Risks Associated with Sponsorship from Sponsor’s Perspective

We have already seen in the previous articles that the financial size of the global sponsorship market is increasing at a rapid pace. This is largely because of the various benefits that sponsors derive from making sponsorship agreements.

Sponsorship is generally viewed as a cost-effective way of promoting the image of brands in front of their target audience. However, it needs to be understood that like everything else, there are two sides to this coin also.

Hence, on the one hand, sponsors derive benefits from making sponsorship deals whereas, on the other hand, they are also exposed to risks that result from making such deals.

In this article, we will have a closer look at the various risks which are associated with such sponsorship events.

1. Reputational Risks: It is important to realize that sponsorship of a sports event by a corporate entity creates an association between the two in the minds of the customers. Hence, in a way, the reputation of the corporation as well as the reputation of the sporting league become intertwined to some extent. The association is the main reason why sponsors are willing to pay money to sporting leagues.

   In marketing terminology, this phenomenon is referred to as “image transfer”. We will discuss it in detail in a subsequent article. However, for now, it is enough to know that the sponsor hopes that the positive emotions associated with the sporting league will be transferred to some extent to their brand as well.

   However, it is also true that image transfer works in the other direction as well. This means that if the actions of the sporting league or any of its agents create negative emotions about the league, such emotions also get transferred to the sponsor’s brand and start having a negative impact on brand equity.

   Hence, there is always a risk that the sponsor may end up paying money to an event which leads to an erosion in their brand equity. This has happened several times in the past as sporting leagues have been associated with various negative political as well as social issues.

   It is common for sportsmen and sporting leagues to be involved in various kinds of scandals that create a negative image in the minds of the people. Over the years, sponsors have learned to manage these risks.

   Most sponsorship agreements are created in such a way that if there is a negative event, the sponsor of the brand reserves the right to disassociate their brand from the league in a public manner. This helps the brand minimize its risks related to negative exposure.

   The cash flows from the sponsor to the league are also planned taking into account the possibility that the sponsor may disassociate from the league midway.

2. Uncertainty: The performance of a team on the sporting field has a huge impact on the emotions and attitude of the public toward that team or even the entire sporting league. Positive performance creates a euphoria in the general population which ends up benefitting the associated brands. However, there are periods when the performance of a team or even an entire league can be down in the dumps.

   In such cases, the sponsor’s image also takes a hit. Hence, it would be fair to say that the sponsor carries a risk of uncertainty related to the performance. Also, it would not be fair to say that this risk is immaterial if the team being sponsored is a world-class team.

   Even teams like Juventus have been relegated to lower leagues because of non-performance over a long period of time in the recent past.

3. Ambush Marketing: Ambush marketing is another big risk associated with sponsoring sports events.

   Ambush marketing is when a rival tries to associate itself unofficially with a brand and tries to derive the same benefits or greater benefits without actually paying the cost. Hence, the entire investment made by the sponsor ends up being wasted while the rival is able to obtain benefits.

   One example of such ambush marketing is when Coca-Cola decided to become the official sponsor of the 1996 Cricket World Cup. Coca-Cola had paid a good sum of money in order to be associated with the event. On the other hand, Pepsi did not make any such investment.

   However, Pepsi was able to come up with a clever tagline that projected Pepsi as being the “cooler” soft drink. Pepsi started bombarding the media with advertisements with the tagline, “Pepsi, nothing official about it! By doing so, they projected Coca-Cola as being an old and boring brand and projected themselves as being young, quirky, and cool.

   The end result of this ambush marketing was that Pepsi was more successful in exploiting the marketing potential of the 1996 Cricket World Cup as compared to Coca-Cola. Therefore, it can be said that whenever a brand decides to sponsor an event, they always expose themselves to the possibility of ambush marketing. As a result, this is also a risk that they need to take into account and create a strategy to mitigate the same.

The bottom line is that sponsoring of sports events is a great marketing strategy. However, that does not mean that it is not prone to risks. A sponsor must be able to recognize these risks and create their strategy in such a way that most of these risks are mitigated.