Refreshing or restricting? Ohio State’s $32M deal with Coca-Cola brings up questions of transparency

Caitlin Essig
Thu, 19 Dec 2013 05:11:06 +0000
Campus, Special Projects, agreement, beverage, beverage contract, coca cola, contract, deal, exclusivity agreement, ohio state, transparency

For years, there has been an exclusive option for Ohio State students to quench their thirst on campus: Always Coca-Cola.

OSU is about halfway through a 10-year renewal of an agreement with the Coca-Cola Co., a deal worth more than $32 million.

While the exclusive deal brings in millions to the university, questions of transparency have surrounded the agreement since its signing. The university is mum on specifics regarding exactly how much money it earns yearly, and on whether offers from other beverage distributors were made prior to signing with Coca-Cola.

OSU originally contracted with Coca-Cola in 1998 and chose to renew the agreement in 2008. The contract, now in effect until June 30, 2018, ?is “the first exclusive vendor contract for a beverage distribution to occur at the university,” OSU spokesman Gary Lewis said in an email. Lewis added his responses were prepared with help from Trademarking and Coca-Cola representatives.

He mentioned what the university deemed as upsides to the contract.

“By entering into an exclusive vendor contract, it increases guaranteed revenue which is aimed toward aiding in the student experience and creates stability,” Lewis said.

In the more than five years since the contract’s renewal, Coca-Cola has paid OSU nearly $16.9 million in royalty fees, and at least $4.25 million in commission from the university’s 438 or more Coca-Cola vending machines.

The contract dictates, and Lewis confirmed, there are at least 438 Coca-Cola vending machines on campus.

The money

The contract’s total worth is at least $32.6 million, but OSU can potentially earn more based on commission rates from the Coca-Cola vending machines on campus. The university distributes revenue from the contract as it sees fit, Lewis said.

“Ohio State does not evaluate the distribution of specific pieces of the contract but rather reviews the entire revenue stream as one lump sum and made distribution decisions on the total amount,” he said.

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The contract outlines that OSU is to receive more than $1.37 million annually in royalty fees, and at least $850,000 per year in commission from the vending machines, although specific numbers on how much commission OSU receives are “trade secrets, which are protected,” Lewis said.

If the commission from vending products exceeds $850,000 in any given year, Coca-Cola is to pay OSU the amount in excess.

The commission rate varies by product, with the most being 55 percent on all 20-ounce bottles of Nestea Cool and sparkling carbonated beverages, 20-ounce Powerade, 20-ounce Dasani and 16-ounce plastic bottle Minute Maid Juices To Go sold on campus. At this rate, a 20-ounce bottle of Coca-Cola sold in a typical vending machine for $1.25 earns about 69 cents for OSU.

The lowest commission rate is 20 percent on 16-ounce cans of Full Throttle energy drinks, which are sold for $2 in a typical campus vending machine. OSU earns 40 cents for every can of Full Throttle sold in the vending machines at that rate.

In addition to the upfront and annual royalty fees and commission, the contract outlines more than $400,000 paid to OSU for other rights and benefits provided to Coca-Cola, including personal appearances by university personalities and tickets and hospitality.

Wendy Epstein, assistant professor at DePaul University College of Law, said OSU’s size could contribute to its ability to make such a lucrative deal.

“Ohio State has significantly more bargaining power than smaller universities,” she said in a Dec. 10 interview with The Lantern.

Some other Big Ten universities, including the University of Minnesota, Purdue University and Northwestern University, also have contracts with Coca-Cola, according to the respective universities’ websites. Competitor PepsiCo Inc. lays claim to others, including Penn State University, according to media reports, and the University of Nebraska, according to its website.

According to its website, the University of Minnesota’s 10-year contract with Coca-Cola is worth more than OSU’s, an estimated $38 million.

Exclusivity on campus

Through the contract, Coca-Cola maintains the exclusive right to the sale and availability of beverages on campus.

Competitive products, outlined as “all beverages other than (Coca-Cola) products” in the contract, are not to be “sold, distributed, dispensed, served or sampled at the campus or in connection with (the) university, the campus or the university marks in any way or at any time” during the contract’s term.

There are exceptions, however, permitted by the contract, which allow the university to offer products other than Coca-Cola beverages in some cases. These exceptions include the Wexner Medical Center, which is permitted to serve competitive products to patients if deemed “appropriate by medical personnel.”

The OSU Faculty Club is also permitted to serve and sell competitive products. Starbucks coffee products, albeit not “ready-to-drink products,” may be sold and served. In addition, Gatorade products may be made available for university student-athletes, coaches, staff and invitees in “non-public areas at university-sanctioned intercollegiate athletic events and university athletic camps,” according to the contract.

Crimson Cup coffee, which is brewed at several dining locations on campus, is “not part of (the) beverage contract,” Lewis said.

“The reference to Starbucks was an used as an ‘example’ based on current offerings at the time of the contract,” he said. “The basic premise was that Coke was not currently offering such products and we were verifying that this was excluded.”

The contract also implicitly states that no one is prohibited from bringing non-Coca-Cola products to campus for personal consumption.

Epstein said a deal that gives exclusive rights to one company like the Coca-Cola contract brings up questions of transparency and competition.

“You have to worry about competition in these sorts of situations,” she said. “Is the reason that one company is getting a deal over another because of favoritism, or is it because they’ve offered the best deal? And that’s why transparency is so important, and competition is so important. So did they actually put these deals out to bid and beverage manufacturers submit proposals and then they chose the most favorable one? Or is there a bigger story?”

Whether there was a bigger story, however, is something OSU representatives have stayed quiet about.

Lewis did not comment on whether other deals had been proposed by other beverage companies in the past or whether other companies placed bids, or if Coca-Cola was the only company consulted.

Epstein said, though, the university’s decision to grant exclusivity to one beverage company didn’t strike her as controversial.

“The beverage contract frankly is less problematic to me (than other exclusivity agreements),” she said. “Really all it’s doing is limiting your choice on campus.”

OSU Undergraduate Student Government President Taylor Stepp said the benefits outweigh the costs in OSU’s deal with Coca-Cola.

“I think that there are immediate upsides, but again with each agreement we need to be very diligent on the … freedom we have to make decisions,” said Stepp, a fourth-year in public affairs. “Because you can’t buy Pepsi on this campus and (in) my opinion, you know, the net benefit of a however much money it is, the tens of millions of dollars invested into this university, versus not being able to drink Pepsi, I think that’s a pretty relatively reasonable agreement.”

Personal appearances, tickets and hospitality

As part of its agreement with Coca-Cola, OSU personalities are required to make “personal appearances at (Coca-Cola’s) activities or functions in each agreement year for no fees or charges other than those specified.”

Those specified charges that Coca-Cola must pay OSU are $175,000 per agreement year.

These yearly appearances include one or more personal appearances by the head football coach or other university athletic coaches, two personal appearances by OSU mascot Brutus Buckeye and/or the OSU Marching Band and one or more appearance by OSU’s president.

Lewis did not comment on when these appearances have happened in the past. He did say, however, university personalities expect to have such obligations.

“These are all university assets which are utilized as resources and are often times called upon in to make appearances,” he said. “This is a known expectation for those who are involved extracurricular activities.”

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Per the contract, Coca-Cola also receives tickets and hospitality relating to university events and other events on campus. For $240,000 annually, Coca-Cola has access to thousands of tickets to university athletic events in each agreement year.

The company is also granted discounted corporate memberships to the OSU golf course and a “Coca-Cola Section” at selected university athletic games and events.

Lewis said, however, Coca-Cola has not yet exercised the option to have a Coca-Cola section. He added that use of the tickets is up to Coca-Cola’s discretion.

No athletes or coaches were made available to The Lantern for comment despite repeated attempts. OSU Athletic Director Gene Smith was also not made available for comment.

Coca-Cola grants, internships

Students directly reap the benefits of some aspects of the agreement with Coca-Cola, beyond the availability of beverages on campus.

To compensate for its use of OSU’s brand in marketing efforts, Coca-Cola is to spend at least $164,750 per year on “student-focused promotional activities and consumer marketing programs.” The contract allots for both money and Coca-Cola products to be made available to students.

Beverage donations, which are made available to student groups throughout the year, are intended to “enhance the programs groups put on and improve the student experience,” according to the Office of Student Life website.

A Coca-Cola Beverage Marketing Committee, governed by the Office of Student Life and made up of students, faculty, staff and Coca-Cola representatives, meets each semester to determine how the beverages ought to be dispersed.

Kellie Uhrig, senior director of strategic communications and relationships for Student Life, chairs the Coca-Cola Beverage Marketing Committee. She said the partnership with Coca-Cola provides both tangible products and “experiential support for major student events and activities.”

“The beverage marketing committee oversees the use of Coca-Cola’s $150,000 annual fund set aside to provide product donations and support for events/activities that help extend the Coca-Cola brand and enhance the student experience,” Uhrig said in an email. “Throughout an average year, approximately $85,000 worth of product is distributed and the balance supports existing or offers new (student) events and activities, either through student- or university-organized events or promotions offered by Coca-Cola.”

She said events or activities supported by the Coca-Cola fund “should be open to all Ohio State students and have the capacity to reach significant numbers of students.”

Additionally, USG receives a “Coke endowment” each year, which Stepp said usually is about $30,000. The money is given without stipulation as to its use, so Stepp said the organization tries to use it in ways that are “a little bit more inventive.”

“What USG has chosen internally to do, and we control the money, we can spend it virtually any way we like, although Coke has said we should use it as if it is student activity fee money. But since it isn’t student funds we try to be a little bit more creative with that money,” Stepp said.

“My thought is if we’re using student dollars we need to be as prudent as possible and we need to make very conservative choices that the student body would agree with. On some of those a little bit more nuanced issues, we use Coke funds.”

One event USG has supported with Coca-Cola funds, for example, is Delta Tau Delta fraternity’s “Delt Deep Fry,” an annual event held to raise money for the fraternity’s philanthropy, the Juvenile Diabetes Research Foundation.

Other organizations and activities on campus also receive funding from Coca-Cola.

“The supported activities are generally open to all students and offer major exposure,” Lewis said. “Examples of supported programs include Buck-i-Frenzy, BuckeyeThon, Intramural Sports T-shirts, the Homecoming Parade and Block O initiatives.”

In another initiative outlined in the contract, Coca-Cola promised to employ four OSU students in its Coca-Cola Internship Program annually. Two students are selected as marketing interns and two are “selected to work with the local Coca-Cola team on campus,” Jennifer Richmond, director of public affairs and communications for Coca-Cola, said in a Dec. 16 email.

“Students are interviewed and ultimately selected for internships from a pool of OSU job fair applicants and from the Fisher School of Business,” Richmond said.

She added the purpose of the program is to give students experience while showcasing talent within the university.

“The program provides students an opportunity to gain valuable, real-life job experience while in college, and can open the door to a successful career,” Richmond said. “The internships also give Coca-Cola the ability to evaluate talent at one of best universities in the country. The program has proven extremely successful, and has even resulted in some students joining the Coca-Cola team after graduation.”

Using university marks for marketing

Coca-Cola is permitted to use university marks for on- and off-campus marketing, advertising and promotional agreements, with a few stipulations.

Any joint promotion involving OSU and Coca-Cola is prohibited from involving “tobacco, alcoholic beverages, adult entertainment establishments or religious groups.”

Along with an “unlimited” number of marketing and promotional activities allowed on campus, Coca-Cola reserves the right to employ off-campus promotions involving the university. The company may use three football-related promotions and three basketball-related promotions during the teams’ respective regular seasons.

Additionally, if OSU’s football team is selected to participate in a bowl game of any sort, or the men’s basketball team advances to the NCAA playoffs or tournament, Coca-Cola may conduct one promotion.

That portion of the contract is applicable this season, as No. 7 OSU is set to play in the Discover Orange Bowl Jan. 3 against No. 12 Clemson.

Coca-Cola is also permitted to use OSU-related marks on product packaging, signs and other marketing materials.

“These are promotional rights they use to promote sales at retail (accounts like Kroger, Target, Meijer, Speedway, etc. Sometimes they are enter-to-win giveaways, gift with purchase, etc.),” Lewis said. “We approve all aspects of the promotions, and who they partner with.”

While the contract is set to expire in 2018, negotiations between OSU and Coca-Cola on extending the contract are supposed to begin at least 90 days before the expiration date. Lewis said because of the time remaining in the agreement, discussion on the option of renewal has not begun.

This story is the fourth in a five-part series about Ohio State’s contracts with Nike, Huntington, Coca-Cola and QIC Global Infrastructure. The series was made possible by the generosity of Ohio State and The Lantern alumna Patty Miller.