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Will Scandals Cool Sports Contracts?

NEW YORK — Athletic companies spend millions on marketing big-name endorsers each year, but the high-stakes game could soon slow.

After several major scandals in the last year — from Lance Armstrong and Rick Ross to Oscar Pistorious — embarassed brands and tarnished reputations, marketing experts said sponsors now are treading carefully.

“We’re seeing brands act in a more protective way,” said Marc Beckman, co-founder and CEO of Designers Management Agency, a talent rep firm. “The level of reluctance from the purchasing brand is higher as a result of these types of stories.”

Nike announced late last month it would stop making its Livestrong-branded products, although it will keep directly funding the nonprofit organization founded by Armstrong. The Beaverton, Ore.-based firm also terminated its contract with the disgraced cyclist last October, after he was accused of using performance enhancing drugs.

And earlier this year, Nike suspended its contract with Olympic gold medalist Pistorious, who is being tried for the murder of his girlfriend in South Africa.

Jim Gregory, CEO of New York-based marketing agency CoreBrand, said Nike’s woes are opening the eyes of other firms. Although the athletic giant has dealt with scandals in the past involving athletes Michael Vick, Kobe Bryant and Tiger Woods, he explained, the recent headlines — and their constant visibility — are making it harder to peddle products.

“Damage is caused to a brand when there’s consistency over a period of time,” Gregory said. “These last few scandals have been so dramatic and so much on display that it’s giving other brands pause on whether endorsements are a good way to build a brand.”

Gregory noted one way brands can protect themselves from a scandal is to use neutral characters such as a cartoon or fictitious spokesperson that they can control. Sports brands also can turn to retired athletes, who are less likely to be involved in public mishaps, he added.

Baker Street Advertising’s executive creative director, Bob Dorfman, foresees athletic companies using marketing strategies that go beyond promoting a single athlete. He said brands that sponsor a team, league or stadium are finding it to be a lucrative investment without huge risk.

“Reebok is moving away from using athletes and going more toward general fitness messages,” Dorfman said. “You certainly might see more of that kind of thing from brands, instead of putting all their marketing dollars into having athletes in their ads.”

Canton, Mass.-based Reebok severed ties with rapper-endorser Rick Ross in April, after many people claimed the artist’s lyrics in his single “U.O.E.N.O” glorified date rape. Since then, the sports brand has upped its focus on the burgeoning fitness category.

As for Nike, Dorfman said the firm’s reputation likely will remain unblemished in the midst of recent controversies. In addition to parting ways with Armstrong and Pistorious, the company has aligned itself with partners that will garner better publicity.

In February, for example, Nike tapped Michelle Obama to unveil the company’s five-year, $50 million investment to increase the physical activity of children.

But the brand won’t shy away from endorsements either, Dorfman predicted. “I don’t think they’re going to move away from using athletes,” he said. “They’re always going to be the first one out there to spend big money on the Rory McIlroys or whoever is the next big thing in whatever sport.”

In 2012, Nike spent $2.7 billion in marketing and advertising, and is estimated to exceed that number this year, according to Sterne Agee analyst Sam Poser. By comparison, that figure is larger than all of Under Armour’s revenues for 2012.

“Instances like Pistorious and Armstrong can’t make much of a difference to the brand,” Poser said. “It would be a different story if it was Michael Jordan. The Tiger Woods scandal wasn’t even as big in the scheme of things.”

Case in point: SportsOneSource’s latest executive summary reported that Nike’s basketball category grew by more than 50 percent, while revenue overall increased 20 percent in the month of April.

However, Armstrong’s antics clearly have impacted the demise of Livestrong-branded products.

During its first-quarter conference call in March, Dick’s Sporting Goods reported it was transitioning away from underperforming Livestrong products. “We are continuing the process of divesting or significantly reducing the Livestrong brand in both the fitness business and our apparel business,” Chairman and CEO Edward Stack said on the call.

With or without top athletes backing its product, Nike’s association with sport and lifestyle is strong enough to endure any star’s public fallout, said Designers Management Agency’s Beckman.

“Nike has built such an amazing relationship and emotional connection to its consumer base that the brand is bigger than these personalities,” he said. “They’re hitting on so many levels right now, whether it’s off the field with leisure wear or in performance. They’re the best in class and I don’t think situations like these are going to hurt them.”

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