SBJ/Jan. 24-30, 2011/Opinion

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  • Understanding why sponsorship continues to grow

    “They’re like sleeping in a soft bed. Easy to get into and hard to get out of.”
    — Hall of Fame catcher Johnny Bench, speaking on slumps

    As the recent economic fallout settled in globally, but particularly in the United States, cutbacks in consumer and corporate spending were observed in numerous settings. And yet, despite the doubts and concerns of chairmen, CEOs and COOs, and despite bottom-line blame placed on numerous CFOs, researchers, marketers and sales staffs, sponsorship kept growing.

    It’s been an interesting conundrum (as Newman of TV’s “Seinfeld” might say), because as 2011 begins and we watch CEOs (across the U.S. and Canada) increasingly announce improved quarterly results, the marketing budgets of most organizations appear radically different from five years ago. Just look at the reductions in hospitality budgets or companywide moratoriums on travel to corporate-sponsored events.

    This has meant that, like crazed, wild-haired scientists, we’ve been obligated to ask, “Why is it so?”

    The two most-read analyses of sponsorship spending in North America — IEG’s Sponsorship Report and the Canadian Sponsorship Landscape Study — both noted that although there was reduced growth rate in companies’ investment in sponsorship, it continued to grow (or, at least not contract to any great extent) in 2009 and is expected to grow again in 2010 in the U.S., Canada and globally.

    Likewise, the PricewaterhouseCoopers’ hospitality and leisure sector report for 2010-13 suggested that sponsorship would remain the fastest-growing global sports sector, eclipsing gate revenue, media rights and merchandising by a compounded annual growth rate (CAGR) of 4.6 percent.

    All of these studies are supported by happenings in the marketplace. The IOC last year announced two new first-time TOP sponsors (Dow Chemical and Procter & Gamble) to its stable of partners, now at 11, who commit an estimated nine figures each quadrennium for the rights to associate with the Olympic Games. Rumors abound that a 12th TOP sponsor will be added in 2011.

    In Russia alone, MegaFon ($260 million), Rostelecom ($260 million), Aeroflot ($180 million), Rosneft ($180 million) and Volkwagen ($100 million) are readying five-year plans to inject nearly $1 billion into the Sochi 2014 Olympic Games. This outpouring of financial support from national partners continues the trend established for the Vancouver 2010 Games, where a reported $750 million was contributed by Canadian sponsors.

    How, we ask, is this possible and why is it happening?

    First, sponsorship works. There are dozens of academic studies and hundreds of professionally produced evaluations backing this up. Sponsorship is an effective tool to reposition brands, alter consumer perceptions and increase sales. In fact, one of our Ph.D. dissertations found more than 150 objectives that marketers had established as reasons to invest in and embark upon a sponsorship.

    Second, sponsorship works efficiently. By this, we mean research has shown the effectiveness of sponsorship to reach specific target markets through association with properties that resonate with those markets. Think Burton Snowboards, Shaun White and snowboarders, or Gillette, baseball and men who shave.

    Third, sponsorship works better than advertising. Although debate still exists over the difference between advertising and sponsorship, there is general agreement among many that the two marketing tools are notably different and play different roles.

    These three theories support the argument that it is the association differentiating sponsorship from advertising. The old saw has been that advertising is one-dimensional and nonpersonal, whereas consumers who follow sponsorships see the sponsor, the sports property and the linked association between them.

    Quite simply, as the consumer is exposed to the association, images are more easily transferred from sponsor to property and vice versa. Conversely, in a (typical) nonintegrated advertisement, the consumer sees the advertisement (often shown during a sports event or on a sports website) but without a compelling association to the property. Each has its advantages and disadvantages, but most will agree that sponsorship is a hybrid form of advertising.

    Fourth, sponsorship appears to be more fun, with hospitality, backstage passes and locker room visits, plus it can be staged to incorporate a social responsibility hook to aggressively assuage the guilt that accompanies massive investments in activities that appear (to some) socially trivial. In other words, sponsorship can benefit a charity while executives tour the pits or drop the ceremonial first puck.

    But all is not perfect in the sponsorship world, and PwC notes that the mercurial economy “has focused a rising proportion of attention and spending on the biggest sports brands with global reach and pulling-power.” This means “mid-level brands [properties] have found it harder to attract major sponsors while sponsorship of the smaller local sports brands has been hit [hard] by potential backers reducing discretionary spend in the economic downturn.”

    To be sure, it is notable that sponsorship continues to grow and in North America will reach a CAGR of 5 percent in 2012 and 5.6 percent in 2013. The question for many is whether the biggest fish (NFL, IOC, FIFA, EPL, UEFA, etc.) will leave the minnows high and dry.

    We’ll also have to watch to see if player strikes, owner lockouts or terrorism change sponsorship’s trajectory.

    Rick Burton is (rhburton@syr.edu) is the David B. Falk Professor of Sport Management at Syracuse University and the former chief marketing officer of the U.S. Olympic Committee. Norm O’Reilly (norman.oreilly@uottawa.ca) is an associate professor of sport business at the University of Ottawa.


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  • Immigration law demands close attention to players’ status

    In April 2010, Arizona enacted legislation aimed at taking a stricter approach to enforcing immigration laws. A nationwide debate ensued, with some claiming that the law was discriminatory while others claimed that it protected U.S. jobs. Regardless of your political view, the Arizona immigration laws affect any person, sports team or entity that visits Arizona for work or pleasure. Furthermore, with South Carolina, Pennsylvania, Minnesota, Rhode Island, Michigan, Georgia, Mississippi, Nebraska and Oklahoma recently introducing laws similar to what passed in Arizona, there is a very real chance that you will be affected by an Arizona-type law in the future even if you or your team’s players do not travel to Arizona.

    The Arizona legislation introduced numerous laws regarding a person’s immigration status. The following six provisions affect those in the sports world the most:
    Protest
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    A controversial law in Arizona has elicited protests and challenges, but still requires sports teams to better manage player work authorizations.


    1. Allows state law enforcement to enforce immigration laws.

    2. Requires law enforcement during a lawful stop, detention or arrest to affirmatively try to determine a person’s immigration status.

    3. Makes it a misdemeanor for a non-U.S. citizen to willfully fail to carry documentation showing immigration status.

    4. Makes it a misdemeanor to encourage one to enter or remain in the country illegally.

    5. Allows law enforcement to make an arrest without a warrant if there is probable cause that the person is “removable” from the United States.

    6. Requires Arizona-based employers to track employee work eligibility through the E-Verify system.
    Following the passage of the Arizona law, the U.S. Department of Justice sued for an injunction. Numbers 2, 3 and 5 were enjoined, and the matter is pending before the U.S. Court of Appeals for the 9th Circuit. All of the other provisions of the law are in effect.

    Despite the U.S. Court of Appeals decision to temporarily block Arizona from implementing integral parts of the bill, states across the country continue to push ahead with laws similar to what was passed in Arizona. To fully understand why these laws are scary for any non-U.S. citizen or entity employing a non-U.S. citizen to work or visit Arizona, it is important to start by looking at the term “illegal alien.” This term invokes a picture of someone arriving in the United States on a flying saucer. In reality, an illegal alien can be anyone who:

    • Works in the United States without work authorization.

    • Overstays a visa.

    • Does not properly follow the visa process and is in the United States without a proper visa.

    • Enters the United States illegally.

    • Does some other act, either intentionally or accidently, that results in that person being in the United States illegally.

    Therefore, an illegal alien is not always a person who enters the United States illegally. Instead, it can be a person, such as a professional athlete, whose visa process was done incorrectly and plays in games for your professional team and gets paid to do so.

    Even though only some provisions of the Arizona law are in effect, sports teams and foreign athletes should be concerned now. If your team fails to properly sponsor athletes for visas, fails to properly renew players’ visas, or employs players, staff, or unpaid interns without proper work authorization, then your team could be subject to criminal and monetary penalties. Similarly, if your athletes or staff are in the United States with an invalid or incorrect visa or are working for your team when they should not be, they are subject to criminal and monetary penalties and possibly deportation.

    So how can you protect your team, athletes and staff from criminal or civil prosecution and deportation? Your team significantly lowers these risks by taking the following steps:

    1. Make sure that your foreign players are either U.S. citizens, green card holders or have a valid visa that authorizes them to work in the U.S.

    2. Understand the visa and green card process and know that your team is responsible for making sure that your players always have authorization to play for your team.

    3. Know the law. Make sure that you follow the laws in your state. Some states, such as Arizona, force employers to use E-Verify, an online government program that confirms work authorization.

    4. Educate your players and staff about the immigration system and what they need to know when they travel to the states where your team plays games.

    5. Hire immigration counsel that is familiar with the needs, demands and intricacies of a professional sports team.
    Sports is a fast-paced industry and lends itself to immigration violations. Often teams will pick the quickest path to achieving a goal, even if that path contradicts the law. In the immigration context, this is a dangerous approach.

    The recent emphasis in the field of immigration law is compliance, and the Arizona law is a perfect example of this. Taking precautionary steps now can save your team a major headache later.

    Keith A. Pabian (kpabian@hrwlawyers.com), an attorney at Hirsch Roberts Weinstein LLP, has represented professional sports leagues and franchises in visa and immigration matters and has worked with professional and Olympic athletes to procure U.S. lawful permanent residency.

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  • How contentious labor issues in sports compare to others

    Similar to many other industries, management and labor in many sports leagues use a collective-bargaining agreement to set forth the rules regarding how they will conduct business and resolve disputes with each other. A recently resolved 16-week strike involving 305 workers at a Mott’s apple processing plant in upstate New York makes for an interesting case of comparison as we monitor the ongoing CBA negotiations in both the NFL and NBA.

    A brief review of the facts surrounding the Mott’s strike: Mott’s is a subsidiary of Dr Pepper Snapple, a publicly traded company that realized a record net profit of $550 million and increased its dividend 67 percent last year over 2009. Citing the fiduciary duty owed to its shareholders and arguing that the employees were overpaid compared with other unionized manufacturing employees in the local economy, Mott’s sought a $1.50 per hour wage cut ($3,000 a year); a pension freeze for existing employees and no pension for new hires; a reduction of 401(k) retirement contributions; and an increase to the employees’ health care benefits costs.
    NFL stike
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    A sports league work stoppage, such as the 1987 strike that put NFL players on the picket line, could share some traits with the strike at a Mott’s apple processing plant in New York.

    Though the company never threatened to close, outsource or relocate its only U.S.-based apple sauce-producing plant, Mott’s hired replacement workers shortly after the strike commenced, and a judge found that there were no unfair labor practices involved in doing so. This shifted the leverage to Mott’s and ultimately led to a settlement for almost what was on the table pre-strike: a three-year deal, with no pension freeze (though new hires don’t get a pension; they do get 401(k)); a wage freeze instead of pay cuts; Mott’s 401(k) contribution being lowered to match the first 2 percent of employee contributions (it was 5 percent before strike) for current employees and 4 percent for new employees; a $1,000 signing bonus for each employee; and the workers now being responsible for 20 percent of health care costs.

    There are some notable similarities between the Mott’s strike and the ongoing disputes in the NBA and NFL as well as prior league CBA negotiations. There was plenty of acrimony both privately and publicly. Mott’s took out ads in local newspapers criticizing the union’s stance and chiding the workers for being greedy. Reminiscent of Cowboys general manager Tex Schramm’s infamous quote during the 1989 NFL labor negotiations (“Don’t you see? You’re the cattle, we’re the ranchers. We can always get more cattle.”),­­ a union delegate told The New York Times that a plant manager “said we’re a commodity like soybeans and oil, and the price of commodities go up and down. He said there are thousands of people in this area out of jobs, and they could hire any one of them for $14 an hour.”

    Usually companies seek to gain concessions when the industry or company is thought to be hurting and needs the concessions to survive, as has been argued by the NBA, NHL and MLB in past negotiations. However, both Mott’s and the NFL (though not the NBA) are currently highly profitable companies seeking concessions.

    Both the Mott’s strike and potential league labor disputes could have a significant impact on local economies. While reportedly 50 percent of the entire apple production of upstate New York orchards is purchased by the Mott’s plant, any league games not played affect local businesses to some extent (especially those dependent on game-day business).

    Finally, though neither Mott’s nor the NFL or NHL ever threatened to close, relocate or outsource its plant (or teams), the NBA has mentioned contraction as a possible recourse in its current negotiation, as did MLB in 2002.

    There are also notable differences between the negotiations involving Mott’s and the typical sports league. The cumulative wages earned by all of the members of a sports union typically represent what is far and away the largest expense for the members of the league. Athletes in the NBA, NHL, NFL, and MLB receive between 50 percent and 60 percent of the revenue generated by the leagues. This dwarfs the percentage of revenue that unions in other industries receive.

    The 305 unionized employees at the Mott’s plant earned a combined $9.8 million of the $5.5 billion in revenue for the parent company. In sports, the CBA is the basis for determining the parameters of a number of issues that are a fundamental to a league’s success. Having an agreement that makes fiscal sense for management is of utmost importance.

    There are notable differences in the union constituencies and marketplace, as well. Pro athletes earn significantly higher salaries over a much shorter career span. The Mott’s employees cede their right to negotiate salary as individuals to the union, where individual athletes have the parameters of their salaries set by the union but have freedom to negotiate in between these boundaries. The Mott’s employees all had relatively the same priorities at stake, whereas sports unions have much wider disparities in their memberships, with some members more focused on salary inflators and others simply focused on the pension, retirement benefits and minimum salaries.

    Unlike in many other industries, the superior talent of the unionized work force in leagues is easily recognizable to even the most casual fans. There is a very limited number of individuals with the skills to be pro athletes and they have more fan loyalty, which makes them essentially irreplaceable by replacement workers, as opposed to the Mott’s employees, who have no customer loyalty, little individual negotiating power and are fairly easily replaced, especially in a tough economy. This final trait provided Mott’s with the ability to hire replacement workers, who provided the company with leverage despite being a reported one-third as productive in the short term as the unionized workers. Leagues essentially shut down during work stoppages; other industries do not.

    Finally, it has been posited that Mott’s was an employer looking to take advantage of macroeconomic conditions by reducing wages because they thought that they could do so. This does not seem to be the case in any of the ongoing league negotiations.

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