Brendan O'Brien: Sponsors and TV companies scrambling to comb through contracts

Brendan O'Brien: Sponsors and TV companies scrambling to comb through contracts

That screeching sound we all heard last month was the brakes being pulled on the $500bn (€462bn) global sports industry. Almost overnight, a sector whose value seemed to be on a one-way ticket skywards was brought plummeting back down to earth and no corner of the planet has been able to find a bunker deep enough to escape the reverberations.

A 2010 Indecon report commissioned by what was at the time the Irish Sports Council, found that sport in Ireland generated €1.9bn in household spending every year between club subscriptions, gate receipts, clothing and footwear, and sport-related travel.

That’s 10 years ago in the midst of a recession. The industry has blossomed since or, at least, it had until the coronavirus arrived and changed the playing rules for everyone.

Big sports bodies here and everywhere else rely on a three-pronged income model from the private sector: Gate receipts, TV rights, and sponsorship.

The first of those has been wiped out by the shutdown, what happens the second depends on if and when sport can return — and in what form — and the third is, similarly, very much up in the air.

Irish sport has rebounded spectacularly since the last financial crisis. Take the sponsorship pie as an example. By 2008, this was a market worth roughly €132m. Within three years it had shrunk to approximately €118m.

By the end of 2019 it had ballooned to an estimated €224m. That’s close to a 100% bump in a span of just seven years.

A report at the end of last year by Onside found this exponential rate of growth was due to slow slightly this year because of what they stated was “a state of flux due mostly to social, technological and economic changes impacting all forms of business and marketing”.

Another report by the same company, two weeks ago, found that the number of sports sponsorships in the first quarter of 2020 dipped by 14% compared to the year before, but the first financial quarter can be a quiet one in terms of new deals anyway.

It will be the second quarter before we really know how the market is being affected by this pandemic.

What we know already is that sports and sponsors and TV companies have been scrambling to comb through contracts that normally lay gathering dust after being signed in an attempt to discover just where they stand and what courses of action remain open to all sides as this uncertainty winds on.

“The amount of new deals this year will certainly be lower than we would have seen in previous years,” said John Trainor, CEO of Onside. “I think what will happen is a lot of the contracts, and certainly the ones that we would have worked on, would have significant long-term spend investment behind them.

“They will have pretty comprehensive detail in them and this now-famous force majeure clause within that provides some protection and framework around what happens next.

There are different versions around the force majeure clauses. Some of them would be better than others but they are all going to be brought up and considered.”

One theory is that many of the current deals might simply roll on beyond the agreed term so that if the current crisis paralyses sport for 12 months, then the contract in place would stretch on for the same period again to make up for the time and exposure lost.

There is also the possibility, of course, that some businesses in a position to trigger termination clauses could do so.

Jill Downey, managing director of Core Sponsorship, touched on the idea of delayed activation when speaking to the Irish Examiner last month and using Vodafone’s backing of the Irish rugby team as an example of what can be lost and what can still be rescued.

Vodafone is shirt sponsor for the senior rugby side but activates its link by virtue of perimeter boards, backdrops in interviews, advertising campaigns, and through sponsorship of Virgin Media’s live Six Nations coverage.

That left the company well short of projected exposure levels when Ireland’s games against Italy and France were postponed but there is still the possibility this can be recovered if those games are played later in the year, even if it would be in the midst of a crowded calendar.

Extending terms would give sports organisations the room to rebound from this initial shock and there has been some indication that at least some clients have explored the idea of supporting rights holders with early payments to keep them on their feet.

This is all new territory, for everyone, but the fact that the sponsorship market in Ireland only suffered a €14m dip through the three worst years of the financial crash is a source of optimism and the fact is that even financial institutions engulfed in the very maw of that trauma continued to run sponsorship campaigns through it.

You could argue that maintaining spend on such an elective area isn’t the best look when a company is in financial trouble and/or shedding employees but what is inarguable is the fact that the sponsorship market as a whole has become a much more sophisticated area of operation than was the case back in the dark days of 2009 and the period that followed.

“What has happened in the decade since has been proof that this works for all sides and, by all sides, I mean sponsors, rights holders, and fans,” said Trainor.

It has matured in such a way where the investment made has created this general public buy-in to what sponsors are doing.

“You have to remember that in the early days of the recession things like activating sponsorship weren’t clearly understood: The understanding that there was a need not just to buy the sponsorship but to spend almost the same amount of money again in showing people how it works.

"Those activation campaigns made people understand that actually this sponsorship stuff isn’t just about putting a sign on the side of the pitch, but about making sure that the experience you have at the game is better and better.”

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