Every year, Daniel Kuester, professor and director of undergraduate studies in economics at Kansas State, starts off the school year with a demonstration to show how consumer surplus and producer surplus work. It displays how much people are willing to pay for something.
“Oh, I have something that you’re not supposed to sell or have on campus,” Kuester said.
Kuester pulled out the illegal contraband that he in fact should not have or sell on campus. What was it?
A can of Coca-Cola.
Since July 2000, K-State and Pepsi-Cola Bottling Co. of Marysville, Inc. have had a sponsorship agreement benefiting both groups. In exchange for a payment of $400,000.00 per year, Pepsi has exclusive rights to beverage and snack sales on campus, as well as the exclusive right to provide its vending machines with full trademark panels on all sides, among other promotional rights.
According to the contract, Pepsi has been made available throughout campus facilities and should be the only product brand sold on campus, at concession stands, in vending machines or served at special events held anywhere on campus. Pepsi provides the machines, but K-State is responsible for all electrical hook-ups and cost of electricity.
Pepsi also has exclusive rights to decide what snacks are sold in the vending machines. These snacks have a set price determined initially by Pepsi, but prices can change in later years of the contract depending on material and product pricing.
Pepsi-brand soda is also served in the three dining centers. These machines will have a fixed price on the syrup for the first three years of the current contract, 2015-2018, and after that will be reconsidered and determined by Pepsi’s National Account Price.
With this contract in place, K-State receives 45 percent of the gross sales prices on carbonated beverages and soda. For all non-carbonated sodas and/or “new-age” beverages, K-State receives 25 percent of the gross sales price. For snacks, K-State receives 10 percent of the gross sales price.
In addition to the $400,000 per year Institution Support Fee paid directly to the KSU Foundation, another $300,000 for the Annual Advertising Fee is paid to K-State Athletics.
Fran Willbrant, assistant vice president for Financial Services, said an exclusivity contract, like this one with Pepsi, is fairly common at large universities like K-State.
Willbrant said that division of fee disbursement between the KSU Foundation and K-State Athletics was due to the promotional opportunities K-State Athletics offers for Pepsi.
“A lot of the recognition comes from Athletics,” Willbrant said.
The contract also offers up to $50,000 in marketing support and free product for the university. The marketing support can include logo placement on cans or other promotional supplies.
Willbrant also said the total amount coming from Pepsi was almost $1 million annually across all facets of the contract.
Pepsi has used this sponsorship as a way to support K-State in its efforts to become a more environmentally friendly campus. Pepsi specifically contributes up to $5,000 annually for sustainability efforts and also supports the campus by including recycling dialogue on machines and advertising materials.
When asked, many students did not know about the contract that Pepsi held with K-State.
“I just thought we sold their products because they supported us financially,” Hannah Fry, junior in agricultural education, said. “I didn’t know we had a contract or anything.”
Some students did not know that Pepsi was the exclusive beverage provider for campus.
“I didn’t realize you couldn’t buy Coca-Cola on campus,” Katie Andrews, sophomore in secondary education, said.
After the initial nine-year contract expired, it has been renewed twice, with the most recent amendment and additions finalizing in 2015 and expiring in 2022, unless it is amended to an earlier time or terminated.