The changing landscape of commercial rights in sport: insights from a top global sponsor

Monday, 05 September 2016

This is an extract from the ‘Commercial & IP Rights’ Chapter of the Sports Law Yearbook 2015/16 - UK, Ireland and EU, an eBook publication by LawInSport & British Association for Sport and Law.

This extract provides an introduction to sports and commercial rights by offering an industry perspective on the current market. It examines questions such as the challenges that sponsorship poses, the nature of the current landscape, how business seek to create and preserve value; and the more active roles and relationships currently being sought.

The author is the Senior Legal Counsel at HSBC Holdings plc and is the Global Legal Lead for Sponsorship & Communications within HSBC Group Legal. Although the topic is examined from HSBC’s perspective, the questions and issues explored are, the authors believes, largely representative of the wider industry’s experiences.

The Sponsorship Challenge

Previously accepted ways used by marketing teams to target specific socio-demographic groups have become increasingly ineffective due to traditional communities becoming more and more diverse (both culturally and geographically). Sponsors and brands are being forced to target new communities (think groupings) of people who have similar habits and behaviours, rather than just by their socio-demographic, age, sex or geographic grouping whilst still acknowledging that these factors can be relevant.

Increasingly, the attention of consumers is becoming a scarce (and consequently more valuable) commodity. Sponsors and brands have found that the best way to capture attention is to tap into a community's passions and align with them through more targeted sponsorship; something that is more accessible nowadays through effective use of a wide range of social media platforms which allow marketers to be more immediate, inventive and arguably more creative in their messaging.

It is not, however, enough for a brand to simply align its products, services (or indeed, itself) with a community and expose itself to it through headline sponsorship - the key to a successful sponsorship is taking the relationship beyond mere exposure; creating interaction with target consumers, chiefly through engagement with consumers via activation of a sponsorship, or to look to different sponsorship mechanisms such as the use of brand ambassadors.

For example, as a long-standing sponsor of the game of golf, HSBC’s ambition has been and continues to be to open up the world of golf. Golf provides an international network for customer relationship building, underpinned by a good fit with HSBC’s brand ideals of integrity, fair play, and a modern game with a rich heritage.

As HSBC enters its second decade as a major international sponsor of golf, it has cultivated a long-term relationship with the game and opened up new territories and tournaments, bringing world-class golf events to China, Singapore, Abu Dhabi and Brazil. Through grassroots programmes, HSBC has opened up new opportunities for talent which have helped thousands of children worldwide get involved in the game of golf. Grassroots support in sport – in addition to elite level sponsorship – is crucial to broadening participation and will continue to be a growing sponsorship trend through 2016 and beyond.

Changing Landscapes in Commercial Sports Sponsorship

Consider the example of one of the most valuable and successful sports Leagues in the world - the English Premier League. Last summer’s announcement¹ that the Premier League will be without a title sponsor starting in the 2016-17 season is a perfect illustration of how sponsors and brands are re-assessing their approach to sponsorship.

Given the rate at which broadcast revenues in particular have grown in recent years, Barclays’ title sponsorship of the Premier League (reported to be in the region of £40m a year) was becoming less significant to the Premier League Clubs with each renewal, and no doubt impacted upon the decision of the title sponsor not to renew (putting aside the advantages to the Premier League of having a clean brand to exploit in other ways).

A title sponsorship – and, indeed, any other commercial sponsorship - is still a vital asset to both sports administrators, clubs, athletes and sponsors alike, helping to provide a necessary cash injection to those who might otherwise only see a trickle of broadcasting money, and to sponsors who have to constantly review how they speak to target communities in a crowded marketplace.

A sponsor must feel like its contribution is meaningful, otherwise it will lose confidence in not only the original investment, but any further marketing activation of the relationship. Sponsors must be valued and nurtured.

By activation the author is referring to making the sponsorship asset work for the brand and driving interaction with the community (usually through meaningful conversation) in order to make that awareness mean something to the community; by bringing it to life. Sponsors will usually have a budget for the rights themselves and then a separate budget for activation, which is how flexibility across markets in which the rights will be exploited can be achieved. A recent example of where HSBC has sought to add more value and enhance the experience of the event was evident in its sponsorship of the HSBC Women’s Champions Golf in Singapore, where Take That came to perform and help show that golf isn’t just an on-course experience for the few.

Brands must now engage with consumers in more meaningful ways, otherwise their message is in danger of being lost in the sea of communications which consumers are forced to navigate (sometimes begrudgingly). The use of global ambassadors where sponsors align themselves with specific individuals (and their personal brand) is one such way. Investing in not just the present through short-term deals, but in the future, calculating that an ambassador’s stock will rise and grow symbiotically along with the sponsor’s brand can yield huge gains, but is naturally not without risk.

More and more interesting examples of this are now being reported. Under Armour (in the USA) famously took the decision over a decade ago, to invest in college athletes on the basis that forming the relationship early will require a smaller outlay in return for huge potential growth down the line. The story of Jordan Spieth in golf - perhaps the best example - has been widely reported, where even a direct link was observed between Spieth’s enormous success in 2015 and a tangible spike in Under Armour’s stock price².

An even more recent example, as reported in the Financial Times³ comes from Nike signing NBA superstar LeBron James – on a lifetime deal. LeBron & Nike’s relationship stretches back 12 years, which itself is worthy of respect, but to sign a star who is nearing the end of his playing career for the remainder of his off-court life, clearly shows that there is tremendous commercial life beyond an athlete’s playing years. Perhaps this will become commonplace and come to be known as the Michael Jordan effect, after the development and continuation of Nike’s Jordan brand subsidiary. Time will tell.

Creating and Preserving Commercial Value

It is worthwhile reminding ourselves that the intention of a sponsorship is to change the attitude of consumers towards a particular brand, or company, with the ultimate aim of increasing its underlying value. There is no shame in a brand admitting that its intention is to sell its products and services, just as there is no shame in a rights-holder owner wanting to increase the value of its (or his or her) product. As with any successful contractual arrangements, sponsorships must create clear wins for both parties.

Consider again what sponsors and brands might be looking for when they are deciding to part with their cash: that is, a meaningful connection with consumers, and for a global company, this would include connections with a global reach, but with a local approach.

Rights-holders should always take an inventory of the properties (sponsorship assets) they want to exploit. Without wanting to state the obvious, this should be done prior to entering into any formal commercial relationship – it isn’t always, to all parties’ detriment.

Crucially, however, the inventory should be continuously updated as the relationship develops. Doing this will mean that the rights-holder can not only demonstrate where they have delivered against the sponsor's contractual requirements (helpful for everyone), but also where they have delivered beyond the brief, showing how the offering can be improved in ways that are tailored to the sponsor. The latter will allow a rights-holder to justify continued support and frame any renewal conversations.

Of course, sponsorship value isn’t just an upward-only-way dynamic and a deal can spectacularly plummet in value, or even completely break down resulting in sponsors, or (far less frequently) rights-holders pulling out of a deal. Throughout 2015 there have been too many examples of this within easy reach, and one only needs to look at both the on-going FIFA and IAAF scandals which have blighted the sports sponsorship market and will continue to do so well into 2016. Sponsors are showing that they are not afraid to invoke any termination rights where their reputation, or the reputation of the asset is at stake and rights-holders must plan their relationships with sponsors with that in mind.

An Active Relationship

It has already been noted that it is vital that a sponsor activates a sponsorship and does more than sitting idly by its newly created association. A less common tactic that a savvy rights-holder might employ is to put aside an amount of the sponsorship fee (circa 5-10%, for example) as an activation budget. Showing a sponsor that a rights-holder is willing to reciprocate investment, and put cash directly back into the relationship will aid longevity and demonstrate that it is committed to getting the sponsor's message to the target consumers though this value creation may, understandably, be a stretch for some.

A rights-holder should use and ideally share its deep knowledge of its fan-base to provide a sponsor with as much meaningful information as possible which will help validate the added value delivered by the rights-holder. For example, in the UK, the Vanarama National Football Conference (at the foundation of England’s much admired football pyramid) might Tweet match attendances; share targeted fan data, or shout about examples of fans using a sponsor's products/services and leverage the growing desire demonstrated by BT to broadcast Conference Football.

However, sharing of this knowledge raises one of the most significant issues, which will be discussed in more detail later in this Chapter; that is the capture, measurement, sharing and use of data which at the moment is the ‘Holy Grail’ for sponsors and brands. Rights-holders must demonstrate that not only do they hold targeted data which can be used and sliced different ways, but – and crucially – that they are responsible in its capture, sharing and use.

Increased regulation and the pace at which the demand is rising means that sponsors must be careful to ensure they will not harm their reputation (or bottom line) by either directly or indirectly flouting the many and various data protection laws.

This leads in to a more important underlying point, which is explored in detail in this Chapter; that is how parties create and protect value in a relationship: it is imperative that rights-holders can demonstrate that they have control of their assets and can protect the integrity of what a sponsor is buying-in to.

Getting the basics right is fundamental to success and what sponsors are looking for is comfort that the rights-owner has the necessary legal and physical protections in place which will help to protect the sponsor’s investment.

Part of a rights-holders inventory should always include a summary of any relevant intellectual property rights underpinning the assets; details of approaches to avoiding ambush marketing attempts (again, not just legal, but practical steps) and a demonstrable understanding of any applicable risks that might attach to the sponsor’s use of the rights. Again, this isn’t a project that is limited in scope to snapshot in time at the start of a relationship, it should be continuously reviewed and open dialogue should be embraced as inevitably, through a long relationship, potential conflicts will emerge and relationships will be tested.

On a final note, it will do no harm to remind a sponsor of the reason(s) why they became a sponsor. Sponsors and brands have increasingly (especially so in the recent economic climate) stretched marketing and PR departments, so doing this can help a marketing team be more effective and efficient at its job as well as efficiently reporting their progress to key decision-makers in the business. Reminding a sponsor of the benefits – not just commercial – but also how you have actively helped them manage their risks will help a rights-holder reap the rewards.

The focus for rights-holders and sponsors alike throughout 2016 should be re-examine their portfolios and to put (and keep) good governance at the top of their respective agendas. Nobody can afford to take the integrity of the sports, which attract big sponsorship deals, for granted, nor can they afford to be left behind as the sponsorship market continues to evolve, from a more traditional model to an interactive, experiential and data-driven one.

This is an extract from the Sports Law Yearbook 2015/16 - UK, Ireland and EU, an eBook publication by LawInSport & British Association for Sport and Law.
The Yearbook reviews developing sports law trends in the UK, Ireland and Europe. It contains legal commentary and analysis from over 50 leading sports lawyers and will be of use to students, academics, athletes, coaches, the media, sports business professionals, in-house counsel and lawyers worldwide.

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