Search

Editors

Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

« Finding perverse incentives is hard, fixing them can be harder | Main | Do e-government and digital technologies really help to prevent corruption? »
Wednesday
Mar152017

Avoiding scandal damage: A due diligence plan for corporate sports sponsors

In recent years, the global sports audience has witnessed many corruption scandals. Such scandals can significantly impact the reputation of the brands sponsoring athletes and the competitions organized by sports institutions.

After all, a company’s reason for sponsoring a sports related event or an athlete is simple: to increase the value (or at least improve the perception) of its brand through association with concepts such as fair play, hard work, integrity and ethics. However, once the sponsored event or person is revealed to be corrupt, this can easily tarnish the brand image and therefore the reputation of the sponsoring company.

As unethical behavior in the sports world such as doping or match fixing become more and more highlighted, companies contemplating sponsorship deals for athletes or the upcoming competitions such as the 2018 FIFA World Cup in Russia should find ways to mitigate such risks and take precautionary measures. 

How can sponsoring companies do this? The best way would be to treat the sponsored institutions or athletes as third parties and conduct anti-corruption due diligence on them.

Anti-corruption due diligence requires measures to be taken (i) before the execution of the agreement, (ii) during the negotiation of the agreement and (iii) during the performance of the agreement.

A typical due diligence process should include a reputation check before the execution of the agreement. This is a relatively easy step given the celebrity status of many sports-related people. The harder part would be to negotiate the terms of the agreement which would safeguard the company -- to the maximum extent possible -- against anti-corruption risks.

First of all, sponsorship agreements should have an unethical clause including doping or game rigging prohibitions. The agreement should clearly provide that in case of the breach of the anti-corruption or the anti-doping clause, the sponsor should have the right to immediately terminate the agreement and the counterparty should compensate the sponsor’s losses. Sponsors are advised to include a deterrent (for incompliance risks) penal clause.

The sponsor can also insert a clause that provides itself with the right to audit the athlete or the organization through doping tests or the institution of a books and records audit. These provisions, of course, should be used in the agreements in a proportionate manner. For example, if a sponsorship agreement is being executed with a person convicted of corruption before, the agreement can include a provision for periodic unannounced audits and other intrusive tests.

Just as many companies would adopt a zero tolerance policy towards corrupt behavior by third parties, companies should also adopt a zero tolerance to unethical behavior by the athletes or the sports institutions and games they sponsor.  After all, being diligent about unethical behavior in sports does not always mean forgoing sponsorship opportunities. Instead it might mean an extra portion of due diligence and other precautions.

Since the sponsoring companies provide a significant amount of the revenues of the sports associations (according to MarketingWeek, sponsorships contribute to 28.5 percent of FIFA’s revenues), the sponsors have significant sanctioning power. Some companies would rather use this power instead of backing out of the sponsorship. For example, during the FIFA corruption scandal where high rankling FIFA officials, including the president, were investigated by the U.S. authorities, it was FIFA sponsors such as Visa, McDonald’s and Coca-Cola who pressed for FIFA’s then president to resign.

Recent corruption scandals in sports point companies to anti-corruption due diligence which emerges as a standard risk-averse procedure for corporate sports sponsorship deals. Aside from regulatory necessity, being diligent also requires companies to take preventive and corrective actions to set a minimum standard and send a global message.

____

Gönenç Gürkaynak is the Managing Partner of ELIG, Attorneys-at-Law, based in Istanbul, Turkey. He's a member of the New York Bar, the Brussels Bar, the Istanbul Bar, and the Law Society of England & Wales. He holds an LLM from Harvard Law School and an LLB from Ankara University School of Law. He can be contacted at gonenc.gurkaynak@elig.com

Ç. Olgu Kama is a Partner at ELIG handling white-collar cases, corporate compliance, anti-corruption, and commercial law. She holds LL.M degrees from Fordham Law School and Galatasaray University and an LL.B from Istanbul Bilgi University School of Law. She can be contacted at olgu.kama@elig.com

Burcu Ergün is an Associate at ELIG.

Reader Comments (1)

The reason that companies sponsor sports has little to do with some ethical concepts regarding sports, but because sporting events draw huge crowds, both live and on TV, and as such it is probably the best marketing "bang for the buck" possible.

A number of Canadian banks have been allegedly involved in laundering money for the FIFA scandals, and have suffered no loss of business due to reputational issues!!
March 16, 2017 | Unregistered Commenteralan franklin

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
All HTML will be escaped. Hyperlinks will be created for URLs automatically.