Sponsorships & Endorsements – the risks and benefits
Sport
Comment | 1 October 2010
When we talk about a company’s reputation, what we are really thinking about is the level of trust in the organisation. A successful company will work to gain the trust of its employees, suppliers, shareholders and customers to help win a commercial advantage over its competitors and protect the value of the business. However, when a company enters into a sponsorship or endorsement agreement a new element of risk is introduced. A company will inevitably find itself relinquishing a degree of control over its own corporate reputation when it decides to get into bed with an independent individual, team or event. There are of course numerous and well documented potential benefits to sponsorship and endorsement arrangements, but it is important to be aware of the significant reputational risks that accompany these benefits, which are often downplayed or ignored completely, and to prospectively guard yourself against them. If a corporation is going to engage in an endorsement or sponsorship program then the first and most crucial decision is choosing the property or individual. In sport, for example, there are usually three main areas – events, team and individual player endorsement – and we will consider the risks of each below.
Events
Sponsoring a global event such as the FIFA World Cup or Olympic games has an enormous market reach. The cumulative audience of this year’s World Cup was estimated at 26 billion viewers, while the Beijing Olympics opening ceremony was the most-watched event in human history, with an average TV audience of 593 million and a reach of 984 million. With “out of home” viewing, it became the first “genuine 1bn” spectator event.
In terms of risk, the primary advantage of sponsoring an event, especially one of the magnitude of the FIFA World Cup or Olympics, is that the risk is spread significantly in that the conduct of one player, athlete, team or country in the tournament will not really affect the sponsor. However, this area is not without its risks. For example, the recent FIFA World Cup in South Africa was plagued by criticisms about the country’s high crime rate. Headlines warning England fans that they could be caught up in a “machete race war” after the murder of white supremacist Eugene Terre’Blanche harmed ticket sales and skewed perceptions of the event as a whole. The Tour de France is another example of an event that regularly attracts criticism with the number of cyclists caught doping. A sponsor must consider how publicity of this nature affects its corporate reputation and take action to limit any damage caused.
In addition, corporate sponsors must be aware of the risks of ambush marketing and protection must be in place to prevent problems. Ambush marketing describes the activities of businesses that seek to associate themselves with a sponsored event and obtain some (if not all) of the benefits of being an official sponsor without paying sponsorship fees. Historically, these activities simply consisted of unauthorised uses of an event logo or false claims to be an official sponsor or supplier, for which there are readily-available legal remedies, but recent tactics are more subtle and the law is struggling to keep up. For example, prior to the Sydney Olympic Games in 2006, Qantas ran an extensive ambush marketing campaign, sponsoring individual athletes, placing advertisements showing sprinter Cathy Freeman crossing the finishing line of a race, and adopting the song ‘I still call Australia home’, which became the unofficial anthem of the Sydney Olympics. A poll in 2000 showed that more people believed Qantas to be the official sponsor of the Olympics than Ansett, which paid $40 million for its official sponsor status. Actions for passing off, false endorsement, trademark or copyright infringement and defamation are difficult to bring in cases of the new ambush marketing, and consequently governing bodies such as FIFA and the IOC increasingly require that host cities/countries put in place specific legislation to prevent it, for example, the London Olympic Games and Paralympic Games Act 2006.
Teams
While sponsoring a team will generally circumvent the risk of ambush marketing, it will also increase the risks of damage being caused to a corporate brand as a result of actions by the team. The general perception with team sponsors, even if it is as simple as having a logo on a football shirt, is that the sponsor is more closely involved with the team than is the case with event sponsors. This perception of a deeper and closer relationship is, of course, one of the primary aims of entering into sponsorships with teams but all too often it is forgotten that with this raised profile and ‘allegiance’ comes significant risks.
There are countless examples of corporate sponsors being caught out and damaged by the actions of its sponsorship partner, but few are as stark as those in professional cycling where sponsors such as Adidas and Liberty Seguros have been forced to withdraw their sponsorship of teams after doping scandals or the recent issues surrounding the Commonwealth Games in India where two state-run companies have withdrawn their sponsorship following bribery and mismanagement allegations involving the event organisers.
In addition, sponsors need to consider and prepare for the possibility of their partner underperforming both on and off the field. For example, a football team that drops out of the Premiership or fails to qualify for a major international tournament may quickly be worth considerably less in terms of the exposure and associative positive sentiment it offers than what a sponsor might have paid for it, as the FA have recently found. Or if a team suffers financial difficulties this can reflect negatively on a sponsor’s brand; especially where that brand is reputed for financial know-how or being sound economically. It is therefore extremely important to build favourable exit clauses into sponsorship contracts in the event of a team not performing as well as it was expected to and also to have in place a plan of action to respond and protect the brand reputation should such problems arise. Unfortunately sponsors often ignore the reality that such underperformance, especially in the current football climate, is seemingly the norm rather than the exception and are not fully prepared to respond when the reputation is under threat.
Endorsing Individuals
The decision to sponsor an individual or have an individual endorse your product or brand is comprised of very different considerations to sponsoring a team or event as above. Sponsors will want to choose an individual who represents the values that the company and brand stands for. This is the highest risk category mainly because the individual is a human being and inevitably a sponsor cannot control their behaviour. A recent and widely reported example is Tiger Woods. The perception of Tiger Woods was such that when the controversy broke at the end of 2009 it was widely reported that nearly all of his numerous sponsors were considering how to react. Ultimately he lost a number of sponsors and Accenture, who it is reported had paid Tiger Woods $42 million over the course of six years, made particular efforts to distance themselves from him by issuing the following official statement: 'His achievements on the golf course have been a powerful metaphor for business success in Accenture's advertising…However, given the circumstances of the last two weeks, after careful consideration and analysis, the company has determined that he is no longer the right representative for its advertising.'
Other sponsors chose not to renew their agreements when they expired and others chose to stand by Tiger Woods in the long term but in the short term pulled advertisements with him. This example is illustrative of the variety of ways that sponsors can react to conduct by the individual whom they cannot control but which reflects on the company and the brand, but it also serves to highlight the importance of having such measures in place before the controversy arises. Most, if not all, of the sponsors involved in the Tiger Woods saga were caught on the hop and, while nobody could have been expected to predict the controversy, it is crucial for sponsors to have an action plan and team in place to cover a variety of possible concerns which can be implemented quickly and adapted to the specific circumstances that arise.
There are also ways in which to minimise the risks before entering into a sponsorship or endorsement agreement with an individual. A sponsor should always ensure it chooses its partner wisely and carries out significant due diligence beforehand.
Secondly, the sponsor must ensure that it has adequate contractual provisions in place to enable it to withdraw from of a sponsorship deal if necessary and also needs to have a plan and team in place to communicate such withdrawal to the media. Withdrawing from an agreement in certain circumstances may well be the correct approach but it can often be misunderstood or even seen as abandoning an individual at the very time that such support is needed and it is crucial that sponsors properly communicate their reasons.
Thirdly, sponsors need to actively monitor the attention a sponsorship deal receives in the media – in particular social media. The key is to act quickly. A sponsor’s corporate reputation is usually collateral damage when these controversies arise, as it is the event or individual that is under attack but the sponsor is inevitably caught in the cross fire. Sponsors can take steps to minimise this damage by managing publicly available information and taking steps to deal with damaging information appearing online. In addition to managing the media and making sure action is taken to correct inaccurate stories in the press or stop publication altogether if made aware of the potential publication.
If something does go wrong then the key is to act quickly and decisively. As noted above the sponsor has a choice – to ‘pull the plug’ on the whole sponsorship or stand by the event, team or individual. Which route a sponsor takes will depend on a number of factors including the nature of the allegations and the longevity of the relationship.
If the decision is to stand by the event, team or individual then a sponsor should actively manage the allegations and begin to distance itself and its business values from the allegations, even while expressing its support for the partner. Sponsors will sometimes find that standing by an event, team or individual during the tough times can win it plaudits and significant economic and reputational benefits further down the line as is evidenced by the relationship between Nike and Michael Jordan, which has seen difficult times.
Sponsors need to be acutely aware of what corporate or brand values they are seeking to communicate by entering into a sponsorship or player endorsement agreement because this will not only determine which event, team or individual to partner with, it will also determine how the sponsor should react to different crises. Without being aware of which reputational aspects the sponsorship is intended to highlight, it is difficult to know if the particular conduct in issue will damage the sponsor’s corporate reputation.
Any corporate sponsorship carries with it high risks but also potentially high rewards. The sponsor is giving up control over its corporate reputation, and the question is how much should you give up and who/what do you give it to. Sponsors must be aware of the risks and ensure that it is ready and able to respond to with any issues that arise, and to do so quickly and decisively before it is too late and irreparable damage is caused.
