Mon, Jul 15, 2019

How Can Football Clubs Mitigate Reputational Risks When Evaluating Sponsors?

Come the start of the season in August, many British football teams will take to the field with new sponsors – both on their shirts and around their stadiums.

If recent trends continue, many of these sponsors will be from overseas jurisdictions and, as a result, British football supporters might know little about them.

Whilst it is one thing for club supporters to be in the dark about the operations, people behind and sources of funds of the sponsors, it’s another thing entirely for the club executives who accept the sponsor’s money.

It’s easy to accept at face value the integrity of the sponsor when they are a well-known and widely-reputable company. However, many of the companies that sponsor British football clubs today are neither registered or known in the UK and do not target consumers here.

The commercial landscape of British football has changed beyond recognition since the Premier League began in 1992. Back then, some clubs still wore the names of local companies on their shirts. Some were sponsored by global corporates, and the brands were well-known in the UK – such as JVC, the sponsor of Arsenal.

Today, a smaller number of the shirt sponsors of Premier League and Championship clubs are household names in the UK. British clubs, benefiting from the global popularity of our leagues, now bear the names of sponsors targeting consumers watching in other countries globally.

This is best evidenced by the growth in sponsorship from gambling firms located in what would traditionally be described as “emerging” jurisdictions. At the start of the 2018-19 season, nine Premier League and 17 Championship teams wore the names of betting firms on their shirts, with several other clubs striking deals to promote gambling firms in their stadiums or on their websites.

With the branding of some of these gambling firms – and indeed other sponsors – displayed on the club shirts and around the stadiums in their local languages, they are marketed at consumers overseas who watch British football on TV.

While the financials behind the deal might look good, and the deal may have been structured in such a way to ensure the club will get paid upfront, there are other things to consider beyond the immediate uplift in the balance sheet.

Today’s socio-political climate means there is greater interest than ever before in non-financial information – that is, the ethical, cultural and behavioral standards of a business. Indeed, a well-performing company with a strong market performance can have its valuation and reputation devastated by an ethical, cultural or behavioral scandal.

Sport is not immune to this growing interest. We have seen on numerous occasions how the fallout from ethical scandals can have a detrimental effect on the reputation and perceived value of a brand. Take, for example, how some sponsors abandoned FIFA during the bribery scandal, or how sponsors quickly part ways with athletes who are found to have taken performance-enhancing drugs or engaged in morally inappropriate or criminal behavior.

The question we do not yet know is, to what extent would a club’s brand be affected should they be associated with a company known to have a chequered background or questionable ethical position.

Today, executives at a football club – similar to those in non-sporting businesses such as listed corporates, private equity funds or investment banks – might be taking into consideration a whole range of non-financial issues before aligning the club’s brand to a commercial partner.

Who – or what – is behind the company? Is the business all that it purports to be? What are its business practices like, in its domestic market? How does it treat its workers? Is the business funded through the proceeds of crime? Is it operating in gray markets? Is there anything it does that might seem unsavory to the club’s supporters or other sponsors? Does the sponsor simply want an association with a football club to boost its credibility?

Looking at these emerging jurisdictions for sponsorship is the obvious direction for clubs seeking to maximize their commercial revenue. Not only do such deals provide a good form of revenue, but they also help promote the brand and engage with potential new supporters around the globe.

However, dealing with unknown counterparties carries inherent risks; when a club agrees to a ‘blind’ deal with a partner, the greater the potential exposure to reputational and financial damage. The solution: thorough due diligence before making the deal.

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