The traditional investment approach to sports sponsorship

The oldest and perhaps most effective approach to investment has been investing in poorly priced assets that are likely to accelerate in value in future. At the point of investment, such assets would be seen as less valuable hence can be acquired at a much lower price. A strategic investor will often try to be the one to sponsor the one asset he/she knows will be highly valuable in future but is currently not being fought over as its value is not apparent to all. Such an asset is then acquired at a very low price and improvements made to it to realise the higher value that the investor envisioned at the point of acquisition. If this principle is applied to investment in club sponsorship, it can be extremely valuable to the organisation.

The value of club sponsorship is determined using a number of criteria. Key among them is the performance of the clubs. The better performers are guaranteed to give their sponsors more coverage in the leagues or tournaments. They therefore give better coverage and publicity for the brand. This is why better performers have their sponsorship deals priced higher than the poor performers. The current deal for sponsorship at FC Barcelona is £120millon per season while that for Chelsea is £60million per year. This disparity can be justified partly by the performance of the clubs. Performance is the easiest metric to measure because the statistics are clear and do not require much research to determine. However, in the interest of prospecting, the sponsor must analyse the trends to understand the likely future performance of the club.

The most profitable deal would be where a sponsor invests in a small non-performing club which then springs suddenly to be at the top of the league for the duration of the sponsorship. Even though such instances have been less common, they cannot be ruled out. This brings in the aspect of understanding of the league and the sport in general. Strategic managers must seek to ensure that they have all the relevant information they need to make a stable decision in this regard. If, for instance, a poorly performing club is noted to have all the fundamental characteristics of a strong team and that they are only derailed by lack of finances, then sponsoring such a team could be profitable. The finances provided would lead to them improving significantly hence realise the value needed by the sponsor.

But even though this is potentially the most profitable strategy, the risks are equally high. The probability that a team at the bottom of the pool would rise to the top is very low. This is because the league leaders tend to be dynamic, highly skilled, disciplined, and well-financed. But where determined to be possible, this would often turn out to be the golden goose that laid the golden eggs. This thinking might just have informed the Nike £900 deal with Chelsea. They may be foreseeing a much stronger Chelsea in the 15yr sponsorship duration and expect to reap more benefits than currently foreseeable. After all, Chelsea appears to possess all the qualities of a potentially great team.