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Why Leagues Should Not Regulate Team Sponsorships

By Lesa Ukman Jul 19, 2011

English Premier League club Manchester City recently signed a 10-year deal—which includes title of the team’s stadium and shirt sponsorship—with Etihad, Abu Dhabi’s national airline, for the princely sum of £300 million ($482 million), according to media reports.

The deal is substantially richer than any other in the league; next highest is Liverpool’s shirt sponsorship with Standard Chartered, which is worth a reported £20 million ($31.7 million) per season, or half of City’s deal on an annualized basis.

The Etihad agreement follows City’s 400 percent sponsorship revenue growth to £32.4 million in 2010, when it signed agreements with Abu Dhabi-based companies including Etisalat telecommunications, Aaabar Investments PJSC, the Abu Dhabi Tourism Authority and Etihad.

However, rather than celebrating the newly inflated value of their own sponsorship assets, rival clubs are crying foul.

Among the accusations is that the sponsorship does not pass UEFA’s “related party” test because City is owned by Abu Dhabi’s Sheikh Mansour bin Zayed Al Nahyan and Etihad Airways is chaired by his half-brother.

Many owners of pro sports teams got the money to buy their teams because they had access to education, capital and markets. And chances are strong that they and their circle of friends and family are connected to the companies big enough to sponsor their teams.

Within soccer and other sports, there are many examples:

  • Red Bull owns and titles Major League Soccer’s New York franchise and its stadium
  • Audi, sponsor of Bayern Munich since 2002, acquired an ownership stake in the successful German soccer club in 2009
  • Giorgio Armani’s basketball team competes in Euroleague as Emporio Armani Milan
  • Russian sports car manufacturer Marussia co-owns and co-titles Marussia Virgin Racing in Formula 1
  • Vijay Mallya, owner of the Force India F1 team, is chairman of Kingfisher Airlines, the team’s primary sponsor. (Etihad was the team’s primary sponsor when the racing concern was sold to Mallya and walked away from the deal to avoid supporting the team of another airline’s owner. Courts ultimately decided Etihad was within its rights to quit the deal early, but that’s another story.)

Even stranger than the “owner can’t be related to the sponsor” notion is UEFA’s plan to “monitor sponsorship deals to ensure agreements are based on fair value.”

In the NFL, MLS and other leagues that share revenue from TV and national sponsorship deals, stadium title is always treated as a team asset. If UEFA’s goal is financial parity among teams, then don’t just cap sponsorship revenue, cap merchandise sales, tickets and other assets that can be monetized, such as Facebook “likes”.

Fair value in sponsorship is driven by price adjusters that the market, not UEFA, decides. Visa doubled the sum MasterCard had been paying for FIFA World Cup rights. There were essentially no new benefits added into the Visa deal. The price increase was a function of category competition.

Owners of the Dallas Cowboys and New York Yankees were considered rogue when they broke the traditional sponsorship mold, signing sponsorships substantially higher than the going rate. In both cases, attempts were made to stop the deals from going through and the team accused the league’s marketing arm of being a cartel; the lawsuits were settled out of court on terms widely believed to favor the Cowboys and the Yankees. Hopefully, UEFA will realize that like great coaching, great sponsorship strategy is a competitive advantage.

Does the Etihad sponsorship boost the team’s bid to meet UEFA’s rules on financial responsibility and solvency—to say nothing of better players and coaches? Yes. Isn’t that what sponsorship is for?

More:

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