China: Chinese Companies And Sports Sponsorships: Trends And Guidelines

Last Updated: 16 January 2018
Article by Shimin Law Offices
Most Popular Article in China, February 2018

Football fans might have noticed Hisense billboards featured in all the UEFA EURO 2016 matches. The Chinese electronic giant joined other top brands, including Adidas, Carlsberg, Coca-Cola, Continental, Hyundai-Kia, McDonald's, Orange, SOCAR and Turkish Airlines, as a partner of the EURO 2016 tournament.i Although the official sponsorship fee has not been disclosed, Hisense is said to have invested a sum of 370 million yuan to appear in this European soccer event. Despite the fact that this amount corresponds to 25% of the company's 2015 net profit, the board was confident to recoup the investment after only the group stage of the tournament.ii

Even though it is unclear whether Hisense has achieved its objective, this episode demonstrates that the use of sports sponsorship as a marketing technique is increasing in popularity throughout the world. Advance global marketing initiatives through the sponsorship of international sports events have become a common practice among big companies. Most of the major sports organizations and competitions are sponsored by leading global corporations. Chinese companies, in particular, have become increasingly active as sporting event sponsors and investors.iii Lured by the potential profits of associating their brands with a sport, sports team or athlete, many Chinese brands have rushed to show their logos in global sports events. These companies believe that capitalizing on the sports market is one of the most effective ways to build global brand awareness and strengthen their domestic market share.

For instance, Chinese sportswear company 361 Degrees International has become the official uniform supplier of the 2016 Rio Olympics and has more than doubled the number of places its goods are sold in Brazil.iv This sponsorship strategy is a clear example of the company's effort to gain international recognition and increase its market shares globally.

Main Targets: Football and Basketball

Ever since President Xi Jinping pledged to make China a major power in the game, football has been gaining popularity in China as Chinese citizens are increasingly interested in worldwide football events. As a result, football has become the main sport for Chinese companies to sponsor. Logos of Chinese companies are shown in each of the five major European leagues, namely the Premier League, La Liga, Bundesliga, Ligue 1, and Serie A.v The Spanish La Liga is especially preferred by Chinese brands, with six companies sponsoring it, including Huawei and CCTV.vi

On March 18, 2016, Chinese real estate and entertainment giant Wanda Group inked a sponsorship agreement with the International Federation of Football Association (FIFA).vii Wanda Group was the first Chinese company to become an official top-level sponsor partner of FIFA, adding to a list of international brands such as Adidas, Coca Cola, Gazprom, Hyundai, Kia, and Visa.viii The Wanda-FIFA deal was arguably the most significant achievement of a Chinese company in sports sponsorship, because it marked the first time that a Chinese firm had become a partner of the governing body of the world's most popular sport. It undoubtedly denoted the high status and financial strength of the sponsoring firm. Through this affiliation, Wanda is expected to enhance the positioning of its brand and secure more opportunities on the international stage.

Wanda has also ventured into basketball by becoming the exclusive partner of the International Basketball Federation (FIBA) for its worldwide sponsorship. The deal includes the sale of licensing rights and global marketing.ix Thanks to the NBA media exposure and the popularity of the ex-NBA player Yao Ming, basketball is the most popular sport in China with an estimated 300 million Chinese playing the game.x

Several Chinese companies are using the NBA platform to expand their brand in both the Chinese and the US market.xi "There are more people watching that game [in China] than there are people in the US, period. 100 million Chinese people are putting their eyeballs on the Houston Rockets games," said Andrew Elliot, Senior Director of Strategic Marketing at ZTE.xii The Shenzhen-based cellphone manufacturer is one of the NBA major Chinese sponsors, along with Harbin Beer, Mengniu Milk, PEAK, and SAP.xiii ZTE went so far as to sponsoring five NBA teams: Cleveland Cavaliers, Chicago Bulls, Houston Rockets, New York Knicks and Golden State Warriors.xiv The decision to sponsor the Californian team turned out to be a particularly brilliant marketing strategy. In fact, Golden State won the 2015 NBA title and ZTE's brand awareness rose from 1% in 2013 to 34% in 2015.xv

Benefits but Also Risks

While sponsoring sporting events and teams is a great way to raise profiles and increase revenues for Chinese companies, there are also a number of risks to take into consideration. Legal disputes are likely to arise in this sector if contracts are not sufficiently tailored to take into account all the factors involved in the sponsor relationship. Recently, FC Barcelona sued Suning Commerce Group for breach of the sponsorship contract signed in 2014, demanding more than 4 million yuan in compensation and seeking interests of about 139,000 yuan.xvi Exactly how Suning breached the agreement, however, is still unknown.

To avoid complications arising out of sponsorship agreements, the following issues should be considered during the process of sponsorship contract drafting and negotiation.

I. Shared Values

Before a company embarks upon a sponsorship program, it should ascertain the values and principles of the potential partner.xvii Value alignment and convergence of ideas could determine how a brand is perceived in the marketplace. Sporting events do not always represent virtuous values and may not necessarily be a great opportunity for companies to showcase their brands.

The FIFA corruption scandal is a glaring example. In 2015, fourteen FIFA officials and marketing executives were accused of wire fraud, racketeering, and money laundering.xviii After the fact, Sony, Castrol, Johnson & Johnson and Continental dropped their sponsorship agreements with FIFA,xix whereas Adidas, Visa, Coca-Cola, McDonalds, and Hyundai kept their sponsorships despite concerns about FIFA ethical values.xx As FIFA Secretary General Jerome Valke admitted, the scandal "does not help to finalize any new agreement," and FIFA will have a hard time signing new 2018 World Cup sponsors.xxi In fact, now companies will think twice before aligning their brands to a governing body whose reputation has been tarnished.

II. Terms and Scope

When commencing negotiations, the first aspects to be established are the sponsorship fees, the payment method and what the sponsor is entitled to do. Sponsorship agreements may contain fixed payments or more complex payment provisions, including bonuses and prizes.xxii Moreover, the agreement must carefully define such aspects as the types of advertisement and signage that can be used, competitions and events allowed to be sponsored and other matters regarding visibility of logos and signs.xxiii

Tensions between the parties may arise in this phase of negotiations because sponsors generally want to define these aspects as broadly as possible, whereas the parties being sponsors prefer a narrow definition.xxiv For instance, many sports organizations launch multiple events. A sponsor must make sure whether its sponsorship of an organization is for all events and properties or a few specific ones. Becoming a partner of Formula 1 does not mean that the sponsorship covers all cars, drivers, and tracks. Painstakingly working through each detailed item is critical to avoiding disputes in the long run.

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Footnotes

i Hisense signs as UEFA EURO 2016 global sponsor, UEFA.com (Jan. 14, 2016), http://www.uefa.com/uefaeuro/news/newsid=2323656.html.

ii Chinese company Hisense reaps benefits from Euro 2016 sponsorship, China Daily Europe (July 1, 2016), http://europe.chinadaily.com.cn/business/2016-07/01/content_25931294.htm.

iii How to sell football sponsorships to Chinese companies? Yutang Sports (May 21, 2015), http://en.ytsports.cn/news-814.html.

iv Chinese sports brands go big on Olympics, Warc (Aug. 5, 2016), https://www.warc.com/LatestNews/News/Chinese_sports_brands_go_big_on_Olympics.news?ID=37195

v Supra note 3.

vi "La Liga" brand attracts almighty China, Johann Cruyff Institute, http://johancruyffinstitute.com/en/blog-en/la-liga-brand-attracts-almighty-china/.

vii Wanda Group becomes new FIFA Partner, FIFA.com (Mar. 18, 2016), http://www.fifa.com/about-fifa/news/y=2016/m=3/news=wanda-group-becomes-new-fifa-partner-2771032.html.

viii http://www.fifa.com/about-fifa/marketing/sponsorship/partners/.

ix Supra note 2.

x Popular Sports in China, MSc in Sports Industry Management's Blog (May 18, 2015), http://graduate.em-lyon.com/blog-msc-in-sports-industry-management/popular-sports-in-china/.

xi Sponsorships are major revenue source, China Daily USA (Apr. 4, 2014), http://usa.chinadaily.com.cn/2014-04/04/content_17407986.htm.

xii Cate Cadell, Why ZTE is Now Sponsoring Five NBA Teams, Technode (Nov. 10, 2015), http://technode.com/2015/11/10/why-zte-is-now-sponsoring-five-nba-teams/.

xiii Supra note 17.

xiv Supra note 18.

xv Id.

xvi Hermina Wong, FC Barcelona suing Chinese sponsor in HK court for breach of contract, Hong Kong Free Press (Feb. 6, 2016), https://www.hongkongfp.com/2016/02/06/fc-barcelona-suing-chinese-sponsor-in-hk-court-for-breach-of-contract/.

xvii David Melancon, 4 Strategies to Mitigate Risk in Global Sponsorship Deals. To avoid FIFA-like disaster, consider partner values, Adweek (July 19, 2015), http://www.adweek.com/news/advertising-branding/4-strategies-mitigate-risk-global-sponsorship-deals-165930.

xviii Evan Perez & Shlmon Prokupecz, U.S. charges 16 FIFA officials in widening probe, CNN (Dec. 3, 2015), http://edition.cnn.com/2015/12/03/sport/fifa-corruption-charges-justice-department/.

xix Ben Rumsby, Fifa loses three key sponsors as Castrol, Continental and Johnson & Johnson sever ties with world governing body, The Telegraph (Jan. 22, 2015), http://www.telegraph.co.uk/sport/football/world-cup/11364195/Fifa-loses-three-key-sponsors-as-Castrol-Continental-and-Johnson-and-Johnson-sever-ties-with-world-governing-body.html.

xx Adam Withnall, Fifa key sponsors Visa, Adidas and Coca-Cola pile on pressure in wake of corruption scandal, The Indipendent (May 28, 2015), http://www.independent.co.uk/news/world/europe/fifa-key-sponsors-visa-adidas-and-coca-cola-pile-on-pressure-in-wake-of-corruption-scandal-10280496.html.

xxi Graham Dunbar, FIFA hasn't signed any new 2018 World Cup sponsors since the corruption scandal exploded, Business Insider (Jul. 24, 2015), http://www.businessinsider.com/fifa-corruption-scandal-scaring-sponsors-for-2018-world-cup-2015-7.

xxii Deirdre Kilroy, Drafting a sports sponsorship contract? Think small print, The Irish Times (Dec. 2, 2013), http://www.irishtimes.com/news/crime-and-law/drafting-a-sports-sponsorship-contract-think-small-print-1.1610417.

xxiii Steven B. Smith & Adam Brezine, Top Ten Issues in Sponsorship and Licensing Agreements That Are Most Likely to Lead to Disputes and Litigation, Association of Corporate Counsel (Dec. 9, 2011), http://www.acc.com/legalresources/publications/topten/sla.cfm?makepdf=1.

xxiv Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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