SBJ/May 27-June 2, 2013/Opinion

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  • Are big numbers masking competition for sponsorship dollars?

    Editor’s note: This is the first of a two-part column about sports sponsorship.

    There’s a song by Mary Chapin Carpenter called “I Feel Lucky,” where she notes in the lyrics that “the stars might lie, but the numbers never do.” We wondered if the same axiom held for discussions about sports sponsorship in North America. Is it possible the numbers are lying?

    On one hand, the annual IEG pronouncement or the more detailed Sponsorium Report (which came out in February) have suggested more money is being spent on sponsorships every year. The Canadian Sponsorship Landscape Study, now collecting data for its extensive seventh edition, says the same and emphasizes sponsorship’s growth (up 43 percent since 2006) despite tightened marketing budgets in the post-2008 global banking recession era.

    However, this growth in sponsorship is not necessarily the same for sports as it might be for sponsored cause-marketing, festivals/fairs (annual events), concerts, education or the arts. In fact, Sponsorium notes the fastest-growing sector of sponsorship was trade shows (up 40 percent) and that sports partnerships were declining in their share of the sponsorship market.

    This finding is backed by CSLS, which notes that other areas — primarily festivals (up 12 percent change in 2012 versus 2011) — have been taking a larger chunk of the sports sponsorship’s (down 13 percent) slice of the pie. Further, sponsors are telling us (through their actions) that their sweet-spot for ROI is also moving, with festivals tying professional sports as the top source of acceptable ROI for properties, according to the CSLS in 2012. Up to that point, professional sports had always held top billing.

    Granted, more money is still spent on sports sponsorships than in any other area, but no one working in sports should neglect the fact that sports’ share of the sponsorship investment graph is shrinking. It’s a lot like schools and sports clubs a few years back thinking there were no problems with youth physical inactivity and membership rates because there was a bulge created by baby boomers’ kids that was hiding certain realities.
     
    In the same way, sponsorship numbers in sports remain healthy and are even growing slightly thanks to the overall growth of sponsorship. But just like sports clubs needed to worry as Gen Xers chose less active lifestyles and didn’t back-fill their ranks with offspring, sports properties need to seriously look at arts, festivals, events and causes as their competitors for corporate dollars and creatively up the ante.

    But let’s be clear. We’re not shouting “the sky is falling,” but rather we’re observing unusual atmospheric conditions.
    So here are two questions to consider: Is the current North American sports landscape oversaturated? And, given that the majority of sporting mega-events will take place in other parts of the world for the next decade (Olympics, FIFA World Cup, Rugby World Cup and basketball world championships), is it possible less money will be spent on North American sports (per global capita) than in other parts of the world or even when compared to other forms of sponsorship?

    Perhaps.

    And isn’t it possible that in an age of environmental uncertainty, that sponsors have been modestly successful at signing long-term contracts with their mega-event (or mega-league) partners allowing for a true “smoothing” of their cash outlay?

    There’s no shortage of sponsorship revenue for the EPL, but smaller properties are attracting greater sponsor interest.
    Photo by: GETTY IMAGES
    We went back to recheck some numbers.

    The English Premier League reportedly will increase sponsorship income by 50 percent during the next four years. And that position (for 2013-16) represents a 106 percent increase versus the four-year window of 2007-10. No “skyfall” over there.

    Interestingly, the CSLS (as a representative sample of sponsors, properties and agencies) tells us annually that the vast majority of sponsorship spending is not on the mega-properties but on hundreds of national, regional and local properties. In fact, some 70 percent of sports sponsorship spending is on these types of smaller partners. And there, we believe, the rubber has left the road.

    Properties are telling researchers that sponsorship works best when they are able to touch people, have potential customers experience their products and services and find platforms that relate to them in a meaningful (i.e., local) way.

    So maybe the numbers don’t lie … or haven’t misled us at all. But the sports industry may do well to listen to what’s going on out there. If you are a sports sponsorship seller, it may be time to hone your sponsorship sales strategies and take back market share from other non-sports properties.

    We know sponsorship, in general, and sports sponsorship, specifically, works. We know it performs well in tight (or boom) economies. But at the moment, it is very possible sports are getting beaten off the bounce by other sector types.
    Certainly, it’s not our job, nor the job of this magazine or any single sports property, to wave the flag for sports sponsorships. But if we had our way, we’d ask who is keeping an eye on the weather charts or compiling the next decade’s almanac.

    From where we sit, sponsorship sector dominance for sports may be up for grabs in a few years, and if that day arrives the numbers won’t lie. Rather, they will tell all.

    Rick Burton (rhburton@syr.edu) is the David B. Falk Professor of Sport Management at Syracuse University. Norm O’Reilly (norman.oreilly@ottawa.com.ca) is a professor of sport business at the University of Ottawa and senior adviser at TrojanOne.

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  • Cartoon: Back in the Hornets nest

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  • From the Field of Sports Law

    Owners and executives of U.S. sports teams located outside California may be encouraged by a recent ruling that denied access to the state’s generous workers’ compensation system to a retired professional athlete whose teams played the vast majority of their games in other states.

    In Dennis McKinley v. Arizona Cardinals, California’s Workers’ Compensation Appeals Board declined to exercise the state’s jurisdiction over the case, in effect upholding the terms of the athlete’s original contract with the team. The contract states: “… Claims for workers’ compensation shall be filed with the Industrial Commission of Arizona, and the parties agree that they shall be subject to the workers’ compensation laws of the State of Arizona, and of no other state.”

    In this case, McKinley spent his entire four-year career (1999-2003) as a professional football player with the Arizona Cardinals. He was not a California resident, entered his employment contracts in Arizona, and played only seven of his 80 professional games in California, along with a five-day training camp.

    When a trial judge ruled in favor of the Cardinals, the player’s counsel appealed. The Workers’ Compensation Appeals Board subsequently held that while California technically has jurisdiction over the Cardinals and the player’s claim, it may decline to exercise that jurisdiction when there is a “reasonable mandatory forum selection clause” (such as the clause in McKinley’s contract with the team).

    Although California’s labor code has an exemption for employers who meet certain criteria, the board did not affirm that the court should automatically exercise California jurisdiction if the employer cannot meet those criteria. The Workers’ Compensation Appeals Board in the McKinley case acknowledged the defendant failed to introduce evidence for such an exemption, but continued analyzing the issue of jurisdiction.

    Ultimately, the board’s ruling that California jurisdiction did not apply hinged on two factors:

    1. The forum selection clause in the Cardinals’ contract: The parties had already agreed on a forum convenient and reasonable to both (and the board had a prolonged discussion as to why Arizona was the best forum).

    2. The board repeatedly stressed the applicant’s limited connections with California (only seven games out of 40 out-of-state games stretching over 16 states, and an additional 40 games in Arizona) as a reason to decline jurisdiction.
    Significantly, the board deemed forum selection clauses to be presumed valid, unless:

    They were the product of fraud or overreaching (assuming the contract is valid).

    There is not a reasonable forum for workers’ compensation for the applicant.

    The forum is not convenient for the applicant.

    The clause is contrary to California fundamental public policy.

    The decision affirms that the appeals board can decline to exercise California jurisdiction over certain workers’ compensation cases. However, in cases involving California-based teams or contracts formed in California, the board will likely enforce California jurisdiction.

    McKinley’s counsel has appealed the decision with the California Court of Appeals. Even so, the door may be open for non-California sports teams, their workers’ compensation insurers, and other defendants to argue the court should not exercise jurisdiction for out-of-state players for out-of-state teams, even if there is no forum selection clause.

    McKenzie’s appeal to the California Workers’ Compensation Appeals Board was recently rejected.
    Photo by: GETTY IMAGES
    Subsequent to the decision in McKinley, the appeals board issued another decision in the case of Michael McKenzie v. Green Bay Packers. There, the McKinley analysis was applied and the appeals board declined to exercise California jurisdiction on account of the forum selection clause. McKenzie played for the Packers and the New Orleans Saints from 1999 through 2008, and during his career, participated in a short training camp and approximately nine to 12 games in California. He was not a California resident and did not sign his contract in California. He started his career with the Packers and was traded to the Saints in October 2004, but did not sign a new contract with the Saints until July 2005. All contracts included a forum selection clause for Wisconsin and Louisiana, respectively.

    The trial judge declined to exercise California jurisdiction and the player’s attorney appealed, arguing that after McKenzie was traded from the Packers to the Saints, the forum selection clause of the Packers contract was void as a new contract with the Saints was not executed until July 2005. This argument was rejected.

    Also in McKenzie, the appeals board rejected the application of the “relation back doctrine.” This doctrine typically allows an injured worker to search backward through his or her employment history until an employer is found with sufficient workers’ compensation insurance coverage. McKenzie’s attorney tried to go back through his client’s playing career to find a time when he played without a forum selection clause in his contract and burden that team with the provision of California workers’ compensation benefits. This was rejected as the court refused to allow this doctrine to be used to avoid enforcement of a forum selection clause.

    While the appeals board is taking a strong stance, a bill that would limit the rights of out-of-state professional athletes to collect California workers’ compensation benefits is slowly moving through the California Legislature. AB 1309, which has passed the Assembly and awaits action by the Senate, would amend the current laws defining a cumulative trauma injury with respect to professional athletes. Typically, employers within the last year of the cumulative trauma injury period are liable to provide benefits: This currently is defined as the year prior to the last game played in California for any team. The bill would change this, defining the last year as the actual last year the athlete played for a professional team.

    More importantly, the bill would define out-of-state athletes as temporary employees, who are exempt from California workers’ compensation benefits if the team has workers’ comp coverage in their home state and that other state has reciprocal extraterritorial provisions recognizing the California workers’ comp system. The Assembly added the “Joe Montana Exception,” where an athlete may pursue a claim if employed for eight or more consecutive seasons by a California-based employer, or at least 80 percent of the athlete’s employment occurred while with a California-based employer. The bill would apply these changes to all pending claims for benefits.

    We anticipate significant changes within the next several months, from both the California legislative and judicial bodies, which may eliminate the complexity and sheer volume of out-of-state athletes filing for claims in California.

    Michael Pang (michaelpang@atblaw.net) is the managing partner of the sports law practice group at Adelson, Testan, Brundo, Novell & Jimenez.

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