Peter Yannopoulos is professor of marketing and business strategy at Brock University's Goodman School of Business.
As the FIFA corruption probe continues to grow, we are reminded there's nothing like a scandal to give corporate sponsors an anxiety attack.
In recent years, the concept of corporate sponsorship has become an increasingly popular communications strategy, usually for companies that have become dissatisfied with traditional marketing methods.
These deals typically involve supporting and associating the corporation with any number of causes, events, sporting teams, athletes and non-profit organizations.
Corporations see sponsorship agreements as a way to achieve higher visibility, improve brand image, reach current customers and access new ones. In providing that access, a sponsored team or event becomes a marketing communication medium that transmits the sponsor's message to its audience and links the values of the sporting event with the sponsoring corporation.
But despite the allure of such benefits, there is always risk when companies use sponsorship as a marketing vehicle. Look no further than semi-professional and professional sport, which for a hundred years or more has been no stranger to reputation-killing scandal.
The corruption spectacle that is engulfing FIFA, and captivating audiences worldwide, perfectly illustrates the perils of corporate sponsorship. Ever since an initial May 27 police raid arrested nine senior officials at the opulent Swiss hotel where FIFA was holding meetings, furrow-browed CEOs and damage-control spin doctors at companies such as Adidas, Coca-Cola and Visa have been contorting over their once-prestigious FIFA and World Cup sponsorships.
Corporations must be prepared to accept a certain amount of danger when associating with public figures, teams or organizations, and the impact this may have on their brand due to their relationship with them.
A major risk exists when the sponsored athlete or organization receives negative publicity. If odious incidents change or damage the sponsored team or athlete's reputation, this in turn can taint the brand of the sponsoring organization. Such negative events can range from substance abuse to serious criminal charges brought against the athlete or members of the organization.
Corporate sponsors view matters of corruption seriously, and expect their partners to operate with transparency and uphold high ethical standards. For protection, most sponsorship contracts include clauses for termination on grounds of improper behaviour, and some sponsors take out insurance to offset financial losses if it all ends badly. But their reputational damage can linger for years.
Different sponsors react differently. While many terminate their agreements following a negative event, others just keep a low profile and distance themselves until the storm passes.
U.S. Olympic swimming sensation Michael Phelps was one of the most sought-after spokespeople in the world, with an earnings potential of up to $100-million (U.S.). Mr. Phelps had deals with Speedo, Omega, Subway and AT&T. But when he made headlines for an impaired driving charge, the food giant Kellogg withdrew its sponsorship, saying his behaviour was not consistent with the company's image. Other sponsors stayed with him, but laid low until the negativity subsided.
In 2009, Tiger Woods was earning about $100-million annually in endorsements alone. After his sex scandal, sponsors like Gatorade, Accenture and AT&T dropped him, while Gillette limited Mr. Woods's role in its marketing strategy. Nike, on the other hand, decided to stick with him. Studies have shown that shareholders of Mr. Woods's sponsors lost $5-billion to $12-billion in market capitalization in the wake of his downfall, while competitors that didn't endorse him benefited from the scandal.
There is widespread belief that the corruption scandal has damaged FIFA. Even massive global sporting organizations such as FIFA, UEFA and the Olympics depend on corporate sponsorships and advertising rights to fund their operations. Losing these revenue sources could mean the end of these organizations.
FIFA will have to respond carefully, not only because some of its top officials have been arrested, but because its sponsors – including McDonald's and Anheuser-Busch InBev – have voiced serious concerns and suggested they may eventually sever their ties if no responsible action is taken.
There's certainly precedent. In 2014, Sony terminated its FIFA sponsorship over concerns about the process for awarding the 2018 and 2022 World Cups. Other corporate giants to have abandoned FIFA include Johnson & Johnson, Castrol and Emirates Group.
With so much on the line, there is an expectation that FIFA will take action and eradicate any corruption. This week, we likely saw a step in this direction with the abrupt resignation of FIFA president Sepp Blatter just days after his re-election.
The stakes are enormous. In the four years leading up to the 2014 World Cup, FIFA brought in $5.7-billion from sponsorships and advertising rights. Of that, it dispatched $5.4-billion to member organizations, FIFA football programs and other events.
A mass defection of sponsors and advertisers would be staggering, not just to FIFA but to member organizations and football programs around the world who depend on FIFA disbursements for their survival.
As for corporate partners, Mr. Blatter's departure created a firestorm in social media and, in terms of pure numbers, gave FIFA sponsors a huge spike in public attention to their brands. Within minutes of the announcement, Twitter mentions soared 525 per cent for Budweiser, while Coca-Cola mentions almost doubled, Visa was up 71 per cent and Adidas mentions rose 53 per cent.
But whether this can be considered positive publicity is another question. The Tiger Woods experience suggests not.