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Adidas has been Palmeiras’ provider for twelve years, but the continuation of the relationship seems to be hanging by a thread. The reasons are multiple. Several of more recent models put out by the German giant have not been particularly well received by supporters. The poor international visibility, and a business model whereby Palmeiras receive a fixed annual sum and not a percentage according to sales (mind you Palmeiras are Adidas’ fifth highest selling football club brand in the world) are other factors.
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Rumours regarding a swap have been frequent for some years, but this time it seems more plausible than ever. Two other offers are on the table: Brazilian brand Topper – with teams like Botafogo and Atlético Mineiro in their portfolio – and PUMA.

Reportedly, Topper has presented the financially most lucrative bid of the three. PUMA is somewhere in the middle, with compatriot Adidas trailing behind. Now, of course, there is much more than numbers to consider when assessing these offers: marketing strategy, distribution channels and logistics, and consumer awareness are just a few of the variables.

PUMA have two things going for them in particular. They offer an exclusivity clause, meaning they would not sponsor any other Brazilian football team for as long as they are partnering with Palmeiras. They also promise (although this should be treated with a healthy dose of reality check) they will give Palmeiras their “global brand” status, levelling with the likes of AC Milan and Olympique de Marseille in 2019.

PUMA are also, indisputably, the brand of choice among Palmeiras supporters.

My sources are particularly vague on this one, not much is leaking from inside the club, which is good. That being said: I’d put my money on the feline.

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With roughly US$ 60 billion being pumped into sports through sponsorship deals every year, one would assume the average business model to be solid and well defined, securing that companies benefit from their investments. Well, think again. Research on the topic is surprisingly scarce and the main findings of the studies that do exist, surprising by their own merit.

Do sponsorship deals increase brand visibility and value? Sales? Company net worth? How could these and other indicators be better studied, fueling more qualified discussion on the topic?

Below, Douglas Monaco gives us his take on a highly relevant article, “Does football sponsorship improve company performance?”, inserting it into the context of the current (for Brazilian standards) controversial Palmeiras x Crefisa/FAM partnership. Enjoy!

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Improving the discussions on sponsorship of football clubs

  1. Introduction

In the last weeks, the relationship between Palmeiras and Crefisa/FAM has generated a new wave of media attention.

On the one hand, people have called for financial fair play, claiming that Palmeiras’ spending on players has to be curbed to avoid an otherwise uneven, unbalanced situation in which the tournaments will be tilted towards the club, artificially increasing the club’s odds of winning.

On the other hand, there is extensive coverage of the alleged rewriting of some parts of the partnership contract. According to repercussions in general, the changes would have been triggered by the Brazilian IRS (Internal Revenue Service) investigation of how Crefisa/FAM was accounting for the amounts paid in signing of players.
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The fact is that since its beginning in January 2015, the partnership has been a customary subject in the TV sports news and internet sports outlets. The comments are purportedly making a technical assessment of football clubs’ sponsorship as a theme.

The truth though is that these discussions have generated much fuss, but nothing practical. In the words of the late and illustrious Palmeiras’ supporter Joelmir Betting, “much heat and no light”, an expression that used to pop up in his always clarifying chronicles.

Propelled by the last wave of comments, this post will bring to the discussion something unusual so far: results from a peer reviewed paper published in a scientific journal specialized in sports management. The paper was published in December 2016 and its results – rather counter-intuitive – are based on a 6-year analysis of 78 companies sponsoring clubs in 7 (seven) of the major European leagues.

The objective of the study has been to measure the effectiveness of sponsorship to the sponsor, i.e. does sponsoring a football club make the sponsor more successful in relation to key indicators like sales and market capitalization?

The goal of the post though is not so much to emphasize the results, but to suggest an approach to discussing sponsorship in football: analytical rigour, conceptual formalism and relentless objectivity. By improving the analyses, conclusions about the subject will at once be more reliable and more useful.

  1. Results experienced by 78 European sponsors between 2006 and 2012

2.1 Context of the study

There are many reasons to study the effectiveness of sports sponsorship to the sponsoring company.

First of all, according to the Handbook on the Economics of Professional Football, sports sponsorship as a business is estimated to have drawn in 62 billion dollars in investments during 2017, with football assumed to have received sizable parts of it.

Beyond this quantitative aspect though, the notoriety of the phenomenon in the whole world seems to be only increasing. Brands – well-known as well as up and coming – are seen in shirts of leagues in a variety of sports, with football as a front runner in the context.

Given this combination of economic size and prominence, the question is unavoidable: does such a cost draining, prominent activity actually generate value for those investing in it? Do sponsors increase sales, become more profitable, do they increase their wealth due to their investments in sponsorship?

One basic difficulty in studying the phenomenon is to reach a consensus in defining sponsorship: is sponsorship “paying to be seen”? should it allow the investor a say in sponsored entity’s affairs?

Studies about the sponsorship seem to follow a line of applying surveys to capture public opinion’s perception of sponsor, detect consumption intentions, mapping the repercussions of brand visibility both in conventional as well as in social media.

The study reviewed in this post adopts the usual “pay for visibility” concept. But it takes a different method: instead of the surveys, it attempts to quantitatively measure the impact of amounts paid by sponsors on their result-variables, things observable in the sponsors’ balance sheets.

2.2 Results of the study

The main conclusion of the study is: for the six years analyzed, there is no evidence that investing in the sponsorship of football clubs brings measurable benefits to the sponsor’s balance sheet.

And this finding is verified for practically all countries analyzed by the study. The sampled 78 companies are present in clubs of England, Spain, France, Italy, Scotland, Netherlands and Turkey, seven of the main European leagues.

The study uses regression analysis to measure causality between invested value and performance of the company. For all tests made, the result is that there is simply no causation, i.e. companies that invest in sponsorship don’t achieve better economic outcomes than those that don’t invest in sponsorship.

The variables of the model are quite straightforward: total amount invested in each year versus result-variables in the following year. The result-variables are of two kinds: sales income and market capitalization.

The choice for sales-income aims at reflecting the effect of sponsorship over the sponsor business primarily in the next year. The choice for market capitalization – share price multiplied by the number of shares in circulation – captures the expectation that the capital market has about the general profitability of the company also for the future years, so measuring the impact of the whole enterprise strategy, inclusive the investment in sponsorship.

Results relative to Sales

The regression analysis used – considered a powerful tool to test this type of quantitative relationship between variables – makes important methodological adaptations aiming at vulnerabilities intrinsic of the situation, e.g. the “chicken and egg problem”: are companies that sell much more prone to sponsoring? Or companies that sponsor end up selling more?

In spite of allowing for this limitation, in its almost totality, the results indicate that there is no impact of sponsorship over sales.

The only admissible exception is the league as a differentiator: the French league presented a slight impact on sales. If this aspect shows to be replicable, a stream of research may be indicated.

Another aspect analyzed by the report was how “acting for the first time as a sponsor” could make the company more likely to benefit from the investments. Unfortunately, here too, results don’t show any significant impact on sales.

Results relative to Market Capitalization

For this variable, the results are uniform in all circumstances: investing in sponsorship has decreased the market capitalization of the studied sponsors.

Market capitalization is a long-term indicator that reflects the average expectations of the capital market investors. Capitalization takes into consideration the expected net cash flows, discounted by the adequate rate, when income and payments are estimated, inclusive of the payments to sponsorship.

Losses in market capitalization translate into actual reduction in a company’s net worth, i.e. the loss in market value has to generate an entry – debit and credit – in the books that will be reflected in the company’s balance sheet.

The study does not give details of which countries show more pronounced losses, neither which sectors of the economy the sponsors belong to. Still, the correlation is deprecating enough to prompt a reevaluation of the strategy.

Other results

The study also controls for the global economic crisis of 2008 – to avoid the crisis being disguised into the lack of impact by sponsorship.

Another important point was to test which characteristics make a company more likely to sponsor: size and type of ownership are the factors more associated in the study.

Bigger companies and companies individually controlled seem to be more prone to engage in a sponsorship contract. Companies from the financial sector, those of more pulverized ownership and government companies are less likely to.

The study cogitates that the utility function of the sponsor owner seems to benefit more from sponsoring than any commercial benefit the company may derive from the contract.

The most unexpected statement made by the study is that “football sponsoring is more charity than business”.

2.3 Comments about the results

For many reasons, the results of this study have to be considered as surprising, to say the least.

First of all, the global investment in sponsorship is huge. So, there seems to be a strong contradiction as how can so much investment be made into something that doesn’t produce return?

The geographical and contextual reach of the study accentuates the surprise nature of the results.

In “contradiction to the contradiction”, the Brazilian case seems, to some extent, to confirm the study as in late years, Brazilian clubs have faced more difficulty in recruiting new sponsors than in the past. The cases of “clean jerseys” and one-off sponsorships have been more common.

The exception in Brazil really appears to be Crefisa/FAM whose amounts invested have only grown since January 2015. Beyond the increase in value, the scope of the investments has also varied – not only the brand is shown in the commercial properties of the club, but football costs have been directly covered by the company, e.g. signings and paychecks of certain players.

Not only have the investments grown: the general impression is that the visibility of Crefisa/FAM has been catapulted to record heights – much like Parmalat’s in the 90s. In addition, the sponsor’s performance data seem to indicate strong practical impact of the partnership. According to internet information published[1] at the beginning of 2017, the Crefisa/FAM group enjoyed a 30% increase in the enrollment of new students, coupled with the acquisition of 400,000 square meters of land in the eastern zone of the city of São Paulo, where a new campus will be built.

All this strengthen the impression that the partnership between Palmeiras and Crefisa/FAM could be an outstanding exception to the 78 companies study; with the obvious caveat that further verification regarding sales and net worth of the sponsor is necessary in order to affirm the exception.

  1. Final comments

Though not conclusive, the results reviewed in this article offer important insights into understanding sponsorship as a phenomenon.

For the time being, despite the huge investments made in sport sponsorship worldwide, one quantitative study covering a highly significant sample of European leagues indicates that sponsoring a football club does not constitute good business strategy.

At least not in a conventional way, i.e. paying a fee, inserting your brand and expecting your profits or at least your sales to grow as a result.

Counter-examples to the reviewed study would have to be researched.

But cases like the Palmeiras x Parmalat in the 1990s and Palmeiras x Crefisa/FAM now suggest that to derive tangible benefits, the level of investment must be above average and that apart from exhibiting the brand in the club’s commercial properties, the sponsor must somehow share in the business of club’s football department, vis a vis the co-management experiment with Parmalat and the signing of players by Crefisa/FAM currently taking place at Palmeiras.

Another aspect that the 78 companies study highlights is the “satisfying the utility function of the sponsor’s owner” as the primary goal of conventional sponsorship.

Interestingly, the occasional strengthening of this hypothesis – by further studies – could prove right the “benefactor” accusation that has victimized Palmeiras in the Crefisa/FAM partnership. Maybe, the so much criticized arrangement is actually a model to be followed instead of the “wrong example” to be avoided.

Anyway, what the remarks above suggest is that we’re still at an incipient stage in the scientific knowledge about sponsorship in sports/football.

Further studies will prove these and or other remarks right or wrong. Whatever the final results, what matters is that they be reached with appropriate methodology in a way that lends legitimacy and credibility to the output.

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Reviewed article

“Does football sponsorship improve company performance?”

European Sport Management Quarterly, 2016. Vol 16, no. 2, pp. 129-147. Published by Routledge, Taylor and Francis Group. Written by Iuliia Naidenova, Petr Parshakov and Alexey Chmykhov; all from the Laboratory of Intangible-driven Economy, National Research University Higher School of Economics, Perm, Russia

[1] http://www.1news.com.br/noticia/5629/futebol-brasileiro/leila-pereira-comemora-sucesso-em-parceria-com-palmeiras-confira-os-lucros-das-empresas-07022017

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SOS_tree_dayPalmeiras stirred supporter’s curiosity this Thursday morning. On the club’s social networks, the profile picture was changed to a “P” symbol with practically no green in it.
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A few hours later, the motif was revealed: in partnership with the non-governmental organisation SOS Mata Atlântica, Palmeiras promoted Brazil’s “Day of the Tree” by illustrating how much of the Atlantic Forest that used to cover Brazil’s coastline – a whopping 90% – has disappeared. Palmeiras call upon all of us to protect what remains of this precious biodiversity.

Want to contribute? Click here!

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During WWII, Brazil sided with the Allies. Soon, any reference to the Axis powers was prohibited. These were difficult times in Brazil for persons and institutions of German, Italian or Japanese descent.

On the day preceding the São Paulo state championship final, the Verdão was forced to change name, from Palestra Italia to Palmeiras.

On game day, 19 minutes into the second half, Palmeiras were beating São Paulo FC 3 goals to 1. A penalty was marked in Palmeiras’ favour and to general astonishment, the opponent abandoned the pitch, ending the duel and confirming Palmeiras’ championship title.

Poetically, Palestra died a leader and Palmeiras were born a champion. The feat became known as “Arrancada Herócia”, the Heroic Jolt.

This season’s 3rd uniform is dark green, featuring gold details on the sleeves, collar and sides.
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Palmeiras today launched the 2nd jersey for the 2017/2018 season, inspired by one of the club’s most iconic achievements: the São Paulo State Championship title of 1942. It will be first used against Cruzeiro, on 9 July, at the Mineirão stadium.

The white jersey sports green, vertical stripes and a badge bearing resemblance to the classic emblem used in 1942. On the back of the jersey, under the neckline, the phrase “and the champion Palmeiras is born”, a reference to the forced name change the club was submitted to in 1942.
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During WWII, the Brazilian government demanded that clubs and other institutions linked to the Axis countries Italy, Germany and Japan change their names in case they were referring to any of the aforementioned countries. Thus, Palestra Italia, founded in 1914, changed into “Palestra”, keeping only the single word of Greek origin as the club’s name.

The change did not soothe political and sporting pressures. Under the threat of having to forfeit all the club’s assets in addition to being expelled from the championship that they currently led, Palestra had to change their name a second time. The night before the final game of the State championship, scheduled for 20 September 1942, the Palestra board of directors held a heated meeting. Dr. Mario Minervino took the floor and asked club Secretary, Dr. Pascoal W. Byron Giuliano, to note in the minutes: “They don’t want us to be Palestra, so then we shall be Palmeiras – born to be champions.”

The following day, tension flared as Palmeiras played opponent São Paulo Futebol Clube – a club linked to the current political elite of São Paulo which was laying claim to the assets of the former Palestra Italia. Palmeiras were soon winning 3-1 and when a penalty was called in Palmeiras’ favour, SPFC pulled their side off the field, proclaiming the Palmeiras squad “an enemy of the homeland”. With this, Palmeiras were crowned champions.

The new jersey has been very well received by supporters, sales will certainly soar.

Scoppia che la vittoria è nostra!

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How about a 360 degree HD snap view from inside of the Allianz Parque on game day, with teams on the pitch and supporters on the stands? How about being able to zoom in and out? How about being able to identify your own face, or that of your friend, in the crowd, mark the spot, and leave a comment on the notice board? That’s what Palmeiras 360 degrees is all about: making the Família Palmeiras, step by step, a little more familiar.

Scoppia che la vittoria è nostra!
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Palmeiras qualified to the Paulistão semi-finals like a breeze, beating Novorizontino 3-1 (away) and 3-0 (home). The team is evolving game by game, Eduardo Baptista clearly understanding the squad he has at hand and players feeling confident about their leader. And although it is still early, there are hints of something else, which we have not seen in a rather long time at Palmeiras: the drive to play well the full 90 minutes and transform a good performance into an excellent one. With Borja and Guerra adapting to their new team and country, Palmeiras look stronger than ever.

São Paulo FC are through, and so are Corinthians. Today Monday, Santos and Ponte Preta battle it out for the last spot. Next weekend sees the first leg of the semi-finals, but who takes on who will only be known after the final whistle tomorrow.

Not that Palmeiras waste any energy thinking about possible upcoming Paulistão opponents: focus is on Wednesday’s bout against Peñarol in the third round of the Libertadores Cup group stage. Jean has been recovering well after the foot injury and is likely to be found on the bench against the Uruguayans.

bieber_allianz_croppedEnd of March, the pitch at the Allianz Parque was completely removed. Three shows took place in the first week of April: two performances by Justin Bieber and one by Elton John. Then, last Friday, some 14.000 square meters of grass was taken from a farm in Tremembé and installed at the arena. The stadium manager promises that the pitch will be ready by Wednesday, thanks to machines imported from the United States and Europe, capable of cutting a thicker slice of grass: 4.5cm instead of 1cm. The thicker cut allows for not only grass and root, but also part of the rooted soil. In theory, three days should be enough to extend the grass rolls, the pitch being ready for play already on the fourth day.
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Compared to the conventional model, where the pitch needs 30-45 days to reach ideal conditions, this is a huge step forward, albeit expensive: each swap costs approximately R$ 300.000 (US$ 95.000), with the arena constructor foreseeing another four swaps during the year. Those Bieber shows are clearly very lucrative. Palmeiras and sponsors cannot complain either: there has been tremendous visibility and branding, as indicated by the picture featuring the Canadian megastar wearing our jersey. That said, Palmeiras forced out of their home grounds time after another is unacceptable and we need better harmonisation of schedules, combined with a permanent solution addressing pitch quality. On the latter, let’s see how far this thick cut technique takes us.

Scoppia che la vittoria è nostra!

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