Sports Sponsorship: A Risky Game

Companies love lending their names to winning teams. But what if a team loses, or worse, finds itself embroiled in scandal?

by Jack Ewing

Corporate sports sponsorship seems like a win-win proposition. By attaching their names to sports teams, companies reap international publicity at relatively low cost, while their executives and customers get to hang around athletic events and call it "work."

But, as several companies have discovered recently, there's also a big element of risk. Consider the BMW Oracle (ORCL) team sailboat, eliminated in May from the America's Cup qualifying competition in Valencia, Spain, before the main event even started. German press reports put the cost of the failed Cup bid at nearly $200 million. Though team representatives won't confirm that figure, the result was obviously a disappointment that could prompt BMW to withdraw from future competitions.

Even worse, at least from a public relations point of view, is the predicament facing Deutsche Telekom (DT), the German telecommunications giant whose professional cycling team is in the middle of a doping scandal. Several former riders for the team, now named after the company's T-Mobile unit, have admitted to using performance-enhancing drugs in the 1990s. In addition, the team doctors have resigned after admitting they helped supply the blood-booster EPO to those riders.

Cycling Sponsors Step Back

The confessions, prompted by accusations from a former team staffer, have been front-page news for several weeks in Germany. "That's naturally not attractive for a sponsor," says Stephan Schröder, a member of the management board of Cologne-based consultancy Sport + Markt.

The disclosures have prompted soul-searching among cycling sponsors, and some are pulling back. Discovery Channel, which backed the team Lance Armstrong led to his last Tour de France victory in 2005, announced plans to withdraw as a sponsor of cycling teams in February.

Deutsche Telekom reaffirmed its commitment to cycling in May, but has warned it could abandon the sport at the end of the season if other teams don't help clean up the doping problem. "A sponsor is only credible when he helps to get things back on course in difficult times," Deutsche Telekom chief executive officer René Obermann told the daily Frankfurter Allgemeine newspaper (see BusinessWeek.com, 3/1/07, "T-Mobile's Unlikely Cleanup Rider").

BMW to Sail Away?

Meanwhile, BMW appears to be assessing whether to continue its sailing partnership with Oracle after their team was eliminated during the Louis Vuitton (LVMUY) Cup qualifying competition. While BMW has not decided to abandon ship, a spokesman says, it will consider the future of its sponsorship following the America's Cup final off Valencia in July. BMW is more likely to continue backing the team if Switzerland's defending Alinghi team beats Emirates Team New Zealand, and the competition remains in Europe rather than shifting to faraway New Zealand.

Given the inherent unpredictability of competitive sports, it's little wonder that some sponsors are looking for lower-risk ways to get their names onto the scoreboard. Dutch brewer Heineken (HINKY), for example, has a policy of sponsoring events, rather than teams or individual athletes. Part of the reason is ethical: Heineken can't be seen trying to link its alcoholic beverages to athletic prowess.