MarketLine Blog

Corporate Sponsorship: Companies hypersensitive to damaging controversies

When a company is giving serious thought to sponsoring an event or club, or signing an individual to a costly endorsement contract, it takes several factors into consideration. The benefits that a company is seeking by entering into such arrangements are namely revenue growth, an improved corporate image, and increased brand equity as a result of greater consumer awareness. This is a double-edged sword however, as scandals involving sponsored celebrities or organizations can reflect badly.

In many instances, there is no obvious link between the sponsor and the sponsored party. For example, a consumer cannot immediately link Manchester United with its lead sponsor, Chevrolet, and only one Euro 2016 sponsor (adidas) operates in the area of sport. These are far from isolated examples and companies that regularly help to fund major events, like Coca-Cola and McDonald’s, use sponsorship as part of a much bigger overall marketing strategy aimed at making their brands ubiquitous.

Sponsor exposure at these events is, to a great extent, passive and looks to exploit what psychologists refer to as “mere-exposure effect, “a phenomenon whereby people (in this case consumers) develop a preference for something merely because they are familiar with it.

It is extremely difficult, if not impossible, to quantify the financial impact of sponsorship for a company, although deals such as the $200 million agreement that Visa has with FIFA undoubtedly increase revenues as they mean that the sponsor becomes an exclusive provider (i.e. tickets for the FIFA World Cup can only be purchased using a Visa card). While it is very difficult to quantify this benefit in terms of a specific financial figure, the effect on brand equity is undoubtedly positive and this is a key driver of share price.

However, while companies can bask in the reflective glory of a successful athlete, event or organization and thus boost their own brand and image, they can also suffer from scandals involving the people or organizations they sponsor. They are fully aware of this and have become, in some cases, overly sensitive to issues and have terminated or refused to renew deals. In other cases, the sponsoring companies have been left with no option other than to take such action.

Tiger Woods and Lance Armstrong both lost a string of sponsors keen to protect their image after being involved in extra-marital affair and doping scandals respectively. Maria Sharapova has been backed by some sponsors following a recent doping ban, while others severed all ties with her before an official judgment of her infraction had even been reached.

Johnny Depp’s association with Dior and recent domestic abuse allegations show that the issue of sponsorship/endorsement is not specific to sports, but Dior’s refusal to comment on speculation shows that rash decision making is not always the way forward when it comes to protecting brand image.

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