Minneapolis-based Sleep Number betting big on its 'innovative' NFL partnership

Sleep Number has hedged its future on high-end "smart beds" — and most of its marketing muscle in a five-year partnership agreement with the National Football League.

It's a big gamble — one announced amid all the Super Bowl glitz in Minneapolis last year — but one that so far is gaining praise from those involved in both the sports and marketing worlds.

Gina Scott, a vice president for the NFL Players Association, said it is the most innovative partnership she has seen in her 10 years with the organization.

"I think it's groundbreaking on some of the things we've been able to do in such a short time," said Scott, who leads the association's partnership efforts. "We are definitely looking for growth opportunities with the partnership."

Scott and others said part of the appeal is that it's not just an advertising play. Sleep Number is working with the league to help players improve their health and wellness through better sleep.

The cornerstone of the agreement was a plan to give Minneapolis-based Sleep Number's new 360 Smart Beds to all the eligible players in the league in 2018, and then to eligible incoming players in the years that follow.

The buy-in of athletes will hopefully then translate into higher sales and earnings in an industry where upstart online players like Casper have grabbed a share of the mattress industry. Sleep Number has focused on its showrooms and the high-end market.

So far, so good. The last seven weeks of the third quarter was the first time the full lineup of 360 Smart Beds were in stores. Sleep Number saw double-digit unit growth during that period. Now eyes are waiting for the fourth-quarter report which will be released in mid-February. That quarter coincides with most of the NFL season when the bulk of the advertisements ran.

What experts point to with the Sleep Number marketing campaign, though, is that it is more than advertisements. Company experts are working with the NFL on how to use the data to help the players, which could provide long-term benefits.

After Sleep Number signed the deal with the NFL last winter, it fostered important connections with league athletic trainers and the NFL Players Association that led to getting beds out to players.

Patrick Campion, senior director of marketing partnerships at Sleep Number, said the cooperation of those two groups helped with better-than-expected coupon-redemption rates. All the NFL teams participated, with at least 40 players on each team redeeming coupons. Overall, more than 1,800 players had redeemed the coupon by the expiration date in November.

Sleep Number would not disclose the total cost of the partnership, but the cost of product alone may be around $15 million.

"The biggest proponent for team adoption has been athletic trainers," Campion said.

Athletic trainers work most closely with players not only on getting stronger and faster but also on recovery from major and minor injuries. "You can tell the teams where athletic trainers have strong influence," Campion added.

Sleep Number executives went to 23 NFL training camps during the summer to promote the 360 Smart Bed technology and how it can apply to better performance and recovery.

The beds have mattress sensors that allow the mattress to change firmness through the night in response to movement. The sensors also collect biometric data that produces the company's Sleep IQ score, a propriety measure of each night's sleep.

Sleep Number protects individual data — not just of NFL players but all customers — but both sides think collective player data may lead to actionable insights for players and the league.

Campion said one of the interesting aspects of the promotion has been how many players have registered their bed online so they can get the full functionality of Sleep IQ through smart devices or through the Sleep IQ website.

Customers can simply purchase a 360 Smart Bed for the adjustability and temperature control. Downloading the app that records the Sleep IQ scores and provides data is optional. But with professional athletes — and among a growing number of amateur athletes as well — the feedback, Sleep Number said, can give insights into how things like diet, exercise and travel affect sleep quality, which can in turn affect performance.

Campion noted that players are competitive by nature and familiar with technology. They were quick to start comparing their Sleep IQ score with teammates. "We have a higher percentage of players' beds online than the general populace," he said.

There is a strong financial incentive for the NFL partnership to work. In March 2017, Sleep Number executives were issued special performance-based restricted stock units with a grant date value of $4.5 million that would be earned only if Sleep Number has diluted earnings per share of $2.75 per share or above for the full year ended Dec. 28, 2019.

It's an ambitious earnings goal, and analysts think the company will fall short. The consensus estimate among analysts is $2.36 per share for 2019 and $2.72 by 2020.

The advertising end of the partnership includes traditional and social media advertising, plus digital streaming on platforms such as YouTube and Hulu.

Sleep Number has other branding efforts surrounding Smart 360. The company has boosted its corporate social responsibility efforts around sleep science. Over the summer, Sleep Number announced a campaign to improve the well-being of 1 million young people by 2025 through product donations and the sharing of sleep expertise and data.

Earlier this month at CES, the world's largest technology show, Sleep Number again had a big presence that was noted by the trade press in part because it sponsored talks on how to change sleep habits and signed another contract with Arianna Huffington, who has become a sleep guru.

Pete Giorgio, a principal with Deloitte Consulting LLP and leader of its U.S. Sports practice, said the NFL builds partnerships that benefit both sides, but companies have to tell authentic and compelling stories to maximize their end of the partnership.

"Sleep Number is a great example of how you can take something like a bed and tell a real story of how it can impact a team or a player and have it resonate with consumers," he said.

Mike Porter, a professor at the University of St. Thomas, said partnerships with sports leagues need to be about more than ego. A company has to make a link between the campaign and sales.

So far, Sleep Number has been successful with the NFL partnership, he said.

"They are doing something big, they are doing it thoughtfully and for a reason," he said. "It's going to work for them because they didn't go into it blindly."

Patrick Kennedy • 612-673-7926