Patch Perfect

The unit economics of fintech jersey patch sponsorships

With the newest NBA season starting up in just a few weeks, it’s as good a time as any to prove that everything, everywhere is eventually fintech-related, even basketball. So let’s take an over-engineered look at the unit economics of jersey patch sponsorships for fintechs.

I’ll admit that I’m more than a little biased - at Chime, my Strategic Finance team helped to structure and negotiate our first ever jersey patch sponsorship with the Dallas Mavericks (the origins of which are a legendary story of hustle that I hope makes it into Chris Britt’s Chime memoir someday). But we weren’t the only ones that thought this could be a smart idea. A whopping ~30% of NBA jersey patch sponsorships were provided by financial services and crypto companies, primarily fast-growing fintechs, in 2020 and that number is up to ~42% as of 2024:

In any case, I hope I can show you (with only publicly available data of course) why there might actually be some rationale for why scaled consumer fintechs consider this marketing opportunity as more than just a brand awareness play. In fact, I think it’s possible to prove that for the right fintechs, a jersey patch sponsorship can make sense as a direct user acquisition channel, that it very well can be an efficient growth marketing opportunity alongside other advertising like social media ads and referral marketing.

Of course, it’s easy to argue that a sponsorship isn’t just about member growth, and that brand awareness, retention and even changes in purchasing behavior could be just as important. But if the deal can make sense purely as an optimized acquisition channel on its own, then it becomes a no-brainer when you add the knock-on benefits of brand, retention, and purchasing behavior improvements that would drive LTV and further prove ROI.

So for the purposes of this evaluation, we’ll focus primarily on the direct user acquisition side of the equation and prove that based on cost alone, this user acquisition channel is actually a highly valuable growth marketing opportunity. We’ll do that by taking a top-down and bottom-up approach to assessing CAC:

1. (Top-down): How many new transacting actives would a fintech need to generate to justify an NBA sponsorship based on its price and is that reasonable?

2. (Bottom-up): How much advertising value does an NBA jersey sponsorship generate and is that worth the price paid?

Onward!

1. How many new transacting actives would a fintech need to generate to justify an NBA sponsorship based on its price, and is that reasonable?

Starting with a top-down approach, to answer this question, we need to figure out the price of a jersey patch sponsorship and whether it could be reasonable within the context of a scaled fintech’s marketing budget. I’ll use Chime and Cash App as an example where relevant, because there have been a raft of recent public articles about them both that make the math story a lot easier to drive, but the calculus should work for any consumer fintech of similar or greater scale.

On the cost of a jersey patch sponsorship side, the NBA estimates that the average jersey patch sponsorship ranges from $2M to $20M depending on market size and team performance with the Lakers and Warriors at the top of the stack at $20M apiece. So the Mavericks deal in 2020 might have been somewhere closer to the middle around $8-$12M. Moreover, USA Today at the time reported that the deal was “just under eight figures” so $8-$9M might be right around the right ballpark.

On the CAC side, the question of neobank’s customer acquisition costs is one that’s a constant hot topic in the fintech operator forum, so rather than specifying a number, let’s just book-end with available data from Chime and Cash App. On the one hand, Cash App claims that the average neobank is paying $30-$50 to acquire a “net new monthly transacting active” based on their 2022 Investor Day.

(Side note - I’m not using Cash App’s acquisition cost on its own because that blends acquisition tied to P2P and neobanking, where P2P has a ludicrously low CAC but isn’t representative of the true cost of acquiring a banking customer. Only ~50% of their monthly active even have Cash Cards, and <5% have direct deposit relationships.)

For Chime, based on 2023 marketing spend of $270M per Forbes and Cornerstone’s year-over-year estimated net growth of checking accounts from 12M in June 2021 and 22M by April 2024, we see a growth of 10M net new transacting actives over 3 years or ~3M per year. With $270M in marketing spend in 2023, that equates to ~$90 per net new transacting active as of 2023.

(Side note - Cornerstone published another post only on their website which references 38M customers for Chime but it doesn’t align to Forbes who also puzzlingly references Cornerstone, also released on the same day. Hope somebody explains this discrepancy in the comments).

It’s an awfully big range, but giving more weight to more recent data, let’s assume CAC is ~$70 for the average scaled neobank. That means that for a jersey patch sponsorship to be worth its weight in member acquisition, it needs to generate at least ~$9M / $70 = 129K new actives per year to justify itself as a marketing channel (~3% of Chime’s annual marketing budget).

Translating to the NBA season, it’s about 1.5K enrollments per game (assuming 82 games in a season excl. pre-season and playoffs). Given the average viewership for an NBA game is ~1.6M across networks with an additional 20K fans per game in stadiums, conversion rates only need to be ~0.10% to generate that many new actives.

Of course, between season ticket holders who would represent recurring vs. new attendees and international viewership which wouldn’t translate to new actives for US-based consumer fintechs, we may need to discount the total pool of potential funnel, but even with a generous 70% discount to viewership, we’d still need only 0.30% conversion to new actives to meet our thresholds.

How reasonable is a 0.30% conversion rate? Benchmarking against common marketing channels, we’d need to believe this form of marketing is at least 75% as effective as a billboard or PR or roughly ~11% as effective as email marketing. From a sanity check perspective, that seems reasonable.

So the top-down approach shows that jersey patch partnerships would actually be an efficient growth marketing channel opportunity for fintechs of the right scale.

2. How much advertising value does an NBA jersey sponsorship generate and is that worth the price paid?

So from the top-down approach, it seems like a jersey patch sponsorship can generate enough conversion to pay for itself as a member acquisition channel, but still, is the sponsorship worth the price paid?

To answer that question, we’ll use a bottom-up approach to figure out the CAC unit economics of a jersey patch in terms of its advertising value. Let’s start with the advertising side. The unit of metric for advertising is the CPM (or cost per thousand viewers per 30 second spot) when it comes to TV and this cost can range from $15 - $50 depending on whether the platform is Local TV ($20), Cable TV ($16), Broadcast TV ($30) or Streaming ($50), all of which might be how you’re watching the average basketball game. To simplify, let’s take ~$16 as the TV CPM to be conservative.

Bringing back the viewership metric, we know that 1.6M viewers tune into the average NBA game broadcast. So on a per thousand viewers, 30 seconds of screen time during an average NBA game generates 1.6M viewers / 1000 * $16 = $25K of advertising value which seems reasonable given ad pricing (and likely relatively cheap once the season progresses). We also know that the jersey patch is on-screen for about ~5.9 minutes per Nielsen (perhaps a reason why sporting events go on for longer and longer), meaning the average game is generating 6 minutes * 60 seconds / 30 second spot * $25K = $300K of advertising value per game in direct viewership.

But it’s not just the actual viewership of the game that generates value but also the impressions from social channels. In fact, it’s estimated that there are ~90 social media posts made by the NBA’s league account and the team accounts during an average broadcast, generating about ~1M views per post, meaning an additional 90M impressions. With ~$8 CPM for social, pro-rated down by the exposure time for the jersey patch at ~5.9 minutes (~4% of the broadcast total based on average game length of 2 hours and 19 minutes), that’s another $29K of advertising value per game in social media viewership.

So if we pull everything together, we’re talking about $300K + $29K = $330K of advertising value per NBA game. With 82 games in a season, that’s $27M of advertising value per game. That means for ~$9M of direct CAC paid in sponsorship fees, I get $27M of advertising value per game, a whopping 3:1 return on CAC investment in acquisition spend alone. To have meaningful advertising value is one thing, but for that advertising value to actually exceed the entire sponsorship fees is pretty amazing given there are so many dimensions of sponsorship value add.

In any case, the bottom-up approach also shows that this channel could be highly valuable from a growth marketing perspective.

Should everyone get in on the sponsorship ad-venture?

With ~3:1 value per dollar of jersey patch sponsorship and a modest 0.30% conversion rate to get full value for the average partnership, it’s easy to wonder if a sponsorship like this might be the right step for nearly every fintech (as nearly every crypto company seemed to think during the 2021 bubble)? Not so fast.

The Sports Business Journal says it best, “data is likely to suggest that the most valuable patch deals will be for companies that are national or global, digital-first and business-to-consumer focused.” The economics can quickly change if your company’s reach is limited, underlying CAC is already low, or if your company’s current scale means that this investment concentrates your user acquisition investments. And even for successful partnerships, over time, the incremental benefits of a sponsorship vs. the incremental continuing costs may get harder to justify.

But for the right fintechs at the right scale, it’s clear that there can be real direct growth marketing value to introducing a jersey patch sponsorship alongside other marketing channels. For companies like Chime, Robinhood and PayPal, it’s more than a brand play and can directly contribute to userbase growth. I wouldn’t be surprised if we see more activity from scaled fintechs in this space like Cash App and Stripe find a way to thread the needle to be a part of this patch power play.