Risks Associated with Sponsorship from Sponsored Entity’s Perspective

In the previous article, we have already seen that sponsorship is not really a risk-free activity. We became aware of the various types of risks which are faced by sponsors when they provide monetary assistance to sporting leagues.

However, it is important to realize that the risks are not one-sided.

Just like, sponsors are exposed to certain risks, when they enter into an agreement, even the sponsored entities end up being exposed to a wide variety of risks. In this article, we will have a closer look at the various types of risks which are generally associated with receiving sponsorship.

1. Loss of Control: One of the biggest drawbacks of receiving sponsorships from commercial establishments is that it ends up leading to the over-commercialization of the sporting event. Many times, the management of sporting leagues has claimed that the entire league has been hijacked by sponsors to meet their own financial objectives.

   In many cases, the basic nature of the game itself is changed in order to suit the needs of the sponsors.

   For instance, the concept of sudden death was included in tennis because the sponsors insisted that it would make the game more unpredictable and therefore would increase viewership. There have been several other cases wherein sponsors have interfered with the basic nature of the game.

   For instance, tennis was initially played by players wearing a white dress. However, since this is not suitable for the sponsors, they have changed this and ensured that tennis players wear colorful dresses in several tournaments.

   In some cases, it has been seen that sponsors go overboard when they draw sponsorship contracts. There have been some cases wherein the sponsors have retained the rights to draw up the schedule of the league at their convenience.

   It is important to realize that the emotions of the viewers of the sport are the main reason behind its commercial potential. Hence, if the potential is overexploited, it could have a negative impact on the viewership itself.

   Hence, it can be said that while signing sponsorship contracts, leagues need to be mindful of the amount of control they cede to the sponsors. If the loss of control is excessive, it could hamper the league in the long run.

2. Restricted Sponsorships: Over the years, various types of sponsors have sponsored various types of sporting leagues.

   Over the course of time, sporting leagues have realized that taking money from certain types of commercial organizations always leads to problems later on. These companies include organizations from the so-called “vice” industry i.e. organizations that sell products such as tobacco, alcohol, and memberships to gambling applications.

   Whenever sporting leagues accept money from such organizations, they end up being involved in some type of controversy. In many parts of the world, government bodies have intervened and passed explicit laws which restrict sporting leagues from taking sponsorship from these vice industries.

   Portugal, Norway, Denmark, and several other European countries have passed laws that prohibit taking direct or indirect sponsorship from alcohol-related companies.

   It is important to realize that the idea of sports and sporting events promotes a certain type of lifestyle. However, the products related to “vice” industries do not fit into the spectrum of that lifestyle.

   Hence, it has been alleged that sporting leagues exploit their commercial potential by misguiding the youth. The following three reasons are cited the most while criticizing the sponsorship deals from “vice industries”

   • Sports are widely watched by the youth. Hence, the sponsorship of sporting events by “vice” industries is an attempt by these companies to target young adults at a very early stage of their life.

   • A lot of these companies have been prohibited by governments to advertise. This has been done to prevent them from reaching youngsters and trying to sell addictive products. However, sponsorships still allow such companies to circumvent the law and reach their target market in many parts of the world.

     Ideally, it becomes the moral responsibility of the sporting league to prevent such advertising from happening even if there are no laws explicitly prohibiting it.

   • Companies selling products like tobacco, alcohol, and gambling deliberately try to conceal the true nature of their products while sponsoring the events. They try to associate with the cool and healthy image of sportsmen in order to deliberately project a misleading image in the minds of their target audience.

   Hence it can be said that the recipients of sponsorship i.e. the sporting leagues should have a list of industries from which they will not accept sponsorships. Failure to do so can lead to financial losses for the sporting entity.

3. Reputational Risks: As mentioned in the earlier article, the sponsorship deal is basically an image transfer agreement. This means that the positive image of the sponsor is meant to combine with the positive image of the sporting league and mutually benefit both parties.

   However, it is quite possible that the commercial entity ends up embroiled in some kind of scandal or fraud and this can end up having a negative impact on the sporting league. Of course, sporting leagues also have the authority to terminate the agreement unilaterally. However, just like the sponsor, the sponsored entity also runs a reputational risk that needs to be managed.

Hence, the bottom line is that the sponsored entity needs to be careful about whom they are accepting sponsorship from and on what terms. Failure to exercise caution in a timely manner can lead to serious consequences at a later stage.