Reputational Risk Management in Sponsorship

Imagine having to wake your CEO in the middle of the night because a tragic incident at a music festival, where your brand is a major sponsor, has resulted in fatalities due to an active shooter at the event site.

The two most valuable assets that a property or rights holder provides a sponsoring brand are intellectual property (IP) rights and data. IP rights deliver borrowed imagery and associative benefits to the sponsoring brand. These associative benefits and borrowed imagery can build brand equity for the sponsor’s brand but can also sometimes erode it.

Sponsorship portfolios inherently carry a degree of reputational risk, which can become significant when unforeseen events impact a property partner. In our experience, few sponsors are adequately prepared or protected when things go wrong for a property partner —sometimes horribly wrong.

Several high-profile examples illustrate the potential for reputational risk in sponsorship.

·?????? 2010: Tiger Woods went through a very public adultery scandal

• 2013: The Boston Marathon bombings resulted in three fatalities and hundreds of injuries
• 2015: Nine FIFA officials were indicted on racketeering, conspiracy and corruption charges
• 2017: An active shooter opened fire at the Route 91 Harvest Music Festival in Las Vegas
• 2022: Canada's national sporting organization (NSO) for ice hockey faced a lawsuit over alleged sexual assault by national team athletes, an alleged assault that the NSO allegedly attempted to covered-up

The Necessity for Sponsors in a Crisis

When a crisis involves a rights holder or a sponsored individual, sponsors need to:

• Protect their brand health
• Demonstrate their brand values in their communication and actions
• Be thoughtful and responsive in the crisis

The best way to approach this necessity is to:

• Understand the risk
• Preplan communication and action
• Get internal alignment to the preplanned communication and action plan before a crisis

Categories of Reputational Risk in Sponsorship Portfolios

Reputational risk for sponsors related to their sponsorship portfolios tends to fall into four buckets:

1. Governance and Transparency: Issues related to the leadership, employees, and governance practices of the rights holder.
2. Illegal Activity and Misconduct: Involves illegal actions or misconduct by the rights holder's leadership, employees, or associated individuals or by sponsored athletes, entertainers, influencers.
3. Life Safety: Risk around the safety and security of live events organized by the rights holder.
4. Environmental/Sustainability and Social Equity: Encompasses the environmental, sustainability and social impact of the rights holder's operations or the stance of sponsored athletes, entertainers, influencers around the same.

Proactive vs. Responsive Risk Management

Taking a Proactive Approach to Risk Management

Proactive risk management involves understanding potential risks and working with property partners to mitigate them. This approach is crucial for managing Life Safety and ESG and Social Equity risks.

We use several tools in our work with brand owners to help understand and respond to these kinds of risks.

Life Safety Scorecard

Our Life Safety Scorecard assesses risk around:

• Inclement weather response plans
• Live event cancellation and postponement plans including site evacuation protocols
• Foot, water, and hygiene safety protocols
• Security and first responder support plans
• Emergency communication plans
• Active shooter and terrorist threat protocols

Social Equity Scorecard

Our Social Equity Scorecard assesses a rights holder’s position around:

• Diversity and inclusion
• Accessibility
• Hiring and employment practices
• Community support
• Sourcing practices
• Employee training

Sustainability Scorecard

Our Sustainability Scorecard assesses a rights holder’s position around:

• Renewable energy
• Waste management
• Single-use plastics
• Water consumption
• Carbon footprint
• Internal and external communication

These scorecards help brand owners understand and have confidence in a rights holder’s preparedness to manage crises around life safety and understand any gaps in a property partner’s position on ESG relative to the sponsor’s own position.

Responsive Risk Management

Responsive risk management addresses risks that can be more challenging to evaluate, such as Governance and Transparency and Illegal Activity and Misconduct. These risks involve:

• Governance and Transparency: Ensuring minimum governance standards exist within a rights holder’s organization, like policies around how allegations of sexual interference are managed.
• Illegal Activity and Misconduct: Expecting the leadership of a property/rights holder to comply with the law.

The number of actors involved in these kinds of risks adds complexity:

• Inside the partnership: Individuals (CEO, board member, coach, athlete), groups (coaching staff, board members), and institutions (entire c-suite, board, organization).
• Outside the partnership: Governing bodies (global or national sports bodies) and other stakeholders (funders, other sponsors).

Our Approach to Responsive Risk Management

We develop standards for each client that align with their industry and organizational values. This includes:

• Morality Clauses: Well-thought-out morality clauses in contracts detailing consequences of breaches.
• Scenario Plans: Specific scenario plans for significant properties in the portfolio, including conditions and leadership-approved responses, including for terminating sponsorship agreements if necessary.
• Pre-Drafted Communication Tools: 85% complete media releases, employee and investor statements, and letters to regulators, pre-approved by leadership, enabling rapid response in a crisis.
• Emergency Protocols: Guidance on when to alert the brand owner’s executive team, Board of Directors, Inside Legal Counsel, Customers.

Effective reputational risk management in sponsorship necessitates both proactive and responsive strategies. By preparing in advance, sponsors can protect their brand and demonstrate their values during a crisis. Need support in managing your sponsorship portfolio? We can help you avoid common mistakes and develop comprehensive risk management plans tailored to your needs.