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Battle Of The Soda Brands: PepsiCo Sidelines Coca-Cola With NBA Deal

The Globe And Mail, April 13, 2015

By Susan Krashnsky

The age-old battle of the soda brands is being waged on the field of sports – and PepsiCo Inc. is on the offensive.

On Monday, the company announced a multiyear deal to become the official marketing partner of the National Basketball Association. That marks an end to the league’s 28-year relationship with rival Coca-Cola Co., as of the end of this season.

The PepsiCo deal also includes sponsorships with the Women’s National Basketball Association, NBA Development League, and USA Basketball.

PepsiCo-owned sports drink Gatorade already sponsors the NBA, but the new deal paves the way for expanded marketing for its other brands, including Aquafina bottled water, Brisk iced tea, Doritos and Ruffles chips. PepsiCo’s Mountain Dew will be the new official drink of the NBA, replacing Coke’s Sprite brand.

The move marks another step in years of spending by PepsiCo to edge out its rival in sports sponsorships.

The deal is worth significantly more than the previous partnership with Coca-Cola in terms of the overall investment, Fortune reported Monday, citing a source close to the deal.

In 2002, the Purchase, N.Y.-based company snatched sponsorship rights with the National Football League – America’s most popular sport by far – away from Coca-Cola, which had sponsored NFL since 1983. PepsiCo renewed that sponsorship in a 10-year deal in 2011 that was reportedly worth roughly $90-million (U.S.) a year.

Last year, PepsiCo extended its sponsorship of Major League Baseball, which includes marketing for Pepsi, Gatorade, Aquafina and ballpark staples from its snack portfolio, such as Frito-Lay sunflower seeds and Cracker Jack. And it has been a sponsor of the National Hockey League since 2006.

Coca-Cola, meanwhile is best known for its sponsorships of the Fédération Internationale de Football Association (FIFA) and the International Olympic Committee. Also on Monday, Coca-Cola announced a sponsorship deal with the United States Soccer Federation and Major League Soccer (MLS), deepening the connection it has built since it became a FIFA sponsor in 1974. Coke is already a sponsor of Canada Soccer, the Montreal Impact and Toronto FC teams, and Canadian soccer star Christine Sinclair. The company’s Powerade brand is also the official sports drink of the National Collegiate Athletic Association (NCAA).

PepsiCo spent more on sponsorships than any other U.S.-based marketer in 2013, according to a report from Chicago-based sponsorship consulting firm IEG. Its roughly $350-million sponsorship investment outstripped Coke, the No. 2 spender, by roughly $60-million. The companies are at the forefront of a wider trend: Sponsorship spending has increased significantly in recent years. Total North American spending is expected to reach $21.4-billion in total this year, up from $18.1-billion in 2011, according to IEG. Globally, spending is expected to reach $57.5-billion this year, up from $48.6-billion in 2011.

Why? The media landscape has become more fragmented: Consumers are looking at more content, on more devices, and from a wider variety of media sources, than ever before. That makes it difficult to reach a large audience with a single advertising spend than it was in the past. But sports are still often watched live, and by a passionate and attentive audience. Sure, viewers may still skip or ignore commercials, but it’s hard to ignore the presence of a sponsor on the field of play, or in extra online content featuring favourite athletes.

“Brands are finding that it’s more powerful if they can connect emotionally with their consumer, and sports is one way they can do that,” said Gord Hendren, president of Toronto-based marketing consultancy Charlton Strategic Research Inc.

The NBA and MLS, with which Pepsi and Coke inked the deals announced Monday, both represent sports that are on a growth trajectory, Mr. Hendren noted.

While MLS is relatively North America-focused, it extends Coke’s allegiance with soccer, a massive global sport with resonance among newcomers to North America.

The NBA is also gaining in global popularity – Monday’s deal gives Pepsi’s partner in China, food and beverage company Tingyi, exclusive partnership rights with the NBA in that country, where basketball is on the rise.

“China is having a love affair with the NBA,” Tingyi Holding Corp. CEO James Wei said in a statement. “The opportunities the NBA partnership offers us with Chinese fans and consumers are limitless.”

Basketball is particularly popular among young people.

“Pepsi as a brand speaks more to an NBA audience,” said Brian Cooper, president and CEO of S&E Sponsorship Group. “It’s a more youthful, fresh and pop culture-based angle in the marketing of their product than Coke has done. Coke markets itself on emotion, usually.”

Coke has also sponsored the Toronto Raptors since the team was created in 1995.

Both sports are growing most among 18-to-34 year olds, Mr. Hendren said.

“Millennials are a hard group to reach, and the reason that sports is of interest to brand marketers these days is it’s the one piece of content that‘s viewed live,” he said. “And it can be pushed to multiple platforms,” where younger viewers are found.

PepsiCo declined requests for an interview on Monday.

Coca-Cola wanted to take advantage of soccer’s growth in the United States, Melina Baetti, manager of brand and business communications said in an e-mail.

“We remain fans of the NBA and have shared remarkable experiences during our 28-year partnership,” she added. “As the landscape and our business evolves, it’s critical we focus on the most effective and efficient investments to maximize brand growth. However, we will continue to have a strong presence within basketball culture through our relationship with iconic players, individual teams and venues.”

This story corrects an earlier version that incorrectly stated Pepsi is a sponsor of the Toronto Raptors, instead of Coke.