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11 March, 2021

Investment and return: why sponsors pay millions to their sports stars

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Roger Federer is the third best-paid celebrity by sponsors in 2020 and the first among the athletes on the list. His case is relevant, as from the 106.3 million dollars he earned last year, only 6.3 million relate to tennis tournaments. He earned the rest through his sponsorship contracts. Federer has agreements with a conglomerate of thirteen brands from different sectors, which include banking, household appliances, automotive, watches, champagne, food, private aviation, telecommunications, and travel goods.

Businesses chose him for the same two reasons as the rest: his sporting achievements and his personal brand. Federer stands out in both. But it is his personal brand the reason why his income is so high. He has charisma, a great ability to communicate in public appearances, a great ability to connect emotionally with the public, involvement with social causes, and a life with no moral or financial scandals. When a brand is associated with a person with this profile, it is perceived as having the same positive values, and therefore, its sales increase. In marketing terms, all fabrics and jersey quality might be the same, but only those brands worn by certain athletes distinguish themselves from the rest as the best. No matter what the product is.

Another great sports star who earns more money from sponsorships is Lebron James. His case is very relevant due to his contract with Nike: when he turns 64, their partnership will be terminated, and the brand will have paid him 1,000 million dollars. The reason is his ability to remain a champion within the NBA for a long time, and his public profile as a businessman, investor, husband, and model father. Unlike other players in the league, there are no known scandals about him.

Of course, there are many sports stars with juicy contracts whose personal life is characterised by public scandals, without negatively influencing the sales of the brands they sponsor. They do not tend to lose the public’s favour as their mistakes are forgiven, especially by fans, and being successful on the pitch often overcomes other considerations. The only thing that can straight away terminate a sponsorship deal is doping, which can also mean the end of the athlete’s professional career. Despite this exception, we can state that all companies have a positive return on investment by sponsorship in the form of fame and good reputation. Many may ask themselves the same question: Do brands get more than the amount they invest?

The reason for these multi-million dollar contracts is not only for selling products and services. A successful athlete can be seen and embody an advertising campaign, and every time they appear in a tournament and media, the brands labelled on their outfits increase their sales. The most obvious example is the case of sports attire, which has peaks in demand when there is an important match, or when certain team wins a final. Especially the most valued sports stars’ jerseys. In the case of products or services with more sustained and continued sales throughout the year, such as household appliances, there is always an increase linked to the sponsorship in campaigns such as Christmas. When buying these appliances for Christmas, those which are related to an athlete are chosen. Emotionally, the fan perceives that their gift is more valuable because it is part of the athlete’s world and his aura. Although it costs the same as that of the competition.

Undoubtedly, what motivates a multi-million dollar sports sponsorship is its return on investment: the stock market price. The seven most highly rated multinational companies in the financial indexes are also the ones that invest the most in sports sponsorship and cultural activities. Financial analysts agree that the brand value, meaning the net economic benefit that the owner company would get from licensing it in the market, influences significantly in the value of its shares. The higher the reputation of these sponsored athletes, the more brand value the company obtains. And that increases the price at which their shares are traded in the stock market, along with all other factors. This is also the reason why so many contracts are made on a long-term basis. The more the athlete’s fame grows over time, the more profitable the expenditure becomes. And the company is worth more and more as its shares rise throughout the decades.

The anomaly the pandemic has brought into sports, has further highlighted this relationship between sponsorship investment and brand value. Most retail and accessory brands lost up to 20% of their value in 2020, which is thought to be as a result of the coronavirus. Although Nike and Rolex also suffered losses, they were leaders in their field, being less harmed regarding the competition thanks to their sports sponsorships. If we look at the automotive sector (another sector affected by the coronavirus), Toyota and Mercedes-Benz have also lost less value than the competition thanks to their sponsorships among other factors.

Therefore, companies keep getting million-dollar benefits from sports sponsorship, which is why they keep paying huge sums for it. This requires for the modern-day athlete to understand that they should invest time and effort in building their own personal brand. Reputation today is as high as sporting success, sometimes even more so.

 

Martín Sacristán

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