Football’s rapid commercialization and reach into new regions calls for a new kind of defense.
In today’s interconnected environment, the necessity of thorough due diligence in managing reputational risk extends to all businesses. Even a behind-the-scenes distributor of industrial supplies would suffer reputational damage if its goods ended up being used, for example, in chemical warfare. But reputational due diligence is particularly critical when brand equity is central to the value of the business. And there is probably no sector in which that is truer than professional sports. In sports, the brand is the business.
Football (soccer) provides a vibrant illustration of the importance of taking measures to protect a club’s image. This is not only because of football’s popularity but also because the sport is undergoing a rapid commercialization. In some cases, such as England’s Premier League, clubs have been signing a series of lucrative sponsorship deals. Elsewhere, in markets such as Brazil, rising operational costs, combined with challenges stemming from a tradition of non-professional management, have led to a hunt for new sources of revenue.
Kroll’s investigations on behalf of sports clubs have uncovered potential sponsors whose senior principals have been accused of money laundering, fraud and other criminal activity.
A Recipe for Reputational Risk
All sponsorship arrangements, like any third-party relationships, carry relationship risk. However, the current commercialization of football magnifies that risk for a number of reasons. The first is the nature of the football sponsorship market. While there are some global, well-established companies that seek agreements with football clubs, top-tier brands have many other advertising opportunities available to them. This means that the pool of potential football sponsors also includes organizations that aspire to a global audience but vary in their ability to reach that level of exposure. Indeed, many of those enterprises want to associate themselves with a football club precisely to gain greater prestige. Some may even be exploring club sponsorships for the first time.
This isn’t to say that many of these companies aren’t legitimate or wouldn’t make good corporate partners. But that can only be determined by conducting thorough due diligence, and there is more than reputation at risk. For club sponsorship to be meaningful, it must be long term. Clubs need independent verification that a potential sponsor is in no danger of going under, that it has the financial resources that it claims to have and that those funds are from reputable sources—none of which can be taken for granted.
The Factory That Wasn’t There
Due diligence can result in eye-opening revelations. Kroll’s investigations on behalf of sports clubs have uncovered potential sponsors whose senior principals have been accused of money laundering, fraud, and other criminal activity. In one case, a major British football club asked Kroll to conduct due diligence on a manufacturing company in the Far East that was hoping to become a sponsor. In addition to examining corporate filings, media references and court records, the Kroll team spoke with local sources familiar with the company and made discreet visits to the factory to observe how the business was actually run. Far from being the stable enterprise the company claimed to be, the business was on the brink of insolvency; the manufacturing plant had closed and the owner was at the center of multiple Ponzi scheme allegations.
Having the Right Backfield Support
Many clubs are pursuing sponsorships more aggressively and farther afield than ever before, making thorough due diligence all the more necessary. Clubs without experience in conducting extensive on-the-ground research and reputational inquiries are at risk of becoming ensnared in undesirable or unstable commercial relationships.
The disadvantages of inexperience are often multiplied by a sense of urgency. Just as little-known companies have strong motivations to land high-profile sponsorships, football clubs are eager to establish a presence in untapped markets such as Africa and the Middle East. But while these regions present great potential for expanding a club’s fan base, clubs often lack an understanding of local nuances, including which companies and individuals they should avoid. The combination of a finite number of clubs and a finite number of desirable, viable sponsors all pursuing deals can result in clubs taking action before they have gathered all the details they need to make a fully informed decision.
The commercialization of football has the potential to broaden the reach of what is already the world’s most popular spectator sport, provide companies with an invaluable platform for reaching new audiences and give clubs an important channel for monetizing their brand. As this process unfolds, it is critical that clubs protect their most valuable asset—their reputation. Due diligence that looks beneath the surface to generate real insight into potential partners can help clubs avoid damaging missteps while providing them with the confidence to enter into relationships that provide substantial long-term benefits.
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