Home Insights Sponsorship deals: Risks and rewards

Sponsorship deals: Risks and rewards

Read time
2  minute read
Date published
02 October 2018

Corporate sponsorships and celebrity endorsements are an important part of marketing strategy for many businesses, typically in the form of cash or in-kind support of an activity, event or individual. Brand owners can generate brand awareness within their target customer group and help shape consumer perceptions of the brand through these commercial arrangements.

When things go well, sponsorships and endorsements can be mutually beneficial, and the names go hand-in-hand. Think Nike and Michael Jordan; Adidas and David Beckham; and the 14 plus year association between Lancôme and Isabella Rossellini. Even fictional celebrities can be the subject of sponsorships – well known luxury watch Omega has been associated with the James Bond franchise for almost twenty years.

Events such as the Olympics would be virtually impossible to stage in their current form without enormous sponsorship deals, whilst many sports’ competitors depend on income generated through product or brand endorsements when prize money alone is insufficient to enable them to stay at the peak of their sport.

What are the risks?

But it’s not all smooth sailing, as associating your brand with a celebrity, organisation or event can be a risky affair. Adverse publicity in any form can tarnish a brand – even by association – and sponsors will be quick to distance themselves from actions that don’t align with their brand’s values.

Some examples in recent years include:

  • Lance Armstrong’s sponsors – including Nike – abandoned the disgraced cyclist once evidence emerged of his participation in doping;
  • Advertisers pulled support for Sydney radio personality Alan Jones following offensive comments he made regarding the death of the father of Australia’s then Prime Minister, Julia Gillard;
  • The Transport Accident Commission is a Victorian state government body responsible for road safety. It ended its sponsorship of one of Australia’s leading football clubs when one of the club’s players was charged with a drink-driving offence and lost his driver’s licence.

But sponsors also need to be aware of ambush marketing and other activities by competitor brands that can undermine the value of a sponsorship. Coca Cola ended its endorsement of Brazilian soccer champion Ronaldinho after he appeared at a press conference with a can of Pepsi. Many people assumed that Qantas was the official airline of the 2000 Sydney Olympics given its successful ambush marketing campaign which overshadowed the official airline sponsor, the now-defunct Ansett.

What can I do to limit the risks and maximise the benefits?

Whether offering sponsorship or being the sponsored party, we advise our clients to undertake a thorough risk assessment before committing to a sponsorship or endorsement deal, which requires the other party to sign a sponsorship contract to protect the value of their investment.

After all, a poorly drafted sponsorship contract can leave the sponsor trapped in a deal that causes ongoing damage to the sponsor’s brand. On the other hand, a person, team or organisation that relies on sponsorship funding may be left in a financially precarious position if a sponsor is easily able to withdraw funding at short notice.

A sponsorship contract should identify the precise scope of the rights, benefits and obligations of each party. Category exclusivity can be a critical issue for sponsors (as illustrated by the Ronaldhino example), and particular attention should be given to the sponsor’s right to terminate the arrangement – for example if the other party does anything to bring the sponsor’s brand into disrepute.