Corporate Rivalry: Legal Battles in the Sponsorship War
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The document discusses corporate sponsorship from a legal perspective. It provides an overview of the resource-based view of sponsorship and recent antitrust issues regarding exclusivity agreements. It then summarizes two key legal cases - AT&T Mobility v. NASCAR regarding mobile phone category exclusivity and MasterCard v. FIFA regarding the FIFA World Cup sponsorship. Both courts found sponsorship rights to be unique and irreplaceable assets that constitute irreparable harm if breached. The conclusion is that sponsorship acts as a strategic alliance when it fosters trust, communication and compatible, mutually beneficial relationships between partners.
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Editor's Notes
- Thank you for coming this morning and thanks to those of you who are helping out with the operations of the conference. I really appreciate those efforts. I am Joe Cobbs, a PhD Candidate at the University of Massachusetts, and my presentation today takes a look at corporate rivalry in the sponsorship industry. CLICK FORWARD
- overview of where we’re headed in this presentation… broad theoretical question … what can we learn from a legal perspective of corporate sponsorship as a strategic resource? approach question by setting up Resourced-based view of sponsorship and acknowledging the antitrust concerns raised by legal scholars in relation to category exclusivity . … dive into an analysis of what the courts had to say in a couple of recent cases, … AT&T v. NASCAR where the category exclusivity of Sprint’s title sponsorship was called into question, And MC v. FIFA where VISA unknowing intervened… A discussion of those two cases will be followed by a concluding framework for future research.
- Barney’s work on the RBV in the strategic management literature has fostered the V.R.I.O. analysis … Goal of identifying and leveraging firm resources capable of providing a sustainable competitive advantage. Here, I want to examine the potential for sponsorship to act as one such strategic resource. The V.R.I.O analysis is based on four resource qualifications…[go to slide] The interesting qualifications from a legal perspective are rarity and Inimitability , which will be our focus in context of corporate sponsorship. category exclusivity is a common element of contemporary sponsorship, where the sponsor locks out rival firms by signing a sponsorship agreement with the sports property that prohibits the property from signing a sponsorship agreement with any of the sponsors competitors. Therefore, that particular sponsorship becomes Rare -- (this exclusivity opens the door to a possible antitrust argument on next slide) … inimitability question becomes: “Does a specific corporate partnership serve as a resource to the sponsor that is not only rare, but also can not be sufficiently imitated by competitors?” Scholars who have published on this topic (Amis, Fahy and their colleagues) suggest YES (…sponsorship can serve as a resource capable of generating a competitive advantage), in certain cases. Essentially, if the sponsoring firm takes an approach that is… Focused , deliberate and discerning …in other words, not just a shotgun approach, but rather an effort to perpetuate a differentiated but coherent image . And Supports the sponsorship resource with other organizational resources ( leverage/activation in industry) – With an RBV approach, one last Question remains…is this competitive advantage sustainable over time? (a question we won’t approach today) If specific sponsorships are exclusive (rare) and inimitable as some scholars suggest, are there legal implications? One argument raised recently in the literature is that of antitrust concerns…
- While category exclusivity in sponsorship arrangements goes a long way toward creating rarity and thereby realizing the brand differentiation objectives of sponsors, …. John Fortunato & Jef Richards, (2007, Texas Review of Entertainment & Sports Law) have recently put forth the legal argument that these types of exclusive arrangements raise antitrust issues. Specifically relating to Section 2 of the Sherman Act : regulates monopolies and labels a firm as illegal monopoly if they retain monopoly market power and willfully acquired or maintain such power through predatory or exclusionary conduct. Fortunato & Richards go on to cite a Section 2 case where a monopolistic market was determined by whether the competition had been “foreclosed in a substantial share of the relevant market.” However, one of the obstacles to an antitrust case reaching court is that many firms that engage in sponsorship are involved in their own exclusive agreements and are therefore reluctant to bring such a case against competitors. For example, AT&T is an exclusive partner of the NCAA …. … so are they likely to come after Sprint with a sponsorship lawsuit based on an antitrust argument? NO While no antitrust sponsorship cases have reached the courts yet, let’s look at two recent exclusivity sponsorship cases that DO speak to the inimitability of corporate sponsorship as a strategic resource.
- The AT&T v. NASCAR case stems from Cingular’s relationship with RCR that started in 2001. At the time of the case, …[look at slide point]. CLICK In 2003 …[look at slide] Including product category exclusivity , which specifically named AT&T among others that were to be excluded from NASCAR sponsorship. CLICK However, Preexisting team agreements like the one between RCR and Cingular were permitted through an addendum to the “ Driver and Car Owner Agreements ” between NASCAR and the teams, but these preexisting sponsorships were restricted to their current form. A year later in 2004, Nextel merged with Sprint and the Nextel Cup Series eventually became the Sprint Cup series. CLICK Soon thereafter, AT&T merged with Bell South (Cingular) … AND who wants to guess what happens next? AT&T wants to rebrand the #31 car but NASCAR rejects the livery design that includes the AT&T logo citing their series exclusivity agreement with Nextel, now Sprint.
- AT&T filed suit against NASCAR with 3 rd party status based on being an intended beneficiary and sought a preliminary injunction. NASCAR argued that other means of reaching consumers with message are available and injunction jeopardizes its relationship with Sprint. In commenting on the threat of irreparable harm…one of the four elements AT&T had to demonstrate…the Court found that it COULD NOT return to AT&T the goodwill (Meenaghan, 2001) lost if it did not grant the injunction. …essentially rejecting NASCAR’s claim that other promotional outlets could replicate this goodwill. In other words, it seems the court is essentially declaring that the outcome of contingent goodwill generated by this sponsorship resource is inimitable via other marketing communication methods. Now let’s move on to an international case that is much more bizarre…
- MasterCard was a World Cup (FIFA) sponsor since 1990 and the context of the case is the 2002-2006 contract [look at slide] All the contracts b/w MC and FIFA … [look at slide] “ Exclusive negotiating period ” … .followed by right of FIFA to “ grant to any entity the category rights on comparable terms ” if they didn’t reach an agreement with MC during the negotiating period. CLICK Despite these contract clauses, FIFA initiated contact with VISA in 2004 Denied MC incumbency rights Offered “ financial services ” category rights for 2007-2014: $225M 2 months later, FIFA presented MC w/ a proposal for the sponsorship rights Both VISA and MC rejected original offer FIFA presented a scaled-down package at $180M to VISA two days before presenting it to MC Delivered contract to both companies (VISA first) and ….fills in VISA on MC negotiations BUT not the reverse. … so MC still has no idea that FIFA is negotiating w/ their arch rival!
- In court, a FIFA executive justified these tactics by actually stating that the situation was similar to when you are cheating on your wife and you realize the benefits of waiting until the end to tell her as opposed to the “disruption” incurred by telling her now! …unbelievable [ CLICK] MC agreed to $180M package in October 2005, at the time… VISA offered $154M cash and $16M promo value FIFA Board approved MC offer by December 2005 [CLICK] Then 5 months later, VISA increased offer to $180M cash and $15M promo value this VISA agreement contained additional rights that were never offered to MC After FIFA Board approved VISA contract, MC was notified they were out. … again, you can see where this is headed…
- MC seeks injunctive relief in U.S. District Court (while FIFA files for arbitration in Zurich) … in finding Irreparable harm in this case, the court characterizes the exclusive sponsorship resource in question as… (see quotes on slide) Court ordered a remedy of specific performance FIFA appealed and parties settled for $90M VISA then took over rights for 2007-2014. These two cases demonstrate the value of these sponsorship affiliations and the intense corporate rivalry that plays into their negotiation when exclusivity is the prize.
- So, Although neither of these cases were based on an antitrust argument , we do see some evidence of a narrow relevant market definition by the courts in these cases that might help Fortunato and Richard’s antitrust argument. Returning to our initial question of … [read from slide] In these two cases, the sports properties were found by the courts to constitute unique promotional environments, which suggests the rarity qualification of the RBV. Further, corporate affiliation with these properties were said to generate “ goodwill, ” an outcome that specifically matches Meenaghan’s theory of how sponsorship works, ….and according to the courts this affiliation could not be replicated by other marketing communication methods, suggesting the inimitability of these particular sponsorship resources.
- I want to conclude by conceptualizing the actual property/firm relationship as the core strategic resource in a sponsorship context I believe that viewing the sponsorship relationship as a strategic alliance has both practical and theoretical implications for future research… On the practical side, legal cases such as the two we just reviewed, could conceivably be avoided if the involved parties approached the sponsorship relationship as a strategic resource with success factors of Trust, Commitment, and Compatibility ….and the identified goal of achieving a sustainable advantage for each partner. From a theoretical perspective, taking a collective examination of the strategic alliance research based in the management literature could help to advance the limited research on sponsorship relationships and their resulting organizational networks by focusing more on the strategic nature of the resources exchanged . This is an area that in my opinion deserves further research efforts and I’m looking forward to contributing to those efforts in the years to come. Thank you for your attention and are there any questions? Strategic alliances as: “ Cooperative relationships driven b a logic of strategic resource needs and social resource opportunities” (Eisenhardt & Schoonhoven, 1996) “ Voluntary cooperative inter-firm agreements aimed at achieving a competitive advantage for the partners” (Das & Tang, 2000) Trust contributes to commitment Commitment takes form of levering activities where partners allocate resources beyond contract to promote affiliation and positively influence desired alliance outcomes Partners’ resources compliment each other and thereby satisfy strategic resource needs