The association between Emirates and Arsenal is very well-known in the global sports market. Emirates has been sponsors of Arsenal since signing a record-breaking 15-year sponsorship deal in October 2004. The deal was, at the time of its signing, the largest sponsorship agreement ever seen in British football, and was touted as a partnership between Emirates and “one of Britain’s most successful clubs and one of the world’s biggest sporting brands”.
As iconic a club Arsenal has been, its bare trophy cabinet over the last decade has prompted Emirates to structure a “pay for performance” model into its sponsorship agreement with Arsenal.
Boutros Boutros, Senior Vice-President of Emirates, was quoted in UK’s Mail Online, “There are certain clauses, from 2015, that we pay them a percentage less if they don’t perform… The Champions League is part of the new contract. It’s just to keep them on their toes…It’s fair to us and fair to them.”
While it can be argued that “pay for performance” clauses are particularly risky in the context of sport, where fortunes fluctuate based on a number of factors such as luck, team form, individual player form, form of opponents, refereeing decisions, it can equally be argued that these factors balance out in the medium to long term. Ultimately, the performance of a team can be clearly measured. As long as the performance metrics are clearly known and documented at the time of commencing a sponsorship deal, I would argue that such clauses are not only fair but can also serve as an effective external check on a sporting body’s corporate governance practices.
Let’s take the case of the Board of Control for Cricket in India (BCCI). When was the last time anyone heard Nike or Sahara or any other BCCI sponsor say, “There are certain clauses, that we pay them a percentage less if they don’t perform.”
If one were to objectively benchmark the performance of the Indian Cricket Team over the last 18 months, would there be any business rationale for Sahara and Nike to stay invested at the levels that they had committed to when they signed their sponsorship agreements? Would it not be fair for them to slash a percentage of the sponsorship dollars based on the Indian Team’s performance?
How about inserting clauses in the sponsorship agreements which peg the release of the annual sponsorship fees to the ICC Team Rankings achieved by Team India in a particular 12 month cycle? For example, let’s say that Sahara has committed to pay $600 million over 10 years, through 10 equated annual installments of $60 million. Of the $60 million per year, $20 million each is attributed towards each form of the game i.e. Test match cricket, ODIs and T20 Internationals. Let’s assume that the ICC Team Rankings is agreed to be deployed as a benchmark. How about deploying a pay for performance structure such as the one outlined below?
|ICC Test/ODI/T20 International Ranking Achieved||Percentage of Sponsorship Released to BCCI|
Since sponsorship and television broadcast form the biggest chunk of the BCCI’s revenues, one would imagine that a “pay for performance” structure would galvanise the entire BCCI machinery into ensuring that the strength of the Indian Team in all formats is maintained at as high a standard as possible. Would the BCCI then continue to justify India’s dismal Test record in recent times by attributing it to “bad luck”, “green pitches”, “loss of key players due to retirements”, “a transition phase”? One would think not.
To borrow Boutros Boutros’s quote, it would “keep them on their toes“.
(Amrut Joshi is the Founder Partner at Gamechanger Sports Ventures, www.gamechangerindia.com, a professional sports consulting firm)
First Published: January 5, 2013, 1:43 pm