NFL current events could mean profound changes for sponsor relations
Company executives across America with sponsorship relationships with the NFL are busy assessing the potential damage the NFL is now inflicting on their brands. Specifically, sponsors are evaluating whether the NFL and its employees have triggered a violation of the “morals clause” now common in sports sponsorship contracts. The implications of this assessment could be enormous over time for the NFL, its players, and other sports.
While the players may not appreciate the economics of a fan boycott, clearly NFL owners do. This fact may explain why “NFL Owners Clashed in Private Over Protests,” as reported by the Wall Street Journal recently.
The business of sports sponsorships has evolved over the past decade and will change even more in the immediate future.
There are two financial motivations behind sponsorships. The first is simple math: Companies sponsor their clients, earning decent returns on the overall relationship that often includes marketing assets (e.g. signs), value-in-kind assets (e.g. suites, seats) and business revenue (products or services sold as a result of the sponsorship). This first set of reasons is highly calculable and critical to the health of the overall relationship. The second reason companies do sponsorships is to capture the “halo effect” enjoyed by many teams. In practice this means a team’s most avid fans often carry their goodwill for the team to its sponsors’ services and products. This halo effect can work both ways, as we are now witnessing at the team and league level.
|Significant changes are afoot in the economic structure of sports marketing and sponsorship.
At one time sports sponsorships seemed innocuous. When Tiger Woods, Lance Armstrong, and others proved only human, two profound changes took place in the sponsorship world.
First, sponsor interest in individual athlete-celebrities waned as sponsors realized the risk of brand-damaging behaviors outweighed perceived benefits. In fact, the concept of individual sponsorships has always represented significant modal risk. With the larger organizations, a sponsor essentially achieved portfolio risk diversification. For example, an NFL team main roster of players numbers over 50 players in a season. If one of those players becomes a risk outlier, the other 50-plus players compensated, or diluted that singular effect.
However, with the current Twitter wars controversy, we are witnessing the transference of individual sponsorship risk to team sponsorship. When an entire team in the NBA, NFL, MLB, or any other sport decides to embark on political statements, risk diversification evaporates overnight. Suddenly, you are facing the same issues you would if you sponsored only an individual.
Second, some companies introduced “morals clauses” into team and league sponsorship agreements beginning in the mid-2000s. Morals clauses do not necessarily demand or even allow for immediate termination of the relationship and deal. Instead, it provides a contractual obligation for both parties to meet and discuss the implications of the developments and ways to jointly address the risk and concern — but with the pressure of the termination driving the action. And of course, the ultimate ability to terminate if an amicable solution should not be able to be reached.
It should not be lost on the NFL and its players that AT&T, Anheuser-Busch, and Dannon Yogurt have all taken action to distance themselves from football controversy.
The first to act was AT&T’s DirecTV, which allows for subscribers to its Sunday Ticket of NFL games to get refunds if offended by the players’ flag protest. The next big company to act was Anheuser-Busch. Bud Light currently serves as the official beer of the NFL. The company has gone so far as to set up a hotline for fans to call and give their thoughts about the protests and Anheuser-Busch’s sponsorship of the NFL. Dannon Yogurt’s decision on Oct. 5 to pull advertising with NFL quarterback Cam Newton serves as a strong reminder to the NFL that player actions have consequences.
Just as the Woods and Armstrong controversies ushered in a new generation of sports sponsorships, the current NFL controversy will lead to significant changes in the business of sports sponsorships. The economics of sponsorship can be difficult to discern at times. In the absence of clear return on investment, corporations will take an even harder look at brand value. Do not be surprised if the NFL will see a substantial hit to its bottom line in the years ahead as sponsors re-evaluate the economics of sports sponsorships. MLB and the NBA will face similar scrutiny from its current and potential sponsors.
Make no mistake: The NFL controversy is unwelcome news for all sponsors, but especially to companies that hold themselves to a higher standard of reputational risk management.
Raymond Bednar (email@example.com) specializes in advising and implementing optimization strategies for investments in marketing channels at Hyperion Marketing Returns — Rockefeller Consulting.