Governance and scandal


Sport, sponsorship and the stink of scandal

drug testing 1News is breaking today about the extent of state-sponsored doping within Russian sport. The post below is a revised and abbreviated version of an article that first appeared in the March 2016 issue of The Sponsorship Report.

Hard-core fans are indifferent to scandal, says Ann Pegoraro, Director of the Institute for Sport Marketing and Associate Professor in the School of Sports Administration, all at Laurentian University.

“When the puck drops and the shift starts, I don’t think they care,” she says. In the lead-up to the Sochi Olympics, there was a great deal of outrage from sports fans about the host country’s social policies, but they were drowned out by cheers once competition got underway. As to individual athletes, fans will stand fast until evidence of malfeasance is practically insurmountable. “They will find ways to rationalize their fandom,” she says.

If fans don’t care, should sponsors?

Rick Burton, the David B. Falk Endowed Professor of Sport Management, Syracuse University, says that sponsors now seem to accept the likelihood of a measure of moral turpitude in any sport sponsorship.

“There’s going to be some upheaval, and that comes from being associated with one of the top sports properties or one of the top sport individuals,” he says. Scandal has become a risk of doing business.

Corruption in the boardroom, as was the case with FIFA, may be something that sponsors and fans are prepared to accept “provided the game keeps going the way it’s supposed to go,” says Pegoraro. And while sponsors may publicly express concern or even outrage, Pegoraro suspects much of that is theatre.

“We’re looking through a North American lens,” says Pegoraro, but global brands are accustomed to a certain level of corruption in many markets. It’s the way business is done. “It probably mirrors the actual practices that some of the large sponsors have put themselves through in these different markets.”

Simon Rines, Senior Analyst at the UK agency IMR Sports Marketing, agrees. “I think also that people almost expect a level of corruption in some regions of the world,” he says, though sponsors would certainly deny it.

Sponsors must believe that a scandal that touches the governing body does not touch the sponsoring brand, Burton speculates, that sponsors bask in the glow of a governing body’s success, but wear none of the stench of its failures.

Endemic sponsors, those that target the fan base, are least likely to be hurt by sports scandals. Tennis star Maria Sharapova’s racquet sponsor, Head, quickly came out with a statement of support when her doping scandal broke. And though Nike initially suspended its partnership, it publicly reaffirmed its commitment to Sharapova after the International Tennis Federation announced that she would be banned from competition for two years.

The nature of the scandal, the scale of the partnership and the scale of the property all appear to be factors that help determine whether a sponsor grumbles or bolts.

“When the field of play is impacted, people react quite differently,” says Pegoraro. Lance Armstrong and the revelations of extensive doping in international cycling are powerful examples. So too is the swift reaction by Nestlé to the IAAF doping scandal.

The scale of the property also influences how a sponsor will react to scandal. By that measure, FIFA is in a privileged position, the global sports version of “too big to fail.”

Once a sponsor has negotiated an exclusive position with one of the biggest sport properties in the world, it will be very hesitant to get out,” says Burton. “When the whole FIFA corruption thing went down, there was a little sabre-rattling, but nobody got out.”

Exiting has its own risk, says Burton. The exiting brand will most certainly be replaced in very short order by a competitor. It’s interesting to note that as the IAAF scandal was unfolding, two sponsorship news stories, both false, followed each other in quick succession: that Adidas was walking away from the IAAF, and that Nike was walking in.

If that were to happen, the exiting brand would forever be linked with the scandal, while the successor brand would forever be linked with the sport’s inevitable rehabilitation. One brand wears the problem, the other, the solution.

There are also hard costs to exiting, costs that rise dramatically with the level of partnership and the depth of integration with the property. Nike had built extended families of sub-brands with Tiger Woods, Lance Armstrong and Armstrong’s Livestrong charity, explains Pegoraro. With Woods, it was able to weather the storm. With Armstrong, it weathered it until it became untenable.

Upstream from international governing bodies lies the Olympics. Rines feels that the Olympics, as a multi-sport competition commanding enormous rights fees, is mostly insulated from the stink of scandal within governing bodies. The one possible exception is the IAAF.

“The Olympics is first and foremost an athletics event,” says Rines. “The main action is track and field, it is what the Olympics grew from and it is the biggest TV draw. With the scandals encompassing the IAAF and many athletes, I think Olympic sponsors will be nervous and unless things improve, I can foresee some considering withdrawal in the longer term – not so much termination, more likely an unwillingness to renew.”

Downstream from international governing bodies are the national sports organizations (NSOs), and there the impact of scandal may be more palpable. The doping scandal in cycling was costly to many NSOs, says Rines.

“Many major sponsors such as Audi, T-Mobile and Adidas withdrew from cycling following the scandals in 2007,” says Rines. “Although both Audi and Adidas have come back to the sport, the investment is not as great as it once was and arguably, if the sport had a better reputation, then we would see much bigger deals from such companies. Cycling should be a sport that attracts car brands, but very few make a significant investment.”

Perhaps we have not yet arrived at sporting scandal’s tipping point. “History always reveals that it’s only a matter of time before something totally egregious hits,” says Burton. “That’s going to be man bites dog. That’s going to be really newsworthy.” That, he says, is when sponsors will have had enough.

Learn more about the importance of sound governance at this October’s Sponsorship Toronto, when we welcome Paige Backman, Partner at the law firm Aird & Berlis LLP. Paige is the Co-Chair of the firm’s Sports & Media Team and an advisor to national and international sports organizations on issues of sound governance, risk management and sponsorship.

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