Avoiding the Perils of Sport Sponsorship

Sport sponsorships are effective techniques to:

• Target specific market segments
• Build relationships with consumers by aligning a brand with an athlete/team
• Increase brand recognition
• Enhance image through association with winning athletes/teams

Sport Sponsorship Risks

While there are numerous benefits to utilizing sport sponsorship as a marketing strategy, there are a number of risks to take into consideration first.

Risks:

• Scandal and negative publicity
• Injury and less than optimal performance
• Athlete/Team brand overpowers sponsor brand
• Negative impact on sponsor brand through association

Scandal and sport sometimes appear to go hand in hand. For this reason, it is important that an organization research the athlete or team before proceeding with sponsorship negotiations. Research may help avoid associating with an athlete or team before a scandal ever arises. Even if every precaution is taken to avoid an athlete or team with a scandalous history, negative publicity may arise from a completely unanticipated event. This negative publicity can be detrimental to the company image associated with the athlete/team scandal. Prior research has found that sport consumers negative attitudes toward sport celebrities can lead to negative attitudes towards brands associated with the specific sport celebrity.³

Injury can be a season ending, or even career ending incident that can negatively impact sport sponsorship. Sponsorship of an athlete or team that is no longer competing and being spotlighted counteracts the objective of the sponsorship, which is to gain recognition and increase publicity. In this scenario, sponsorship of a team may help limit the impact the injury has on the performance of the team, thus protecting the image of the sponsor.
Teams or athletes experiencing a performance slump may also negatively impact sport sponsorships. For example, a sponsor pays to endorse a team that is expected to make it far in a tournament or post-season but then it loses early. The ROI of the sport sponsorship is limited because the season ended sooner than expected. This early exit from an event limits the amount of publicity and thus the association that a sponsor can gain from the sponsorship.

In addition, if a team or athlete is experiencing an unexpectedly unsuccessful season this could reflect negatively on the sponsor who endorses what can be seen as a losing product.

Another potential risk is if the athlete or team overpowers the brand. This means that consumers remember the athlete but not your brand. A survey conducted to analyze celebrity endorsements revealed that “over 80% of the people remembered the celebrity but forget about the brand.”⁴ Sport sponsorships are seen as successful when consumers can connect the sponsor brand to the athlete/team.

Risk Management

There are numerous precautions that can be taken to limit the risks associated with sport sponsorship. Companies should research risk management strategies and decide which method(s) will help best protect them before entering a sport sponsorship agreement.

The inclusion of a morals clause, also called public image, good-conduct or morality clause, in sport sponsorship contracts can help protect the sponsor from potentially damaging publicity. The morals clause is a provision within a contract that permits the company to terminate the relationship in the event the athlete/team being sponsored does something to tarnish their image, and thereby the image of the product or brand being endorsed. The morals clause allows the sponsor to dissolve the link between the company’s brand and the athlete/team in the event of such negative and damaging publicity. A typical morals clause may read, if the athlete/team “commits any act” that “tends to bring him [or her] into public disrepute, contempt, scandal or ridicule,” or “tends to shock, insult or offend any class or group of people.” Morals clauses also prohibit conduct that “reflects unfavorably upon the Sponsor’s reputation or its products.”⁵

The inclusion of a purpose clause is another risk management strategy to ensure that sport sponsorships remain mutually beneficial. A purpose clause is a statement of intent that will outline the purpose/objective of the sponsorship for both parties involved. This will ensure that both parties are aware of what is expected of them and from the sponsorship itself.

Using key performance indicators can help ensure specific expectations of the athlete/team involved in the sponsorship. KPIs may vary depending on the type of sport sponsorship. Different KPIs may be expected of individual athletes versus teams, and will vary depending on the specific sport involved. Determining specific KPIs to utilize in a sport sponsorship can help manage risk by clearly defining expectations and objectives of the sport sponsorship.

Endorsement insurance is another way to manage the risk of a sport sponsorship. According to Phil de Picciotto, the president for athletes and personalities at Octagon, insurance on endorsement deals has become an increasingly popular risk management technique. This can protect the sponsor in the event of scandal or negative publicity. Dan Trueman, head of the enterprise risk department at R.J. Kiln & Company, stated that there was an eightfold rise in inquiries into endorsement insurance between September and December of 2009, revolving around the Tiger Woods scandal. It has also been shown that the more specific the language in the morals clause of a contract, the more expensive insurance is because there are more possibilities in which an athlete/team could violate the clause.

There are numerous strategies that can help protect a sponsor when they decide to enter the world of sport sponsorship. It has been shown that if the athlete or team has a large association set of sponsorships, then a negative event is not as detrimental to the sponsor brands. When an athlete or team is associated with a wide range of sponsorships it helps to protect the image of each brand. Another method is to sponsor numerous athletes across a variety of sports. This helps to somewhat weaken the link between the sponsorship and the brand. The point is not to weaken their positive impact on the brand but should an athlete or team draw negative publicity the negative impact can be diminished.

How to Proceed if an Issue Arises

In the event that negative publicity arises within a sport sponsorship, there are a few actions that can be taken. The sponsor can drop the sponsorship completely, retain the sponsorship and publicly show support, or retain the sponsorship but distance the brand from the athlete/team creating negative publicity.

There are potential benefits and consequences for each of the aforementioned ways to take action. Depending upon the perceived level of harm that the negative publicity may cause to the sponsor’s brand, the steps to take action may vary. While each case should be examined individually, studies have shown that consumers have relatively short memory spans when it comes to holding companies responsible for inappropriate actions of an athlete endorser. A study shows the impact that the Tiger Woods scandal had on the two companies, Nike and EA Sports, which chose to retain their sponsorship agreements with Woods.

At initial release of the scandal, these two companies suffered the greatest cumulative stock loss of 5.55%. The study shows that these two companies experienced the biggest initial negative impact from the scandal than the companies that chose to end their sponsorship deals with Woods. In spite of this though, the study shows that Nike and EA Sports appear to have recovered from those initial losses and that stock price reflects the perception of future profits and growth. This case demonstrates that an athlete or team facing negative publicity can be forgiven by U.S. consumers in a fairly short time.6 In addition, this case shows that the U.S. consumer public is relatively forgiving of companies that sponsor athletes or teams that incur the negative publicity.

Sport sponsorships can produce innumerable benefits but companies have to recognize the inherent potential risks. Fortunately though, these risks can be limited and prevented through numerous strategies. Companies should be sure to have a risk management strategy before entering a sport sponsorship agreement. The total worldwide revenue from sport sponsorships is predicted to reach $45 billion by 2015, showing that the rewards can be high as long as risks are carefully managed.¹

References

1. PricewaterhouseCoopers. (2011). Sports sponsorship: total revenue worldwide from 2006 to 2015.
2. Elberse, A. & Verleuni, J. (2011). The Economic Value of Celebrity Endorsements. Journal of Advertising Research.
3. Khatri, P. (2006). Celebrity Endorsement: A Strategic Promotion Perspective. Indian Media Studies Journal. Volume 1. Number 1. July-Dec. 2006.
4. Sanders, B. (2010). Morals Clauses Can Raise Tricky Issues in Sponsorships. Sports and Entertainment Law.
5. Bruneau, C. & Crawford, A. (2010). Is Tiger Out of the Woods? The Effect of Negative Endorser Behavior. Sport Marketing Association.
6. The Bedford Group. (2012). Agency Reference Database and Proprietary Research.