Professional Interpretation

Ⅰ.Concept analysis of sports sponsorship

Sports sponsorship has developed rapidly in the world. The field of sports sponsorship has expanded from the previous sponsorship of only a few popular sports, sports clubs and large-scale sports events to individual sports events, small competitions and sports organizations. Sports sponsorship is a mean of marketing communication between the providers (sponsors) of funds, in-kind or service and the sports subjects who receive sponsorship and return corresponding rights and interests. As the name implies, sports sponsorship is a special business practice. The carrier of sports sponsorship is sports event participators, including athletes, teams, organizers and sports events.

Ⅱ. Risks analysis of sports sponsorship

In sports events, enterprises promote their popularity and reputation through sponsorship, and on the other hand organizers receive funds from sponsorship. It can be said that sponsorship has become an indispensable part of sports events. Moreover, even if the sponsorship fees are escalating, the enthusiasm of enterprises to sponsor sports events continues unabated. However, sports sponsorship brings both funds and risks to sports events. The main risks of sports sponsorship are including the following ones:

1. Financial risk

The core part of sports sponsorship is the transfer of funds, so financial risk involved in sports sponsorship is also the most concerned one. Financial risk refers to the risk involved in various activities related to currency or other thing can be measured in currency. Financial risk of sports sponsorship is usually formed by two reasons, sponsors’ quit and sponsors’ default.

The first point is the risk of sponsors’ quit. Due to some sponsors are lack of long-term strategic vision and risk awareness, they are always eager to get the expected benefits in a short time. Once returns cannot match their expectations, some sponsors choose to quit. Or because of some sponsors are running into financial problems and are able to afford of the high sponsorship fees so that they opt-out.

The second point is the risk of sponsors’ default. Some sponsors have pledged to provide a certain amount of money and have signed sponsorship agreements. However, due to some reasons they fail to perform or only partially perform the agreements, leading organizers are unable to carry out their work as planned, or even preventing the competitions from going on.

2. Reputation risk

Reputation risk refers to the situation that sponsors have problems in their own operations during the sponsorship period, which lead to deterioration of the sponsors' brand image and a negative impact on the reputation of sports events.

As for reputation risk, sponsors consider more about the impact of sports events’ deteriorating brand image. And vice versa. In 2008, when selecting sponsors, Beijing Organizing Committee for the Olympic Games (hereinafter referred to as “BOCOG”) took full account of the long-term factors. BOCOG thought that if the sponsors were going to bankrupt in a couple of years, it would tarnish the image of the Olympic Games. As a result, once the sponsorship contracts are signed, organizers’ fate and sponsors’ fate are closely linked.

3. Personnel risk

Personnel risk mainly refers to the problems of personnel’s immorality or their limited technical and operational capabilities. Most of the time, personnel risk affects sports events’ bidding, preparation and holding. Due to the late start, intermediary market of sports in China is still immature, so no matter in personnel quality or marketing operation experience, domestic sports intermediary organizations are far behind the large overseas ones. Therefore, personnel’s limited experiences, problematic psychological and moral conditions directly bring risks to the implementation of sponsorship.

4. Legal risk

The related legislation of large-scale sports events is not complete yet. Laws and regulations lag behind, and rules have defects in objectives, systems, contents and procedures. Current legislation system is not able to keep up with the development of society and the innovation of sports events management. Some related fields of large-scale sports events cannot even be protected by corresponding laws. All of these lead to the frequent occurrence of some infringements, negative legal consequences and huge losses of the relevant stakeholders.

5. Competitive risk

Competitive risk mainly refers to the risk of unfair competition among the sponsoring enterprises.

There are two main ways for sponsors to compete unfairly. First, the sponsorship is out of order. For example, Ding Junhui, the runner-up of the 2010 World Snooker China Open, was wearing both Mengniu Dairy’s logo and Sanyuan Dairy’s logo. However, Sanyuan, as the title sponsor of this sport event, its own rights and interests were seriously violated.

The second is covert marketing. Some enterprises do not pay sponsorship fees to organizers, but seek to links with such sports events in order to confuse target audience and make profits. As a result, the real sponsors suffer losses.

These two ways both influence real sponsors to get benefits, and disrupt the order of whole sponsorship system.

6. Contract risk

For sponsors, the risk is that the subjects who receive funds violate contracts or perform improperly, so that sponsors can not get benefits or returns. For the subjects who receive funds, the risk is that they have little experience in signing contracts or supervising the sponsors' performance. Thus, no matter who breaches contracts could hinder the sports events’ successful completion and could harm the other party's interests. Therefore, the importance of contracts in the sponsorship behavior is self-evident. Strict performance of the terms of contracts helps to ensure the interests of both parties.

III. Suggestions of avoiding risks in sports sponsorship

According to risk management theory, risk management is a process of making, implementing and managing risk management plan. In view of the above risks, the following measures should be taken to avoid such risks.

1. Perfecting legislation and strengthening support of government

We should perfect the legislation system and make necessary regulations and instructions based on the nature of sports sponsorship, the interests and rights of sponsors, sports subjects and the intermediary organizations. Then, the legitimate rights and interests of sponsoring enterprises can be protected by law enforcement. Development of sports sponsorship is also able to be promoted through a flexible market mechanism and attitude. Government could provide favorable treatments in order to encourage various enterprises and individuals to sponsor sports events.

2. Playing the role of bridge and raising the level of sponsorship

Due to limited resources and the asymmetry of information, intermediary organizations and media become the bridge of communication between economic entities. Therefore, we should strengthen the training of high-level sports agents who understand laws and management, so that sponsoring enterprises can cooperate with media smoothly. Sponsors also should make full use of media and increase the benefits of sports sponsorship to the greatest extent, so as to effectively reduce the risk of sponsorship.

3. Establishing marketing strategy and carrying out integrated marketing

Enterprises should include sports sponsorship in their development strategy. Also, it is necessary to use sports sponsorship as a platform to closely cooperate with other means of communication, such as advertising, promotion and so on. At the same time, sports sponsorship should adhere to long-term continuity. In order to reduce the risks of sponsorship, sponsors should make good use of the sports stars’ effect, and carefully select the forms of sponsorship according to their own goals. Before sponsoring, enterprises should consider the internal and external environment of the sports sponsorship market thoroughly and carefully, in order to formulate the correct sponsorship strategy.

4. Reducing covert marketing

Because of low cost and large profits, the internal drive of earning high profit makes some enterprises carry on covert marketing through various forms. Hence, for inhibiting the development of covert marketing, we should strengthen the enforcement of sports laws and increase the marketing cost of covert marketing. Reducing covert marketing can help safeguard the interests of organizers and ensure sponsors are not infringed.

5. Establishing effect evaluating system of sports sponsorship

When enterprises put a lot of manpower, material resources and funds into sports sponsorship, they should concern about whether these investments are reasonable and whether they have achieved the desired results. According to evaluation, sponsoring enterprises can find the deficiencies of sponsorship program in design and implementation. Only through evaluation can enterprises have a clear idea of the effect obtained after the sponsorship, and then enterprises can get a reference for the marketing activities in the future.

V. Conclusion

Sports sponsorship is a vital field, but it has not been fully developed in China. On the whole, sports sponsorship is still an industry with both high risk and high returns. If enterprises want to get benefits from sports sponsorship, they should be careful and do some researches. Through the researches on the risks of sports sponsorship, Corporate Business Team of Beijing Docvit Law Firm gives suggestions of risk-avoiding measures, in order to reduce the possible risks in sports sponsorship and promote the healthy development of sports cause.