Direct Sellers Sign Wide Variety of New Deals

IEG Sponsorship Report

June 7, 2010 800/834-4850 | www.IEGSR.com

Who Does What Direct Sellers Sign Wide Variety Of New Deals

Multilevel marketers promote both corporate and brand names; nutritional and beauty products are primarily involved.

Sponsorship activity on behalf of companies in the direct selling category shows no signs of slowing down, as evidenced by a batch of new partnerships both in the U.S. and internationally on behalf of either corporate brands or specific products.

On the international front, Herbalife Ltd. last week announced a three-year, multimillion-dollar partnership with FC Barcelona and an endorsement deal with soccer star Lionel Messi. Those deals follow recent club sponsorships with Brazil’s Santos FC and Mexico’s Club Universidad Nacional A.C. (Pumas de la UNAM).

In addition, Stockholm-based multilevel marketer Oriflame Cosmetics AB recently came on board as the official cosmetics partner of the Sony Ericsson WTA Tour in a deal starting in ’11. The two-year partnership affords a presence at 26 WTA Tour events in Africa, Europe and elsewhere, but does not include the U.S.

Domestically, Amway Int’l, Inc. earlier this year signed a two-year deal with the Miss America Organization on behalf of its Artistry skin care and cosmetics line, while New York City-based Avon Products, Inc. recently came on board as the exclusive fragrance and cosmetics sponsor of the Black Eyed Peas’ The E.N.D. World Tour presented by Blackberry.

Avon is using the tour sponsorship to support a new endorsement deal with Black Eyed Peas frontwoman Fergie and collaboration with her on a new fragrance.

Those companies and other direct sellers are increasingly using sponsorship to build their brands and gain credibility with current and prospective individual distributors and their customers.

Those efforts are driven in part by the growing popularity of direct sales among job seekers looking for new employment opportunities.

The number of individuals representing direct sales companies in the U.S. totaled 15.1 million in ’08, up from 13.6 million in ’04, according to the Direct Selling Assn. Internationally, the DSA says 66 million people are involved in direct sales.

Below, IEG SR breaks down the sponsorship strategies and activation tactics at three of the industry’s most active sponsors.

Amway Int’l, Inc. 7575 Fulton St. East Ada, MI 49355

Gary Mougalian, marketing director, Amway Global 616/787-6000

Strategy: World’s second-largest* direct seller launched a new U.S. sponsorship strategy in ’08 to reintroduce the Amway Global (“Amway Calls On Properties To Help Re-establish Brand, Update Image,” 7/28/08) brand after phasing out the Quixtar name it had used in North America for nearly a decade. “We didn’t use the Amway brand for nine years, and it was important to reintroduce the brand to the public,” Mougalian said. “We’ve been using sponsorship more prominently ever since.” In addition, the company uses sponsorship to tout two core product brands: Nutrilite health supplements and Artistry beauty products. Typically looks for prominent exposure—such as branding on San Jose Earthquakes jerseys—and the opportunity to support philanthropic outreach efforts, such as the Earthquakes’ Kicks for Kids program at schools in underprivileged communities. Partnered with Women’s Professional Soccer’s FC Gold Pride this year after the WPS Los Angeles Sol folded; Amway followed former four-time reigning FIFA World Player and former Sol star Marta to the Bay Area team.

Current Deals: Amway: Title: Amway Arena/Amway Center, Orlando, Fla. Presenting: MLS San Jose Earthquakes; WPS FC Gold Pride. Cosponsor: NBA Orlando Magic. Artistry: Miss American Organization. Nutrilite: Rock ‘n’ Roll Marathon Series.

Additional Comments: Amway Arena, home of the NBA Magic, will be replaced with new Amway Center, opening in October. Company struck a multiyear deal in late ’09 to sponsor practice jerseys for the Magic; Amway co-founder Richard DeVos and family own the team. Determines success by measuring event attendance, sponsorship awareness and changes in brand perception. “We can’t tie sponsorship directly to sales, which makes it difficult to measure. As long as we are consistent with our values and vision, we know we have a positive impact on our business,” Mougalian said. Activates Miss America and Rock ‘n’ Roll Marathon Series with on-site experiential marketing programs.

Herbalife Ltd. 800 West Olympic Blvd. Suite 406 Los Angeles CA 90015.

Rob Levy, senior vice president, worldwide sales and marketing 310/410-9600

Strategy: World’s sixth-largest seller uses sponsorship to accomplish four primary goals: Promote product purchase; gain sampling and other business-building opportunities for distributors; build exposure for the Herbalife brand and support the company’s community outreach efforts. Focuses on soccer and other international properties to build its presence outside the U.S., where it conducts 80 percent of its business. “We’re associated with the top one or two soccer teams in the world, and one of the top players in the world. That gets our distributors excited and gives them an opportunity to talk about the company,” said Levy, referring to the new FC Barcelona tie. Distributors manage on-site sampling programs. Looks for prominent branding such as exposure on player jerseys, as well as product use by sponsored organizations.

Current Deals: Title/Primary: MLS Los Angeles Galaxy; Sam Schmidt Motorsports/Chip Ganassi Racing Izod IndyCar Series team, Indianapolis 500. Presenting: Kaiser Permanente Los Angeles Triathlon. Cosponsor: Amgen Tour of California; AYSO; Chinese Cycling Assn.; Club Deportivo Universidad San Martín de Porres, soccer team, Peru; FC Barcelona; FIVB World Grand Prix volleyball; HC Plzen, hockey team, Czech Republic; Holmenkol Staffeten and Knarvikmila running events, Norway; Inter Milan FC, soccer team, Italy; K.R. Basket Reykjavik, basketball team, Iceland; KV Mechelen, soccer club, Belgium; Lyngby Boldklub, soccer team, Denmark; Montepaschi Siena, basketball team, Italy; Moscow Marathon; Nautica Malibu Triathlon presented by Toyota; RC Strasbourg, soccer team, France; Santos FC; SBV Excelsior, soccer team, Netherlands; Universidad

Nacional A.C. (Pumas de la UNAM); Valencia CF, soccer team, Spain; XL Triathlon, Gerardmer, France.

Additional Comments: Herbalife was drawn to FC Barcelona and Messi in part because of the team’s and player’s chartable outreach efforts; the company will support those efforts through the Herbalife Family Foundation, Levy said. Activated AYSO by developing a video in which doctors discuss the importance of healthy active lifestyles; the video is not branded under the Herbalife moniker, Levy added. Roughly 300 employees, distributors and suppliers participate in the Kaiser Permanente Los Angeles Triathlon.

Usana Health Sciences, Inc. 3828 W. Parkway Blvd. Salt Lake City, UT 84120

Dan Macuga, vice president of marketing & public relations 801/954-7100

Strategy: Usana, the world’s 31st largest direct seller, uses sponsorship to build credibility and generate excitement among distributors and customers. The company recently expanded its portfolio with a tie to the ECHL Utah Grizzlies and is negotiating additional deals with other teams and athletes, Macuga said. Looks to provide vitamins and nutritional supplements to athletes on sponsored teams to demonstrate the effectiveness of its products. For example, Usana- sponsored athletes won 22 gold medals at the Vancouver Olympic Games, he said. “People want to know what they are doing to obtain that success,” added Macuga, who says has since fielded numerous calls from athletes and teams looking for similar partnerships.

Current Deals: Title: Usana Amphitheatre, Salt Lake City. Cosponsor: Biathlon Canada; C.F. Pachuca, soccer team, Mexico; Cross Country Canada; ECHL Utah Grizzles; National Ice Skating Assn. of Great Britain short track speed skating team; Sony Ericsson WTA Tour; Speed Skating Canada; U.S. Luge Assn.; U.S. Speedskating.

Additional Comments: Usana launched its sponsorship initiative in ’02 with a tie to the U.S. Speedskating team at the Salt Lake City Olympic Games; the company was later approached by other national governing bodies based on the team’s gold medal performances, Macuga said. Usana touts its sponsorships through a bimonthly magazine, as well as through social media outlets. For example, the company used Twitter to update distributors on the performance of its athletes in Vancouver. “We found social media to be extremely effective,” he said.

*2010 ranking by Direct Selling News

June 7, 2010 800/834-4850 | www.IEGSR.com

Cause Marketing Signs Point To Higher Scrutiny of Nonprofit Sponsorships By IRS

Nonprofits should pay attention to IRS developments and continue best practices related to managing and reporting sponsorship income

The Internal Revenue Service may be preparing to revisit whether certain types of nonprofit sponsorship revenue should be considered taxable unrelated business income.

While the IRS has taken no definitive steps in that direction, experts say nonprofit organizations and their corporate partners should be alert to the possibility of a review of the safe harbor for some sponsorship benefits and, more immediately, be aware of the government’s recent heightened scrutiny of sponsorship activity.

Marcus Owens, an attorney with law firm Caplin & Drysdale, and the previous director of the IRS’s Exempt Organizations Division, points to two developments that signal the service’s rekindled interest in sponsorship payments to nonprofits.

The first is the IRS’s increased use over the past several years of questionnaires as a tool to examine nonprofits’ sources of income.

“The IRS has greatly expanded its use of questionnaires, which allow it to collect information in greater detail than the Form 990 tax return would generate,” Owens said. “The IRS is becoming more sophisticated about data collection, and nonprofits need to be prepared for the distinct possibility that an IRS questionnaire will probe sponsorship arrangements in greater detail.

“It is far easier for the IRS to send a questionnaire than conduct an audit.”

The second indicator that the IRS is interested in delving deeper into sponsor/nonprofit relationships is the examination of sponsorship activity as part of the service’s current Colleges and Universities Compliance Project.

The investigation by the IRS into conduct, practices and reporting by one of the largest segments of the nonprofit sector (in terms of revenue and asset size) got underway in October ’08 with questionnaires sent to 400 public and private institutions of higher education.

According to the IRS, the project is focused on: “(1) the conduct and reporting of exempt or other activities that may generate unrelated business taxable income; (2) investment, management and use of endowment funds; and (3) executive compensation practices.”

One of the questions asked by the project is whether the institution engaged in corporate sponsorship activities. The IRS

© 2010 IEG, LLC. All rights reserved. 4 IEG Sponsorship Report reported the results of that question and the others in its interim report (www.irs.gov/pub/irs-tege/cucp_interimrpt_052010.pdf) on the project issued last month.

Percentage of Organizations that Reported Engaging in Corporate Sponsorship Activities Any Corporate 33% 52% Sponsorships 76%

Printed Materials 14% 37% Including Publications 59% 26% Events 34% 62% 3% Internet 15% 33% 10% Facilities (Billboards, 39% Scoreboard, etc.) 58%

Television/Radio 5% 23% Broadcasting 45%

Small Colleges and Universities (fewer than 5,000 students) Medium Colleges and Universities (between 5,000 and 14,999 students) Large Colleges and Universities (15,000 or more students)

Although the interim report does not otherwise address sponsorship, it is noteworthy that as a result of the responses to its questions, the IRS already has opened examinations of more than 30 colleges and universities. The examinations “focus principally on unrelated business taxable income and executive compensation issues,” according to the report.

The document goes on to state that further work related to the project is expected to include “additional analysis in a number of areas, including…the reported differences in treatment by organizations of various activities as exempt or unrelated.”

“This compliance project, like our previous one on nonprofit hospitals, gives us a lot of valuable information on activities conducted by those organizations that will help us in our enforcement and services efforts,” said Lois Lerner, IRS director of exempt organizations, in a statement.

While nonprofits wait to see what steps the IRS will take next, Owens advises them to continue best practices related to the managing and reporting of sponsorship revenue (“Revisiting The IRS Regulations: What Nonprofits And Their Sponsors Need To Know,” 9/11/06).

He also reminds tax-exempt organizations that deciding to offer substantial benefits to sponsors and potentially being subject to UBIT on a portion of the income is a viable option.

“Nonprofits need to recognize the tradeoff between sponsorship income that is passive in nature and not taxed and the greater fees that would be earned if they took a more active role in marketing their sponsors’ products.

“It’s a business decision. They need to crunch the numbers.”

Sources Internal Revenue Service, Tel: 202/622-5000 Caplin & Drysdale, Tel: 202/862-5000

June 7, 2010 800/834-4850 | www.IEGSR.com

Seeking Deals True To Its Word, Dodge Signs New Sponsorships

Properties offering on-site and digital activation opportunities could be in line for brand’s increased sponsorship spending

As IEG SR reported (“Despite Cuts, Big Three U.S. Automakers Remain Large Sponsorship Players,” 5/3/10) it would, Chrysler Group LLC has sought out new partnerships that align with its Dodge brand’s positioning as “agile, daring, sensible and inventive,” beginning with a two-year deal with the Rock ‘n’ Roll Marathon Series.

The tie is Dodge’s first affiliation with running and represents the first spending for the brand outside of rodeos and NASCAR in several years. While Dodge is continuing its motorsports involvement, Chrysler now sponsors rodeos on behalf of Ram trucks, a brand it has spun off from Dodge. Percentage of Marathon Sponsorships by Category Beyond running, Dodge is likely to partner with other property types this year, said Kelly Povailitis, manager of Media & Publishing 13% Dodge marketing, who spearheaded the marathon series Nonalcoholic Beverages 9% sponsorship. Financial Services 9% Retail 9% “As the Dodge brand begins to redefine itself and clearly Food 8% identify its consumer, you will see it branching out into a Travel 6% variety of events moving forward,” she said. Restaurant 5% Sports Apparel & Equipment 5% Dodge will kick off the Rock ‘n’ Roll Marathon Series Auto 4% sponsorship on September 5 with title of the Rock ‘n’ Roll Beer 3% Virginia Beach Half Marathon presented by SunTrust. For the remainder of ’10, the brand gains official automotive partner Source: IEG Research and official vehicle status at events in Denver, Philadelphia and Los Angeles.

Beginning next year, Dodge will become official automotive partner and official vehicle of the entire 14-stop series and add title deals with the circuit’s events in Los Angeles; San Diego; San Jose, Calif.; and Seattle.

Dodge replaces Nissan North America, Inc. (“Nissan North America Expands Sponsorship Program,” 4/2/10) as the SIDEBAR running series’ official vehicle. Sony Sponsors Marathon Series On Behalf of New Walkman The maker of such models as Avenger, Challenger, Grand In addition to Dodge, the Rock ‘n’ Roll Marathon Series has Caravan and Journey will activate the sponsorship through secured a new partnership with Sony Electronics, Inc.’s Walkman brand. an interactive mobile experience at each event’s health and fitness expo, as well as with integrated marketing and social The consumer electronics giant is using the partnership to media campaigns. Dodge also receives presence on the promote the new Walkman W Series, a line of lightweight, series’ Web site (www.runrocknroll.com). wire-free MP3 players aimed at athletes. The sponsorship affords exclusivity in the digital music player category. The Dodge brand marketing team will brainstorm activation “With its electrifying combination of music and fitness, the ideas at the June 6 Rock ‘n’ Roll San Diego Marathon & ½ Rock ‘n’ Roll Marathon Series is an ideal match for the Marathon, said Scott Dickey, president of Competitor Group Walkman W Series,” said Mike Kahn, Sony Electronics’ Inc., which owns the series. director of mobile music business, in a statement.

“Featuring a unique, wire-free design, our new MP3 player Sources frees both your workout and your music from the bounds of Chrysler Group LLC, Tel: 248/576-5741 cumbersome wires, making it an ideal companion for runners Competitor Group Inc., Tel: 858/768-6477 and athletes of all ages.” Sony will activate the tie by hosting product demonstrations at the races’ health and fitness expos. It also receives an online presence at RunRocknRoll.com and Competitor.com.

Source Sony Electronics, Inc., Tel: 858/942-2400