One could expect that the move made last week by the NBA to switch back to a leather Spalding ball after numerous complaints about the league’s use of Spalding’s new microfiber composite ball, and the subsequent (and very quick) decision by Spalding to offer full refunds to anyone that had purchased the ball, would not have come so quickly if Spalding was not now under the Berkshire Hathaway business umbrella. If there is one thing that Warren Buffett understands, it is how to limit risk and that “any PR” is not necessarily “good PR.”

The growing PR nightmare regarding Spalding’s new Official NBA Game Ball came to an abrupt end last week as NBA commissioner David Stern announced that on January 1, 2007, the league would revert back to the leather ball that it had used in seasons past. The decision comes two weeks after the National Basketball Players Association filed a grievance with the National Labor Relations Board, claiming that the NBA had failed to test the new synthetic balls adequately before adopting them for the season. Spalding reportedly has 450 of the leather balls on-hand and ready for NBA use.

Spalding’s current supplier deal with the NBA expires six years from now, while the manufacturer has served as official supplier since 1983. Spalding is credited with creating the first basketball in 1894 and was named as the official ball in the official rules of the game. The game, which had been invented by Dr. James Naismith in 1891, had been played with a soccer ball.

The microfiber ball will not be completely removed from play, however, as it will continue to be used in the NBA’s developmental league, the D-League for the rest of the season.

In a prepared statement, NBA Commissioner David Stern said, “Our players’ response to this particular composite ball has been overwhelmingly negative, and we are acting accordingly. Although testing performed by Spalding and the NBA demonstrated that the new composite basketball was more consistent than leather – and statistically there has been an improvement in shooting, scoring and ball-related turnovers – the most important statistic is the view of our players.”

Following the league’s decision to switch back to the leather ball, Spalding launched a refund program for consumers who had purchased the 2-panel microfiber ball. The company is offering a total refund of $115 per ball, comprised of $100 for the retail value of the ball and an additional $15 to cover previously paid taxes and shipping charges back to Spalding.

The interesting thing here is that Spalding isn’t taking the heat in the press for the design of the ball. Instead, it is Stern that is dealing with a PR mess, both inside and outside the NBA ranks. He moved swiftly to move back to leather, but the timing of January 1 is now being scrutinized as well since it won’t give players time to re-adjust to the old ball. Some suggest that a switch back during the four-day All Star break would have made more sense.

The focus on Spalding revolves around potential loss of revenue and product development investments. Now, the impact of the refund program will also need to be assessed. The goodwill shown toward both retailers, who don't have to process the returns, and the customer, who will now have $115 to spend on another ball (or a new pair of sneakers), will surely come back to Spalding in spades.

According to data compiled by SportScanINFO, Spalding could be out a chunk of change just in refund fees, but nothing that will break the bank. Based on the SSI data, Spalding has sold more than 5,500 of the balls since they were brought to market, which would raise the possibility of over $630,000 in refunds to be paid. Nonetheless, SportScanINFO shows Spalding as one of the dominant forces in basketball sales, accounting for six of the top ten best selling styles last week in terms of dollars sold, with its NeverFlat ball taking the number one spot, followed by the Official Game ball at number two.
Based on the SportScanINFO data, this next week historically represents the biggest week of the year for sales of basketballs.

The SSI data indicates that sales of Spalding basketballs are up in the mid-teens for the year-to-date period this year versus last year, due in part to an increase in average selling price of more the $2.00. The ASP gain was certainly due in part to the new NBA ball, but the success of the Never Flat ball had a much bigger impact on the business earlier this year. Sales of Spalding basketballs were still up in the high-single-digits over the last three weeks even as the issue heated up in the press.

The financial impact of the change and refund program is questionable. Based on the SSI data, the new NBA ball only represented 1.3% of total Spalding basketball sales for the YTD period when measured in dollars and was only 0.3% of basketball sales when measured in units.
Hardly a back-breaking issue.

>>> The estimated refund costs are “walkin’ around money” for Buffett, but the goodwill could mean millions. Getting one of your brands out of the negative press quickly before Christmas — priceless…

>>> Anyone doubt that this would have dragged on forever if managed under previous RML management. Buffett and team are probably a breath of fresh air for Spalding management…