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Talking Business: Scandals have taken the shine off sports sponsorship

In the face of doping scandals and match-fixing and cover-up claims, is sports sponsorship as attractive for brands as it once was? They now find themselves forced to decide. 

In 1936 Adidas founding father Adi Dassler hand-crafted a pair of running spikes for American track and field athlete Jesse Owens to wear in his historic performances at the Berlin Olympics. It became one of the most famous sporting and cultural moments of the 20th century and launched Adidas as an international brand. From that moment, sport became a highly effective vehicle for brands to engage with a global audience of impassioned fans.

However, since the days of Owens, sport has become an increasingly complex and lucrative industry, not least because of its ability to act as a platform with phenomenal reach – and possible returns. The stakes have been raised on and off the playing field. Sport still produces many moments of glory and shared joy, but lately the back pages are being filled with scandals involving corruption at FIFA, doping and cover-ups at the IAAF (International Association of Athletics Federations), and match-fixing – and more recently drugs cheating – in tennis.

Some even believe that the scale and depth of the wrongdoing will turn fans away for good

There have been scandals in sport before now, but this most recent spate has been at the highest levels. It has raised serious questions about the way that sport is governed and regulated, and the individuals in charge. Some even believe that the scale and depth of the wrongdoing will turn fans away for good.

In an era of 24-hour news, social media and corporate social responsiblity, these scandals have also posed difficult questions for the sponsor brands involved. Consumers, politicians and the media are placing intense pressure and scrutiny on sponsors to tackle complex ethical challenges and force changes to the way that sport is governed.

Sponsors are akin to investors in these sports. They have had to analyse how these scandals have impacted on their brand image and consumer relationships. They also need to decide if taking a stand on an issue is more important than protecting the very significant investments they have already made in the relevant sport which is affected.

Sponsors and commercial partners will increasingly question whether sport and its athletes, as promotional vehicles, remain a sound investment

Some high-profile sponsors have chosen to walk away. Following the 2014 FIFA World Cup, Emirates, Sony and Castrol quietly elected not to renew their association with the beleaguered federation. Nestlé terminated its sponsorship of the IAAF, citing the doping and corruption scandal as its reason for doing so.

However, some big-name global sponsors of FIFA and the IAAF have decided to stick with them. One can only speculate on their reasons, although for many the potential commercial upsides of staying on board, together with the legal risks involved in terminating contractual relationships, may have outweighed any negatives in not taking a moral position.

To the surprise of many, sponsors such as Visa and Adidas have publicly and strongly voiced their concerns, and engaged with the relevant federations to seek change. Although this reflects on the magnitude of the scandals involved, it also shows that sponsors now recognise that they can – and sometimes are duty bound – to leverage their standing in the sport for the better.  

It is too early to know if this signals a genuine and long-term change to the rights holder/sponsor relationship dynamic, although sponsors and commercial partners will increasingly question whether sport and its athletes, as promotional vehicles, remain a sound investment. From now on brands will enter into sponsorships with their eyes wide open to the risks involved. And they must have in place clear and detailed PR, commercial and legal strategies to deal with any future fallouts, as well as a clear and flexible contractual framework in which to operate.

Being able to exit without further cost is no longer a “nice to have” – it is an absolute must. The goalposts have moved.

By James Earl, partner at Pinsent Masons’ global sports group, with assistance from senior associate Julian Moore

 

 

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