ESE BACHELOR HONOURS CLASS The Power of Branding AN EMPIRICAL INVESTIGATION ON SPONSORSHIPS Mirnesa Ibiševid, 408590 Hanna van Holten, 407411 Word count: 4301 May 29, 2016 Abstract This paper investigates the relationship between tennis players’ ranking points obtained in the ATP Rankings and the brands of their clothing sponsors. Various top 100 players are investigated, using data on players’ sponsors as well as their performance. This way the relation between certain sponsoring brands and players ranking points is estimated and tested using statistical methods. It has been found that larger brands do in fact sponsor players with higher ranking points, and that these sponsorship decisions vary between the brands. Furthermore, the effect of these obtained ranking points on the sponsor’s revenues is estimated in various models. Statistical evaluation suggests that this effect is close to zero. This investigation has led to the identification of four different sponsorship strategies used by the clothing sponsors of these players. Ibisevic van Holten Introduction Sponsorships can be defined as “business relationships between a provider of funds, resources or services and an individual, event or organisation which offers in return some rights and association that may be used for commercial advantage” (Sleight, 1989). These sponsorships have experienced major growth in the marketing activities of companies worldwide. The total spending of all sponsorships in general in the world was 57.5 billion U.S. dollars in 2015, of which more than one third came from the United States. In 2016, this number has been estimated to grow with 4.7% to 60.2 billion dollars (Statista, 2016). This growth can be explained by several contributing factors, including the rising costs of media advertising, the fragmentation of traditional media, restrictive government policies on alcohol and tobacco advertising and the greater media coverage of sponsored events (Fahy & Jobber, 2012). Sports sponsorship is one of the biggest and most popular sponsorship media. The FIFA World Cup of 2014 in Brazil collected more than 1 billion dollars from 20 different companies through various sponsorship deals (The Telegraph, 2014). Its popularity is due to the opportunity for companies to interact with their customers on an emotional level, increasing customer loyalty and thereby also increasing their market share and revenues. Sports can offer high visibility and reach a broad range of the community (Fahy & Jobber, 2012). Sport sponsorships are also popular because sports can solve a major problem that companies experience, namely that a high fraction of advertisement expenditures is wasted, but it remains difficult to identify these wasteful campaigns. By using sports, specific market segments can be targeted, because every sport attracts a specific type of customer. For example, if a company identifies richer people as potential clients, it can target them by sponsoring yacht races and golf tournaments as these activities are mainly attended by its target customer (The Economist, 2008). Despite this large growth of sponsorships, little research on the impact and implications of these big sponsorship deals is done. Meenaghan (2001) investigates the effects of commercial sponsorships on consumers by analysing goodwill, image transfer and fan involvement. This framework provides a clearer understanding of sponsorships by considering the customers’ response to commercial activities, as these responses will differ from responses to other types of mass media, such as advertising. Additionally, Speed and Thompson (2000) focus explicitly on sports sponsorship by researching the effects of consumers’ attitudes to a sports event on the sponsorship response. Findings include that 2 Ibisevic van Holten the sponsor-event fit, perceived sincerity of the sponsor, perceived ubiquity of the sponsor and attitude towards the sponsor are key element in producing a positive response from the sponsorship. These findings emphasise that managers should have a clear idea about the notions of their target audience. Literature has hereby shown that companies should carefully examine which players to sponsor, as this will impact the effect of the sponsorship. In order for the sponsorship to give desirable results, firms ought to sponsor parties who create positive associations between the brand and the sponsor, which should also align with the firm’s own strategy. This could, for example, be based on the player’s performance. However, other studies have shown that sports fans do not make a distinction between brands that spend a lot on sponsoring famous sporting events and those that do not, indicating that sponsorships are merely a waste of money (Day, 2003). Therefore it is relevant to study the relationship between the sponsors and the clubs or players that they are sponsoring as it will provide insight into the strategy employed. For the purpose of this investigation, the performance of individual tennis players will be examined in relation to their clothing sponsors. Tennis is an attractive sport for many sponsors because of its global nature and the demographics of its fans (Forbes, 2015). Tennis is the second most popular sport in Europe and South America; hence a large part of the population can be reached through promotion and sponsorships. Furthermore, the average income of tennis tournaments’ visitors is above average and a very large fraction holds at least a bachelor’s degree. This also explains the popularity of luxury brands to sponsor tennis players and tournaments. Therefore, this paper will investigate the following research question: “What is the relationship between the performance of individual tennis players and their clothing sponsors?” First, the theoretical framework will consider sponsors and their main objectives. The research question will then be split into two hypotheses. Furthermore, data will be extracted and tested using statistical methods, which will be explained in the data and methodology parts. These outcomes will be presented in the results section of the paper. Finally, the findings will be summarised and, based on the results, some conclusions will be drawn. Limitations of this research and suggestions for further research are also provided. 3 Ibisevic van Holten Theoretical Framework Sponsorships are an important source of income for tennis players. In 2015, Roger Federer and Novak Djokovid were the highest paid tennis players of the world, with 67 million and 48.2 million U.S. dollars respectively. Although most players receive large amounts of money from winnings, endorsement deals are large contributions to players’ salaries. Between June 2014 and June 2015, the twelve best paid players earned a total of 71 million American dollars from prize money, whereas total earnings from endorsements and appearances added up to 216 million dollars (Forbes, 2015). This shows that it can be expensive to sponsor top players, due to the high interest in sponsorship deals with these players. On the other hand, lower performing players usually have no sponsors or only sponsors that have a relatively low market share. This would indicate that the sponsored player’s ranking points are partially explained by the sponsoring of large sports brands, in which large indicates that the company engages in many sponsorship deals and is highly present in the tennis market. This leads to the first hypothesis: Hypothesis 1A: Larger brands are involved in sponsorships with higher ranked players. Generally, companies may also expect certain performance obligations from the players. According to CNBC1, Novak Djokovid, the current world number one tennis player, signed a contract with Sergio Tacchini in which they agreed to pay him more should he perform better (Rovell, 2012). Therefore, it is to be expected that successful sports brands are able to sponsor better performing players with higher ranking points. However, other brands will focus on players that fit better within their budget. This leads to the second part of the first hypothesis: Hypothesis 1B: The performance of tennis players sponsored by larger brands varies between the brands. Due to relatively high costs, sponsorships are an expensive form of marketing. Companies therefore carefully examine which players they wish to sponsor; this decision must align with their core strategy and business mission. Companies must therefore consider what they want to achieve with their sponsorship. There are several objectives for sponsorship (Fahy & Jobber, 2012). The most prevalent reason is to gain publicity. Worldwide tennis tournaments provide the perfect opportunity 1 The CNBC is an American basic cable, internet and satellite news television channel. 4 Ibisevic van Holten for sponsors to reach a global media coverage, resulting in increased consumer awareness. Another objective is to create entertainment opportunities for customers through large sports events. The third important objective is to promote favourable associations for the brand and company. By creating a relationship between the sponsors and the sponsored event or player, values associated with the event are being transferred to the sponsor. During such an event, the brand’s logo and other symbols are spread through all objects and spaces that are being used, which creates an association in the customer’s mind between the sponsor and that certain activity. Improving community relations could be another objective to engage in sponsorships. The last objective