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January 15, 2021

Conflicts of interest: the influence sponsors in sports cancellations

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Never in the modern history of sports were major sporting events expected to be cancelled or postponed. Neither those that are planned long in advance, such as the Olympics, nor those happening every year, such as the national and international leagues. These events were unprecedented. There were no legal regulations in regard to an event such as the pandemic taking place. When the pandemic made it clear that large gatherings of people were no longer possible without risks, organisers had to meet to choose between postponing or cancelling. And, for the first time, the influence of sponsors in the sports industry were very clear, and not only in economic terms.

The 14 multinational companies that sponsor the Olympics, plus the local sponsors, were going to disburse 3,800 million of the 5,900 million dollars estimated for Tokyo 2020. Therefore, they were the most affected party if the Olympics were going to be cancelled, as the Japanese government and the IOC considered. Benchmark companies because of their total turnover and their rank in the stock indexes, such as Coca-Cola, Alibaba, Intel, or Procter & Gamble were in the midst of this situation. There was a conflict of interests, as it had to be decided who was going to lose more money. The IOC, Japan, or the companies? The first two could benefit from a cancellation and the sponsors from the postponement.

The starting point in Tokyo 2020 was not different to that of the European and American sport events, the other two major continents which are most affected by the pandemic. There are no clauses in regard to cancellations in sponsorship contracts as it has hardly happened in our recent history. There is not even a legal framework for postponements. The only option is the “force majeure clause”, which considers unusual, unpredictable, or uncontrollable situations that are beyond control for all parties. Just to get an idea of how unprepared we were for the pandemic, among those causes, the lawyers had included chemical warfare or volcanic eruptions. However, they had not considered a highly contagious global pandemic such as the coronavirus.

How to support the postponement? The rights holders, leagues, organisers, teams, and athletes could benefit from force majeure. And, in theory, the sponsor should disburse the part of the contract that is not affected by the suspension of the event. However, the lawyers specialized in this field agree that force majeure does not imply a solution, but a starting point to litigate in court. Until the sentence, neither the sponsor would get the disbursed money back, nor would the sponsored get the payments established in the contract. That was a situation in which everybody would lose. Here is the first reason why sponsors in all sport events in the world, contributed as a stakeholder committed to search for the least harmful solution.

This is not only the most important reason. Sponsorships grant brand visibility, and there is not an alternative way to bring together the audience that sport events attract, the big audience ratings for their broadcasts, or the activity they create on social media. When a company misses that media investment opportunity, they cannot invest this budget as effectively. As a matter of fact, major sponsors have foreseen sales losses for this 2020 due to the postponement of competitions. The immediate consequence that we started to notice in spring after the decision about the Olympics is that most brands considered this postponement as the best solution in these cirumstances instead of cancelling.

When it was announced that Tokyo 2020 would take place in 2021, all sponsors acknowledged that this implied a serious financial cost. However, they all agreed with the decision and showed their support to the IOC. Especially the four main ones, Procter & Gamble, Intel, Airbnb, and Coca-Cola, who expressed their commitment to keep working in order to achieve a successful, safe event. The attitude of big retail brands, such as Adidas or Nike, main sport sponsors of European football leagues, and the NBA, NFL, and MLB, was no different and also helped out.

These reactions brings to light an insight, the importance of long-term relationships. Long-term contracts are a way to establish solid relationships with teams, federations, and leagues. But they are also a way for companies to protect themselves from the advancement of competitors. The brand Puma caused a surprise this 2020 due to a multimillion-dollar contract to include in its portfolio of athletes the footballer Neymar, who cancelled in advance his contract with Nike. Also, the Italian football club La Roma cancelled its contract with the brand, which was supposed to end in 2024. It is more difficult to see this happening in major international events, as we have seen with the Olympics. Nine years ago, the NBC and the IOC had signed a 4,400-million-dollar contract to broadcast the games which would end with Tokyo 2020. Before the coronavirus, they closed a new deal until 2032 for 7,800 million. The postponement has involved a renegotiation of the terms of the new contract, but not its cancellation.

Therefore, we’ve seen how sponsors have influenced positively for cancellations not to occur. Their commitment has helped reduce the negative effects of the pandemic on sports. Making clear its importance as a key stakeholder in the sports world, just as fans, athletes, and the teams.

 

Martín Sacristán

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