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MKTG Insights: Part-Time Shareholder, Part-Time Endorser

MKTG Insights: Part-Time Shareholder, Part-Time Endorser

Professional athletes have two distinct alternatives with respect to evaluating endorsement opportunities. Many athletes opt to enter endorsement relationships with juggernaut brands who are highly invested in sponsorship: the Nike's and Gatorade's of the world who hold prestige within the athletic community, large athlete rosters,  expertise in leveraging the equity in an athlete, and can offer the association with fellow athletes on the brand's endorsement roster.

However, a different approach to brand-building is emerging as a trend amongst athletes: the opportunity to partner with a category challenger instead of a category leader. Though smaller brands come with smaller reach and exposure, category challengers can offer athletes the opportunities to take a more featured and prominent role within the communications of the sponsor's brand - to be a big fish, in a small pond of brand ambassadors.

But brand building opportunities are not the only benefits of partnering with smaller organizations relatively early on in their sponsorship life-cycle. In instances where an athlete enters into an endorsement deal with an upstart brand, new venture, or very niche product, the benefits to that athlete can come to life via an untraditional compensation model: equity-based payment and an ownership position in the sponsor's company.  

In the early days of Glaceau’s Vitaminwater, the brand listed stars like rapper 50 Cent and New York Mets Third Basemen David Wright as endorsers, both of whom negotiated an equity stake in the company as part of their endorsement deal. When Coca-Cola bought the company for $4 billion in 2007, it is estimated that the rapper’s take was between $60 million - $100 million and that David Wright took home $20 million; well over the market value they would have received had they done a traditional cash deal.

The notion of an athlete having an ownership stake in their brand partner's organization can bring a layer of meaningful authenticity to the partnership difficult to replicate in a typical athlete deals. For sponsors, value can be realized through:

Aligning Player Interests with Organizational Interests: Equity can be leveraged to motivate and force sponsored athletes to "think like an owner". Athletes with skin in the game may be more conscious of how their actions off the field can transfer over toward the brands they partner with. In an age where so many partnerships are unhinged due to personal transgressions by athletes, the more "invested" an athlete feels in their relationship with a brand, the less likely they are to defame it.  Owners are also more likely to take a long-term approach to the relationship.

Unique Value Proposition in Recruiting Athletes: Start-ups cannot compete with the deep pockets of big brands. Offering stock vs. cash is a point of difference when making the appeal to athletes who are evaluating their opportunities (that comes with an injection of capital to some organizations that may need it).

For athletes, equity-based sponsorship deals with young brands offer significant value as well:

Hedge Against Decrease in Short-term Value: Athletes on short-term traditional deals risk having their endorsement earnings tied to performance and/or health status. Equity-based deals provide the opportunity to have marketing relationships outlast playing careers, an important consideration given the average career length of an athlete.

High Upside Financial Gain: In the event that an athlete receives an equity stake in a company at a friendly valuation, a large increase in value can provide athletes with significant earning potential.

RISK PROFILE: While equity-based deals can provide value for all parties across the sponsorship continuum, they are not without risk. Not every upstart sponsor will grow into the next Vitaminwater. Poor financial results for a sponsor can mean unrealized earnings and even losses for athletes. There may also be complications surrounding the exit of deal in the event the endorser breaches a morality clause. An independent contractor can easily be parted with. If an endorser has a significant equity stake in a company, parting way with them as a sponsor may be baked with nuance. In some instances, key executives or shareholders may actually have morality clauses included in their contracts or shareholder agreements. In cases where these clauses are breached, it is not just the marketing relationship that may end - investors may be forced to sell their position in a company. While not a traditional sponsorship, when Livestrong was forced to distance themselves from Lance Armstrong after his doping scandal, the foundation struggled to rid itself of its founder's presence and redefine its brand without its face.

CASE STUDY: Bodyarmor Sports Drink

Bodyarmour: Andrew Luck was formerly a Gatorade athlete, testing his reaction time at the Gatorade Sports Science Institute before he was the 1st draft pick in 2012. Now he has an equity stake in Bodyarmor (from the creator of FUZE Beverage and Vitaminwater co-founder). Other endorser-investors include: NFLers Rob Gronkowski, Ray Rice, Jason Pierre-Paul and LeSean McCoy, MLBers Mike Trout & Buster Posey, and NBA player Kobe Bryant. The brand has assembled a team of brand ambassadors with a vested interest in the organization's long-term success.

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