monopoly status that Topps enjoyed from 1956-80.

   To complicate things, the Upper Deck gang had to do all this while still reeling from the news that their partners of 20 years had quite unceremoniously given them the old heave-ho. At the time – and still now a couple of weeks later – officials from the Carlsbad, Calif.-based giant are not ready to tell the collecting world precisely how they are going to do it, but they are here to tell you they will be making baseball cards, starting with the release of 2010 Upper Deck Series One in February of next year.

 “We want to set the record straight and make sure that our customers and consumers understand that Upper Deck is still going to be producing baseball cards featuring Major League Baseball players, and I’m not sure that was emphasized as much as it could have been or at least discussed as much as it could have been in the initial coverage,” said Kerri Kauffman, Upper Deck’s director of marketing.

She emphasized that Upper Deck has secured a license from the Major League Baseball Players Association for next year, a development that was announced about three weeks before the Topps-MLB bombshell.

“We feel like that’s an extremely important part of the equation that adds up to a trading card. Having a player on a card is certainly a key driver, and when consumers open packs the first thing they do is talk about what player they got and not necessarily what other components are included in that box. The player is really what drives the value of the card, and we feel strongly that we have the right assets to continue to produce great products,” she added.

    She conceded that the situation didn’t turn out the way they wanted it to, but added, “Based on where we are right now, in 2010 we will be able to produce some really great products and we’re excited for collectors to see what that will look like.”

    As I’ve noted in online meanderings in recent weeks, it’s understandable that the decision by Major League Baseball has left Upper Deck officials scrambling to figure out precisely how to move ahead in 2010. “Unfortunately I can’t give any specifics at this time on exactly what the photographs and the card backs will look like, but I am excited and the people here are optimistic and we’re anxious to have collectors open packs and see what we are producing.”

   She added that she expected that in the next few months more of that information about the cards will become available. “I think we have some incredible programs both in the marketing and product content that we’ll be announcing over the next six-to-eight weeks that will keep collectors excited about what we are going to be producing in 2010.”

   Upper Deck 2010 Series One will be released in February of next year, but Kauffman said they were still several months away from actually printing the cards.

Court challenge is a possibility

   Questioned if whether court challenges are being considered, Kauffman explained she was not directly involved in that, but added, “I am sure our attorneys are analyzing it from every possible perspective, and I am sure they are preparing for any possible legal outcomes or challenges.

   “Our attorneys have discussed a lot of different possibilities and I would assume that (challenging the parameters and scope of licensing itself) would absolutely be one of the possibilities they have discussed.”

   I also asked her about the timeline of the negotiations between Upper Deck and MLB. “Upper Deck was proactive in contacting and attempting to work with Major League Baseball to negotiate terms for 2010 and beyond,” she said. “Upper Deck had gone as far as presenting MLB with terms many months ago, but unfortunately Upper Deck, in its desire to reach agreement with both licensing entities, those desires and efforts weren’t necessarily matched by MLB for several months. Unfortunately, it got to a point where the negotiations were ongoing on our part but definitely weren’t being reciprocated on their part. I think that’s fair to say.”

   She also mentioned something that most serious collectors already were aware of: “When Upper Deck came onto the scene in 1989, we completely changed this category, taking it from something relatively small in scope to something much, much greater and would guess if you would compare even today’s sales to back in the mid-1980s or early 1980s, the category is bigger than before Upper Deck came along.”

   Kauffman also mentioned that it is common to compare where the marketplace was in the early 1990s to where it is now, which was the peak, but if you really compare where it is today to 25 or 30 years ago, there’s still been some significant growth and Upper Deck was responsible for that growth.

   “Those dramatic and significant increases in sales, and there’s a lot of speculation on what those numbers were in the heyday, up to $1 billion, and Major League Baseball had a direct stake in that growth and I would only say that it is a significant amount of money.”

     Kauffman said the implication from the New York Times article – “from a reporter who probably isn’t aware of everything that’s happened in our category over the last decade, which is fair – is that this is going to now somehow change the course of the category because suddenly now, beginning in 2010, we are going to begin marketing to kids and this hadn’t been happening before. And I think that was something we absolutely wanted to set the record straight on.”

   She pointed out that Upper Deck has been spending probably more than any other company over the last five years in marketing to kids, and not just in baseball but in football, hockey and even basketball. “We’ve created numerous online initiatives, we’ve spent an enormous amount of money on TV advertising to kids, we’ve sampled trading cards to literally millions and millions of kids between the age of 8-12.

   “We really feel like we’ve been on the forefront of kids advertising over the past five years and to suggest either in an article in the New York Times or directly from Topps that there hasn’t been enough kid-focused marketing and now as a category we are going to start is definitely inaccurate and not at all consistent with the facts over the last five years.”

   According to Kauffman, Upper Deck has been marketing to kids and in a significant way, spending millions and millions of dollars over the last five years to get kids re-engaged in this category.

   Pressure from licensors for $
   I also asked Kauffman about the widespread perception within the hobby that the card companies faced a difficult situation in coping with a dramatically contracting marketplace while saddled with relatively inelastic licensing fees. “The responsibility for building the right number of products, putting the right content into the products, that lies solely on the shoulders of the licensees and I think for the most part that’s where it should lie.

   “We do have financial obligation to our licensors that in fact all of our decisions – including how we make product and how many products we make – despite what’s happened to the category over the last 20 years, most of the licensors we work with still have their expectations for growth that remain steady,” Kauffman continued. “They have to consistently report growth even if there isn’t growth, which then puts the burden solely on the manufacturer, and that’s a struggle and that’s a difficult equation to manage.

   “And I know that we are not the only licensee that feels that way. It’s a big part of the equation, and the pressure to meet minimum guarantees does have an impact on what we make and how much we make of it.” 

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