How to Manage Unexpected Risk for Effective Sports Sponsorships

November 8, 2024

The success and sustainability of sports sponsorships depend on the ability to effectively calculate and manage risk.

We will focus on advanced methodologies like the Value at Risk (VaR), as well as critical factors such as corporate visibility, target audience, and the stability of events or athletes.

These elements significantly impact the decision to invest in this sector.

Challenges of Sports Sponsorships

Firstly, it’s important to understand that sports sponsorships present a unique set of challenges.

The deal between Adidas and FIFA, extending until 2030, represents a long-term investment with potential performance variations.

Similarly, the partnership between Nike and Michael Jordan, which began in 1984, has evolved into a cultural phenomenon, demonstrating how sponsorships can transcend sports.

Value at Risk in the Sports Context

The VaR is a risk indicator used in financial operations to quantify the probable maximum loss over a specific time horizon.

In sports sponsorships, it considers variables including brand exposure, audience engagement, and the performance of the athlete or event.

For example, Red Bull, closely associated with extreme sports, relies on this metric due to inherently high risks.

Brand Exposure and Target Audience

Corporate visibility and alignment with the target audience are crucial.

A match between brand values and athlete characteristics, as seen with Puma and Usain Bolt, can enhance exposure and impact.

Conversely, Jeep’s sponsorship of Juventus demonstrates how a globalized audience can extend a brand’s reach beyond traditional boundaries.

A Critical Variable

The stability and predictability of the athlete or event are also essential.

The collaboration between Under Armour and Stephen Curry, for instance, reflects the potential of a consistently performing athlete.

On the other hand, Tiger Woods’ reputational crisis in 2009 highlights the perils associated with sponsoring individual athletes.

Integrated Risk Management Models

While the VaR provides a quantitative estimate, it’s crucial to pair it with qualitative approaches.

A more holistic view can be offered by customized matrices and SWOT analysis, which examines strengths, weaknesses, opportunities, and threats.

Coca-Cola’s Olympic strategy also includes sentiment analysis and social media monitoring to weigh the impact of the investment.

Calculated Risk in Sports Sponsorships

Risk assessment requires a balance between quantitative and qualitative analysis, considering brand exposure, target audience, and the stability of the event or athlete.

Adopting models like the VaR, along with other analytical tools, will enable brands to navigate more securely through the complex universe of sports sponsorships.

If you’d like a free consultation to discover what kind of sponsorship might suit you, contact us. We’re waiting for you!