Sponsors have hit back and with a vengeance.
First, it was their demand for probity in FIFA affairs with Coca Cola, McDonalds, Visa and Budweiser seeking Joseph Blatter’s ouster.
Blatter responded with his characteristic bluster failing to acknowledge the winds of change.
His own Ethics Committee reacted less than a week later suspending him and his lieutenant Michel Platini for 90 days.
In India, Pepsi India served notice to the BCCI over its inept handling of the spot-fixing and betting scandals threatening to pull out of the title sponsorship.
The newly elected BCCI working committee has its hands full when it meets on October 18 to discuss the issue.
Blatter’s troubles originate with the Ethics Committee’s investigation into allegations of under-the-table payments to its former marketing partner International Sports and Leisure (ISL) in 2013.
Blatter’s mentor and godfather João Havelange resigned as honorary President. Blatter was given a clean chit.
Matters came to a head this year when the Federal Bureau of Investigation(FBI) and the Internal Revenue Service Criminal Investigation Division (IRS-CI) arrested seven FIFA officials and indicted 14 on charges of racketeering, wire fraud and money laundering.
Since FIFA employees are not government officials, the US government cannot charge them for bribery. Federal laws prevent them from doing so.
Blatter resigned four days after his re-election for an unprecedented fifth time.
Blatter was first elected president in 1998.
The arrests triggered separate inquiries in Australia, Colombia, Costa Rica and Switzerland.
Part of the Swiss investigation involved a ‘disloyal payment’ of two million Swiss francs to Michel Platini by Blatter for work performed between 1999 and 2002.
The Swiss head was also alleged to have signed off television rights for the 2010 and 2014 World Cups to a former FIFA official Jack Warner at below market rates.
Criminal proceedings began last week against the FIFA president.
The Ethics Committee moved swiftly suspending him and Platini for 90 days. They further banned Ex-FIFA vice president Chung Mong-joon for six years.
While Coca-Cola, Anheuser-Busch InBev, McDonald’s and Visa were united in their opposition to Blatter’s continuance, Adidas refused to join them.
The German sporting giant that has manufactured the World Cup match ball since 1970 and has been licensed to do till 2030 has the most to lose.
Soccer is the only sport in which it has a lead over its competitors. It is a Catch-22 situation.
It could either back the other advertisers and lose its most important market or suffer an erosion of its market share given the bad publicity surrounding FIFA and its running.
Blatter is believed to be an Adidas stooge.
Aidan Radnedge writes:
“Adidas supremo Horst Dassler plucked Blatter from the marketing department of luxury Swiss watchmaker Longines, trained him up for several months in Landersheim offices then installed him on the first – if lofty – rung of the Fifa ladder.
‘He taught me the finer points of sports politics – an excellent education for me,’ Blatter later said of Dassler, who also provided useful instruction in how to best enjoy a good cigar.”
It was Dassler and Havelange who plotted the ouster of Sir Stanley Rous as Fifa president in 1974.
It was they who recognised the power vested in the federations of Asia and Africa. The poorer bodies felt alienated and under-represented. Havelange exploited their fears thus paving the way to become the most powerful man in soccer. He was ably assisted by his then right-hand man—Joseph Blatter.
ISL was founded in 1982 by Adidas heir Horst Dassler. For nearly two decades, it enjoyed a virtual monopoly of the commercial interests of both the world football federation and the Olympic movement.
ISL went bankrupt in 2001.
It is believed that without the pressure from Coca Cola and the others, the Ethics Committee would have proceeded more judiciously giving the accused a first hearing before issuing penalties.
FIFA expert professor Alan Tomlinson from the University of Brighton said:
“The sponsors have certainly ratcheted things up, and this is one of the main reasons why the ethics committee has, for once, acted quite swiftly. The normal procedure is for the accused to be initially heard and then, perhaps, issued with a provisional suspension, pending a full inquiry.
The sponsors have told FIFA that they have had enough and this has had a huge impact on recent events. This whole thing has come down to money because that is the one thing that people within FIFA understand.”
A quarter of FIFA’s revenues over a 4-year-World-Cup cycle comes via sponsorship deals.
In India, PepsiCo, the soft drinks giant, are considering exiting the title spot citing concerns about the image of the IPL given the spot-fixing and betting imbroglios and suspension of franchises Chennai SuperKings and Rajasthan Royals.
PepsiCo India signed a deal for Rs.396 crores in 2012 for a five-year period.
If Pepsi pull out, then not just BCCI but also the franchises that have sold it ‘pouring rights’ will be adversely affected.
The ‘pouring rights’ are worth Rs.2 crores per season.
A co-owner of a franchise said:
“If the news about them pulling out of the IPL sponsorship is true, it’s a big loss. In these times when the brand value of the IPL is down so much, it will be difficult to sell the ‘pouring rights’ for more than Rs 50 lakh.
The tobacco and liquor companies were the ones to spend big money in sponsorship deals in cricket, then the cola giants became the big sponsors. In between, there were a few to associate with cricket like DLF and Hero Honda, but they pulled out too. If the cola companies pull out, it’s not good for the sport.”
The teams’ revenues too will be hit. The central revenue pool which is shared at 60:40 between the teams and the BCCI is the other main source of income besides team sponsorships. Any reduction in title sponsorship will lessen this intake.
The BCCI sought to play down the crisis.
An anonymous source within the BCCI and IPL said:
“Firstly, it has nothing to do with the 2013 IPL spot fixing scandal. At the moment, they’re concerned about the future of the IPL – whether it’ll be a 6, 8, 10 or 12-team tournament. Secondly, they’re not satisfied with the publicity that they’re getting out of the event vis-a-vis the other sponsors. They’ve to pay us Rs 90-100 crores every year, which isn’t a small amount.
It’s a sham. They have sponsored two IPL editions since the scandal broke out. I think they’re facing financial difficulties of their own. When we met them in Delhi some time back, they never gave an indication about this. In fact, we had a healthy discussion with their chairman and CEO for India region, D Shivakumar, about our future plans.”
The stern action and harsh words employed by commercial interests in the sporting properties of FIFA and the BCCI are reminiscent of tactics employed by activist investors in corporate governance.
Activist shareholders secure equity stakes in corporations to put public pressure on their management.
Their goals may be financial or non-financial.
Despite having a relatively small stake–sometimes just 1% is enough—, these activist investors seek the support of financial institutions who hold larger stakes to further their goals. Some of them even manage to secure seats on the board.
While sponsors cannot be said to own equity stakes in sporting federations, given the huge contribution they make to their revenues, their influence cannot be discounted.
The IPL, in the wake of Lalit Modi’s ouster, installed a Governing Council to overlook its operations. Would it be a far-fetched idea to have a sponsor representative on the council that could safeguard their interests?
Corporate governance for sports federations that include the interests of sponsors would be more than practical.
For once, interests of fans and sponsors are aligned. Will it always be so?