The potential pitfalls in football sponsorship

As I settle down to pen this article there is one topic dominating the news in the sporting world – the FIFA debacle.

At all levels the game of football has been moved firmly into the spotlight and, as part of this focus, some parties are now looking towards FIFA sponsors for comment and pressure.

This got me thinking about the potential pitfalls in sport sponsorship and what, if anything, can be done by sponsors when events such as those happening in Zurich hit the headlines.

A little research soon brought up some interesting conflicts that have arisen in the sporting world over the last fews years.

But first some statistics;
In 2011, the worldwide total revenue generated through sport sponsorship was $35.13 billion (according to PriceWaterhouseCoopers) and was predicted to steadily increase to over $45 billion by today.

The principal of sports sponsorship is to transfer the goodwill that supporters feel for the sport to the benefit of a brands equity and therefore any dilution of this message is not welcome from a sponsors perspective.

Not quite perfection.

Lets take, for example the winning goal in the 2010 FIFA World Cup?
Germany’s Mario Gatze 113 minute winner was a dramatic conclusion to the event but bitter sweet for the sponsors – wearing adidas kit but Nike boots, neither brand was able to fully capitalise on this captivating moment and therefore exact images of the moment were not subsequently used by either brand.

Of course it would have been a very different story if Gatze had poked in the winner wearing Predators or if Germany had been wearing Nike kit.

Sticking with football, it comes as no surprise that most sponsorship conflicts tend to occur between player agreement and team agreements.

Premier League
The Premier League model player contract (Form 26) contains provisions which obliges players to take part in official club events and promotional activities and attempts to anticipate how that should interact with the player’s own private endorsements.

One would anticipate that this ensures that the position is clear and that the player, whilst on club business, should wear the apparel relating to the club apparel sponsor, however in reality something as innocuous as a team photo can lead to direct conflict if a player has a separate apparel contract under their own commercial terms.
Neither party is in breach of contract, however there is no doubt that brand dilution and consumer confusion can occur in such circumstances.

Coca-Cola v Pepsi
Setting aside player versus club issues a 2013 Manchester United pre season friendly in Australia highlighted the importance of commercial sponsorships in football.
It appears, according to the Australian media, that Manchester United were willing to disappoint over 80,000 fans in Sydney in row over fizzy drinks.
Just 20 minutes before kick-off at the ANZ Stadium, United were refusing to take the pitch as long as the stadium’s giant screens were flashing up ads for Coca-Cola.
This was unacceptable to Manchester United’s commercial department who were on the brink of signing a multi-million pound sponsorship deal with Pepsi in the Asian-Pacific region.
The deal does not even include Australia, but United were not going to take any chances about offending Pepsi.
“Man U’s commercial department threatened that the team would not run out if the Cola-Cola sign stayed on the big screen,” an ANZ Stadium spokesman confirmed.
Coca-Cola are one of the main backers of the stadium which complicated the issue.

The Football Federation of Australia were even called in to help mediate proceedings and a compromise was finally reached where all Coke ads were replaced by ads for Mount Franklin water – another Coca-Cola Amatil product, but not a direct rival to Pepsi.

The Tiger Woods Scandal
In recent times the Tiger Woods scandal further highlighted the perils of brand association with disgraced athletes.

The Bedford Group recently reported on a US study following the breaking of the Woods story and the direct commercial impact that it had on two of the key sponsors that chose to stick by their man – EA Sports and Nike.
The study, conducted by Bruneau, C. & Crawford, A.(2010) concluded that, 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 also 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.
The case demonstrates that an athlete or team facing negative publicity can be forgiven by U.S. consumers in a fairly short time and overall, that the U.S. consumer public is relatively forgiving of companies that sponsor athletes or teams that incur the negative publicity.

Conclusion

Its clear then, that as sport and leisure becomes increasingly important, that sport sponsorship looks set to grow even further.

Being involved directly in the sport, many of us can recall the benefits of having the right athlete at the right time – think, for example, Freddie and KP for Woodworm or Nadal & Roddick for Babolat – sport sponsorships can clearly produce innumerable benefits but companies have to recognise that there are inherent potential risks.

Who knows what the FIFA fallout will be and it the likes of VISA, McDonalds, adidas and others will be forced to rethink their football sponsorship strategy.

What is clear is that companies should be sure to have a risk management strategy before entering a sport sponsorship agreement and be fully aware of the pitfalls that may arise.

Private label – an opportunity open even to the smallest

In recent years the own brand, or private label, phenomenon has been making big headlines.
In grocery Aldi and Lidl continue to make huge strides with their combination of a small targeted number of branded products sitting alongside their own private label offerings.

In our own sporting goods industry many of our successful retailers follow a similar model.

Over time Sports Direct, for example, has grown its own label strategy by purchasing distressed brands and then selling them at a discount within the stores thus making a manufacturer to retail margin (as opposed to a manufacturer to wholesale margin).

Decathlon (still the worlds biggest retailer of sporting goods) uses exactly the same strategy but this time has simply pushed its own brands so much over time that they have in their own right become brands.

The trend can be seen right through our trade with the likes of JD Sport, MandM, the Intersport group, DW Sports and others all finding the right mix between the international brands and their own brands to boost margins and to provide a point of difference to the end consumer.

Online retail specialists, such as Wiggle and StartFitness are also getting in on the act

Consumers demand brands for the quality assurance and emotional satisfaction, however it is becoming ever more apparent in the sporting goods market that these brands do not have to be manufacturer brands.

The Decathlon Approach
For twenty years Decathlon followed a single brand policy with great success.

Today, the Decathlon Group has moved on from this approach and created specialised brands each one of them positioned on a precise sporting branch of industry: b’Twin, for example, specialises in mountain bikes and road bikes; Wedze in boardsport on snow, and Kalenji in walking, running and cross-country running.

Together, these “passion-brands” make the Decathlon group one of the first ten world’s manufacturers of the sector behind Quiksilver, Nike, Adidas, Timberland, Columbia, Salomon, The North Face and Patagonia

Interestingly this strategy has also allowed Decathlon to not only compete at the “mass market” end of the market but, by siting these “passion brands” in the areas where the product development teams can embrace the sport (e.g. in the mountain or by the sea) they have been able to create technically excellent products at higher price points with higher margins that can credibly compete against the international sporting goods manufacturers.

The Sports Direct Approach
If we compare the SDI approach with Decathlon the “passion-brand” approach has been developed not by stating from scratch and building up the brand through in house teams but, predominately, by acquisition.

This results in the lines between “international brands” and in-house/private label brands becoming blurred – arguably a good thing as the consumer is often presented with a “branded” product at an exceptional price unaware that the brand is, in fact, owned by SDI and to all intents and purpose is thus a private label.

The challenge and opportunity facing SDI is to develop the higher margin and higher price point end of the business by producing more technically acceptable product. This is easier to achieve if the acquired brands (e.g. Dunlop and Slazenger) have a heritage that allows price points to be pushed, however Decathlon appears to have a distinct R&D advantage over its rival in this area at present.

The Independent Retail opportunity
With this approach of private label business sitting alongside core branded lines set to continue in the near future the question is whether the smaller sports retailers are able to take advantage of this trend.

Clearly there are several areas to explore when considering an own label approach and these factors are often the main barriers to the smaller independent retailer looking at the topic more seriously:

Expertise
Problem: You have no experience at all in dealing with factories, product design, importing etc.
Solution: Use a reputable agent or company that has expertise in this area, a proven track record and can site examples of the work that they have done and provide testimonials from past and current clients.

Minimum Order Quantities (MOQ’s)
Problem: As with any product line MOQ’s will apply based on a variety of factors such as material used, size of factory, type of item etc etc. Often these MOQ’s can be very high compared to the sale opportunity and thus the project cannot proceed.
Solution: Club together with fellow minded retailers and spread the MOQ amongst the members. This results in all the advantages of improved margin, points of difference etc but without the excessive cash flow risk.

Warehouse Space
Problem: small retailers do not often have the storage space to store large quantities of products and are used to operating a “little and often” business model.
Solution: rent some small space for a limited period time using cost effective businesses such as Big Yellow Storage.

Lead Times
Problem: lead times, particularly from the Far East can be as much as 4-6 months depending on factors such as time of year, type of product being manufactured etc.
Solution: Often this issue can simply be solved by improved planning. Once you get into the mindset of long lead times the business can be planned accordingly.

As my own business has begun to address these issues on behalf of clients we have seen for ourselves not only the ease with which many of the issues can be overcome but, more importantly, the additional revenue and margin gains that these businesses have experienced through developing their own brand strategy.

Some clients have progressed from taking generic branded products (such as a basic t-shirt or hoody) and adding some branding and changing the back neck label to trial the idea, whilst others have taken the leap having the confidence to commit to, for example, 1000 sock tri-packs knowing that, based on past sales history, that the stock can be sold.

Whatever your approach it is clear that, when done effectively, the own brand strategy can reap rewards.