As Russia 2018 progresses and pre tournament favourites continue to fall, the current World Cup is shaping up to be one of the most open and unpredictable ever. And now, as the coaches and players prepare for the battles ahead, there will also be frantic activity in the marketing departments of some of the world’s leading brands as they calculate the cost of progress.
Every team at the World Cup has a stable of domestic and /or international sponsors and it is standard practice for sponsorship agreements to include bonus payments made by sponsors to teams and individual players, depending on how far they go. This is entirely logical as the longer the team remains involved and the more successful it is, the more value is delivered to each sponsor.
But the uncertainty which is fundamental to football’s attraction and power as a marketing tool, also makes planning the financial impact of a sponsorship campaign tricky. Brands want their teams to succeed – that’s a win-win – but funding bonuses out of cash flow is something the CFO may well object to as the ultimate liability is unknown and could rely on a missed penalty, a poor refereeing decision or a goalkeeping howler. And, as the textbooks tell us, businesses tend to distrust uncertainty.
While the sponsors of the final 16 at Russia 2018 may all have had reasonable expectations of their team’s progress to this stage at least, things could have been very different had early results gone a different way.
Nigeria and even Iceland, were both in with a shout until the final minutes of the final game and their sponsors would almost certainly have seen bonuses payments escalate hugely if they had unexpectedly made the cut.
Sports and Entertainment organisations
The principle is the same in both cases - finding an appropriate and financially logical way of insuring against unpredictable financial demands - effectively a loss – which is triggered by a certain set of unknown/unpredictable circumstances. It is a principle which can and is also routinely applied by sponsors to cover give-aways and competitions which are built into their campaigns.
As a hypothetical example, a company offering money back to anybody who buys a particular brand of television during the first week of the World Cup should England go on to win would likely see it as an attractive sales offer. The company is then able to calculate its likely exposure – based on knowledge and previous experience and insurance specialists can find the most appropriate cover against the potential hit. The cost of the promotion then becomes the premium rather than the hard cost of producing TVs and shipping them to customers for nothing.
Federations themselves often do the same thing to cover the bonus pool contracted to squad members depending on how far they go in the tournament. Should Russia win Russia 2018 the players will share a £5 million pool which looks like peanuts compared to the £17 million the Brazilians will divvy-up if they lift the trophy. It’s big money and, if uninsured, can leave a big hole in a federation’s coffers.