Red Thread

Stop Press. FIFA collapse imminent. (not)

Whenever large sponsorship sums are involved, there is so much nonsense talked.

Take the latest news : the absence of national sponsors for the FIFA World Cup in 2018. ForbesSports Business Daily, the New York Times, the Guardian and even the usually right-talking Mark Ritson are all jumping on the bandwagon of karmic judgment. (Top marks to WSJ.)

The collective projection is that FIFA’s history of appalling governance is finally catching up, sponsors are fearful of association and that a cash crisis is looming for Gianni Infantino unless he flees to ignorant sponsors in China. Let’s take a closer look.

The coverage is based on the fact that only one domestic business – Alfa Bank – has occupied any of the 20 slots available to local sponsors. Ergo, 19 slots stand vacant. But, if we look back across the last 20 years of FIFA WC sponsorship, FIFA has never managed to sell 20 national sponsorships, or even 10. The average is six or seven. Now, while FIFA might have shown unpardonable lack of self-awareness in the past, they could never be accused of not keeping their eye on the money – so it’s hard to believe FIFA naïve enough to budget revenue for 20 local sponsors, instead of a prudent five or six.

Besides, domestic sponsors just represent the icing on the cake in terms of FIFA Marketing Rights: the lack of six domestic partners (at US$8m each) equates to less than a percentage point in broadcast rights inflation.

Financially, it really isn’t doom and gloom for FIFA : according to their 2016 accounts, 76% of revenues for the 2015 -2018 cycle were already contracted. And, as FIFA is now adhering to the new International Financial Reporting Standards, and IFRS 15 in particular, its financial reporting is very clear.

The second part of the theory is that local Russian businesses have been deterred by FIFA’s corporate reputation. Seriously?

Two reality checks here. At least.

One: sponsors simply don’t walk away from a major platform such as FIFA WC because they disapprove of the ethics of a rights-holder. Sponsors may disapprove. They may exceptionally go public. But they don’t walk away. An ambassador yes, but not a rightholder. To believe that Emirates passed up another two cycles of sponsorship because of FIFA’s behaviour is just wishful thinking.

Two: there is no evidence that sponsors are negatively impacted by rightsholder reputation. For consumers, businesses are sponsoring the World Cup – which happens to be run by FIFA. Simple as.

It’s a very whimsical notion to imagine that Russian businesses are so brand-conscious that they are turning their backs on World Cup sponsorship because of a toxic FIFA brand. There are three altogether more innocuous and more likely explanations for a lack of local sponsors.

  • the practise of sponsorship is not so developed in Russia and businesses do not fully understand how to generate value. We’re currently working in 15 markets and each market views the value and the practice of sponsorship differently;
  • the political sponsorship which delivered such staggering corporate revenues for Sochi 2014 is not present for FIFA WC 2018;
  • sponsorship of Sochi 2014 did not make for a great case study for sponsorship impact in Russia.

What’s more material – from a sponsorship perspective – is FIFA’s inability to fill its full roster of World Cup Partners, the lower tier global partners. Rights fees for these are more opaque but estimates stand at an average contract value of US$65m.  In 2014, FIFA had 8, now it has 4. So their absence is more significant – because their revenue impact is far higher and because they’re a better barometer of corporate willingness to have FIFA as a bedfellow.

Patrick Nally, who famously helped set up FIFA’s first international marketing program four decades ago, put it bluntly: “Unless you are from China or somewhere like that, …. no corporation is going to consider it safe to get involved with FIFA.”

But quite often what we see in comments like that is nothing but a form of neo-colonialism. FIFA is far from alone in looking to China: many western football teams have welcomed Chinese investment, without attracting the scorn reserved for FIFA. And, as well capitalised, commercially bullish but almost unknown Chinese mega-brands increasingly look for a world stage, FIFA WC provides a platform with incomparable value.

It is fair to say that FIFA’s reputation could put off western businesses from contracting sponsorship, but, practically, that’s a lag in perception. At Redmandarin, we were openly critical of FIFA under the direction of Sepp Blatter. But so far as reputation is concerned, FIFA is now making all the right noises to be able to claim that poor governance is a thing of the past. Given the strength of the platform it offers, potential partners will be more than happy to believe in FIFA 2.0.

What is far more plausible as an explanation is that the dubious selection of Moscow and Qatar as hosts for the next two WCs substantially reduces the appeal – and to a lesser extent the value – of sponsorship until 2026.

As soon as South Africa was announced, or Rio, it was easy to imagine a colourful, warm and exuberant celebration of world football. The largest association with Russia, on the other hand, is suspected state sponsored violence at Euro 2016. Qatar doesn’t evoke a carnival of football, but heat, bribery and an event devoid of football spirit. And although the FIFA WC is a global property, potential commercial value within the host nation is a very real factor for sponsors. In Russia and Qatar, it’s difficult to see much upside.

FIFA still has a mountain to climb. There are weaknesses with its very sponsorship model which will continue to inhibit sponsorship by B2B businesses. It risks reducing itself to a mere promotional mechanism – albeit the largest on earth. But although FIFA has been guilty of reckless arrogance and appalling governance in the past, it is changing. But large organisations are slow to turn around. Media opinion can be even slower. It’s clear that many people want to see FIFA humbled. (FIFA, a demonstration of contrition would be welcome.)

By all means, let’s keep up the scrutiny on FIFA. But let’s also be clear that sponsorship, properly practised, imposes regular commercial disciplines. And simplifications about toxic brands are rarely helpful or instructive.