Companies love lending their names to winning teams. But what if a team loses, or worse, finds itself embroiled in scandal?
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.
But by sponsoring the UEFA Champions League, which pits Europe's top professional football teams against each other, Heineken gets exposure to a huge audience that happens to drink a lot of beer. The Champions League competition, which ended in May with AC Milan's victory over Liverpool FC, was watched by at least 4 billion people, according to Heineken. Short Heineken TV spots known as "break bumpers" appeared in markets around the globe during pauses in play.
Bang for the Ad Buck
For Heineken, no other event offers exposure to such a huge global audience. "The beauty of this package is you get to advertise in countries where you would not normally advertise," says Hans-Erik Tuijt, who is responsible for Amsterdam-based Heineken's sports sponsorships. At the same time, Heineken doesn't have to worry about who wins or whether some star player gets caught up in a personal scandal.
Indeed, international exposure is a key benefit of sports sponsorship. Coverage of live sporting events crosses national borders in a way that is unique in the media world. And often the cost is relatively low. Sport + Markt's Schröder estimates that a season-long Champions League sponsorship costs no more than $34 million. A single 30-second TV spot in the Super Bowl ran $2.7 million this year.
The America's Cup, which gets relatively little TV exposure, may still make sense for BMW, Schröder says. "Sailing stands for high technology, dynamism—the same qualities BMW wants to communicate for its cars," he says, though he adds that the carmaker should still consider whether the return justifies the cost. Cost is less an issue for Oracle, because CEO Larry Ellison, a sailing enthusiast, pays for the company's share of the partnership out of his personal fortune.
Eye on Tour de France
Sponsoring cycling teams is likely to get cheaper as a result of the doping scandal. Schröder predicts that the price of sponsoring a team, now around $7 million, will fall, as some companies pull out of the sport.
Cycling still has some selling points. For one thing, it's gaining on golf as a networking activity for corporate executives. So-called hospitality—hosting business partners and customers at events—is an important justification for the expense of sponsorships. That could lure some companies back, provided that no new revelations of doping come to light. Says Schröder: "If this year's Tour de France revolves around athletics rather than doping, the sport can still turn around."