Sponsorship, brand damage and leverage: when there are no winners

The IPKat has often pondered a problem concerning brand sponsorship which arises when the brand, far from being enhanced by its sponsorship of an event, a sports team or indeed anything else, faces damage though its enhanced exposure.  This issue exercised him recently in the context of two of the sponsors of football's World Cup expressing their substantial distress at the allegations of corruption at the highest level of the sport's governing body Fifa -- allegations of which it seemed that everyone except the sponsors was aware (see earlier post here).  The same issue, sadly involving the same sport but a very different set of circumstances, has arisen today, as the Sky report, "Football Club Suspends Sex Offender Player", makes plain.

In short, Scottish Premier League footballer Craig Thomson pleaded guilty earlier this month to charges of "lewd, libidinous and indecent behaviour" towards two under-age girls. Edinburgh-based football club Heart of Midlothian initially said it would stand by the player, saying there was "no reason for Craig Thomson not to continue his career as a professional footballer". But today Hearts issued a statement to the effect that it has suspended him with immediate effect, adding "No further comment will be made by the club."

Calls by charitable and other organisations for Thomson to be dismissed were initially ignored, but it seems that the trigger for the player's suspension may have been the decision of one of its sponsors, MacB Water.  The company expressed disappointment in Hearts' earlier stance and then withdrew its support as official water sponsor, a deal worth more than £5,000.

Says the IPKat, this sort of situation is one in which there can be no real winners.  Criminal offences against under-aged children cannot be tolerated in any civilised society; children deserve protection and those who exploit and violate them deserve their punishment.  Yet Thomson,at 20, is little more than a child himself and has lifetime ahead of him in which his public shame and criminal record is likely to blight the rest of his adult life. He has also in probability lost the chance to pursue the career of his choice.  MacB Water is obviously entitled to take all reasonable steps to protect the integrity of its trading brand, which means that Hearts is left with a hole in its income through no real fault of its own and its sponsor must re-cast its marketing and promotion plans mid-campaign.  Merpel adds, what a pity Thomson didn't opt for adultery.  This apparently does nothing to damage the image of the sponsored brand -- and may even enhance it -- and presumably doesn't affect the exemplary position of the footballer as a role model for today's youth.

How sponsor Tag Heuer profited from Tiger Woods' off-course activities here 
Carlsberg beer's latest deal to use wanderers Wayne Rooney and John Terry here.

Fifa scandal: the sponsors awaken

Football's governing body?

Is there corruption at the highest levels of the sport which most of the world (i.e. almost everywhere except the USA) calls football?  You may as well ask, do dogs have fleas? This member of the IPKat team has long assumed that there is, his impressions being based only on the evidence in the media of the increasingly bizarre behaviour, statements and decisions of its leaders, culminating in the extraordinary and nearly universally criticised (i.e. almost everywhere except in Qatar) decision to host the 2022 World Cup tournament in Qatar.

This is a year of change.  Dictators have tumbled in Egypt and the Ivory Coast; Colonel Gaddafi's regime totters in Libya. Football's governing body Fifa stumbles from crisis of credibility to crisis of incredibility, yet Sepp Blatter appears as unshiftable as ever.  Surprisingly it has taken until now for the businesses that pour vast sums of money into Fifa's pockets to express any concern over the ongoing soap opera which is Fifa today.  According to today's report from the BBC,

"Sponsors associated with Fifa have expressed concern at the damage allegations of corruption are causing world football's governing body. Coca-Cola and Adidas [two of the world's biggest brands, notes Merpel, which have achieved status through an association with all that is supposedly clean, healthy and decent] have voiced worries over the controversy, despite Fifa president Sepp Blatter stating that the organisation is not in crisis.

But a Coca-Cola spokesperson said: "The current allegations being raised are distressing and bad for the sport."

Fellow sponsors Visa and Emirates are keeping a distance from the row [the position of popular airline Emirates is as sticky as a footballer playing in temperatures of 40-50 degrees, notes Merpel, since Qatar is an emirate ...].

Blatter is expected to be re-elected to his post unopposed after his only rival candidate in Mohamed Bin Hammam, president of the Asian Football Confederation (AFC), withdrew from the race to govern Fifa.

In the lead up to the 1 June vote [that's tomorrow], which there have been calls to postpone, Bin Hammam has been provisionally suspended by Fifa's ethics committee over allegations that financial incentives were offered to Caribbean Football Union members. Concacaf president Jack Warner, whose Fifa association governs the region of North, Central American and Caribbean football, has also been provisionally suspended.

The world awaits a truthful explanation. But will it come out?

And, in a progression of claim and counter-claim, Bin Hammam has appealed his ban, while Warner has revealed an e-mail sent to him from Fifa general secretary Jerome Valcke suggesting Bin Hammam had "bought" the 2022 World Cup final for Qatar.

Although Valcke has moved to clarify his remarks in the e-mail, the developments will have fuelled bribery claims over the bidding process to host the 2022 World Cup tournament, which will be held in Qatar. ...

"We have every expectation that Fifa will resolve this situation in an expedient and thorough manner," added the Coca-Cola spokesperson [Drafted by the Department of Wishful Thinking?]. An Adidas spokesman said: "Adidas enjoys a long-term, close and successful partnership with Fifa that we are looking forward to continuing. Adidas will be an official sponsor of Fifa World Cup 2014 in Brazil [an event which seems to have been eclipsed by recent news, and which does not, to this Kat's recollection, seem to have attracted any accusations]. Having said that, the negative tenor of the public debate around Fifa at the moment is neither good for football nor for Fifa and its partners"."

The IPKat personally doubts whether the scandal at the top end of Fifa will tarnish the reputation of any of the sponsors. This is because World Cup is an extremely popular event which generates so much goodwill that probably even Fifa can't destroy it. He also doubts that it would be worthwhile for the sponsors to withdraw -- even if their contracts so provided -- for the same reason: the saturation coverage to which they are entitled can't be conveniently obtained elsewhere at any price and there would be no shortage of substitute sponsors. He is however pleased to see the sponsors express some concern at the conduct of the miserable, humourless and heavy-handed bunch which has ruled the Beautiful Game for far too long.

Earlier BBC documentary on Fifa corruption here
Fifa versus Kulula Airlines here
The Bundesgerichtshof brushes off Fifa's attempts to monopolise descriptive terms as World Cup trade marks here
OHIM brushes off Fifa's attempts to monopolise descriptive terms as World Cup trade marks here 

Next lap in Force India v Etihad dispute

After watching the Brazilian GP today, this Kat feels just in the right mood for the following case on Formula One, sponsorship agreements and rebranding.

Almost one year ago, the IPKat reported on Force India Formula One Team Ltd v Etihad Airways PJSC and Aldar Properties PJSC [2009] EWHC 2768 (QB), a Queen's Bench (England and Wales) decision of Sir Charles Gray (see the IPKat earlier post here). This was an action regarding an alleged repudiatory breach of a sponsorship agreement brought by racing team Force India for damages from its sponsor Etihad.

While the racing team appeared to have found a winning formula at first instance, the cards have turned one year on with the sponsor's appeal being allowed by the Court of Appeal as the IPKat's learned friend Patricia Edwards reports:

Force India may have ended the 2009 Formula 1 season on a legal high, but 11 months later they have been stripped of their victory. In a firm judgment delving unusually deep into the factual quagmire, the Court of Appeal has overturned the first instance decision in Force India Formula One Team Limited v (1) Etihad Airways, (2) Aldar Properties [2010] EWCA Civ 1051 (see here).

Sir Charles Gray had held that the defendant sponsors had repudiated an agreement to sponsor the claimant’s Formula 1 team, by purporting to terminate it for breaches by the team. Although the team had made substantial changes to its branding (including changing its name from Etihad Aldar Spyker F1 Team to Force India), the judge found that there were no irremediable breaches and the sponsors had in any event known about these changes and consented to them.

Rix LJ (with whom Patten LJ and Sir Mark Waller agreed) interpreted both the factual and legal position somewhat differently. He emphasised the reality of the team’s rebranding strategy, which he described as “imaginative and brilliant” but “simply inconsistent with the sponsors’ vital rights”. Just a few months into the three year sponsorship agreement, the team was acquired by Dr Vijay Mallya, an Indian billionaire. He had a clear strategy to associate the team with India and with his airline (Kingfisher Airlines) regardless of the impact on the sponsors who, apparently, he thought were paying too little for their rights.

Despite the “series of strong findings made by the judge after a substantial trial”, the Court of Appeal openly reached its conclusion, that the sponsors were entitled to terminate, on the basis of a mixture of fact and law.

• The changes in team name and branding amounted to “a series of repeated, or continuing, breaches which were sooner or later but ultimately repudiatory”.
• The breaches were not remediable under the terms of the contract. They were analogous with the publication of confidential information or the publishing of advertising matter not containing a party’s name; “a proper marketing campaign is, generally speaking, all of a piece ... the marketing genie cannot be put back into the bottle”.
• In any event, although the judge at first instance did not address the point, it was “perfectly clear from all that happened that [the claimant] would not have been willing” to reverse its new branding if asked.
• The sponsors were entitled to accept the irremediable repudiatory breach at common law, irrespective of the termination provisions in Clause 21 of the agreement which applied only to material but remediable breaches.

The sponsors had not affirmed the contract. Although the judge found that “by their course of conduct over the months” the sponsors had elected not to exercise any right to terminate, the judge was thinking “of a contractual termination”, he was not thinking of the conduct as repudiatory.

• While delay might sometimes give rise to affirmation, there was no lengthy or unjustified delay in this case, and many of the relevant events occurred during the winter break between two racing seasons.

Not only did Force India lose its damages award of just over $5m, the Court of Appeal also reversed the decision that it was entitled to a $0.5m contractual bonus for coming one from last in the 2007 Constructors’ Championship. It considered that McLaren’s disqualification, which led to it being listed in the eleventh and final place by default, did not mean that Force India had in reality ended up any higher than last by being listed in tenth place.

* Driving with 77 cats in 2 cars - see here.
* Rambo, the taxi cat - see here.

Put those vuvuzelas away, here comes FIFA

The IPKat has been reading with concern of the latest developments in South Africa, drawn to his attention by Dan Guildford. In "Scramble for sponsorship in 2010", popular football magazine When Saturday Comes (a.k.a. WSC) gives an account of the sad life and times of FIFA in its attempts to ensure that only official sponsors may advertise and promote their brands at the forthcoming soccer World Cup. Their treatment of non-sponsor Kulula Airlines seems particularly harsh. According to WSC:

"FIFA say that the company, known for their quirky adverts, had sought "to gain a promotional benefit by creating an unauthorised association with the 2010 FIFA World Cup". The Kulula advertisement used the national flag, footballs, and plastic vuvuzela trumpets, and according to FIFA it is the “combined use of these elements" which is banned.

Kulula's response to the ban has been dignified and hilarious. They initially withdrew the offensive adverts and said: "We're surprised at this FIFA complaint but have to be respectful because FIFA has very stringent rules." Then they hit back with a second, full-page advertisement in the Sunday Times on March 21, which mocks FIFA's approach to any marketing associating an unlicensed company with South Africa in 2010. The page reads: "Not next year, not last year, but somewhere in between."

The centre shows a bridge strongly resembling the Cape Town World Cup stadium. It is then illustrated with golf tees which look like vuvuzela, but are labelled: "Definitely, definitely a golf tee." Around the border hang pieces of cloth with the question: "Colourful beach towel? Flag?" And at the bottom a man stands in footballer-like pose wearing boot-like footwear, but without studs. The caption reads: "They're running shoes."".

Techdirt carries illustrations of Kulula's advertisement (above), to which FIFA took exception, as well as the now presumably acceptable form (below).


Asks Merpel, is this the same South Africa that passionately defended the right to free speech against trade mark enforcement in SABMiller v Laugh It Off Promotions (the BLACK LABOUR case)?

How to play the vuvuzela here and here

Vuvuzelas allowed at World Cup events here

Build a safe refuge from the vuvuzela here

Race team finds winning formula in court

Litigation over sponsorship deals is not such a common event, so the IPKat was delighted to have a chance to read up on the reality behind the glamour. The case he has just been looking at is Force India Formula One Team Ltd v Etihad Airways PJSC and Aldar Properties PJSC [2009] EWHC 2768 (QB), a Queen's Bench (England and Wales) decision of Sir Charles Gray on 4 November 2009. This was an action by Force India for damages from Etihad, the cause of action being an alleged repudiatory breach of a sponsorship agreement.

Etihad, which ran a national airline, agreed to sponsor a Formula One motor racing team for three seasons. The agreement provided that Etihad's name would be integrated into the team name; the team would not enter into any arrangement that might conflict with Etihad's activities; Etihad would be the airline exclusively associated with the team; Etihad was obliged to pay the team a performance-related bonus; the team could choose to source another sponsor but, if it did so, Etihad was entitled to exercise a range of options including the option to terminate the sponsorship agreement. The agreement could also be terminated upon written notice by Etihad, if the team owner had committed a material breach which, though capable of remedy, had not been remedied within 10 business days.

Force India acquired the Formula One team. At this point one of the news owners, who had an interest in Kingfisher -- a company which owned and operated an airline -- changed the livery on the cars for winter testing to include Kingfisher's logo; it was disputed whether Etihad had consented to that change. Some three months after the acquisition, Force India emailed Etihad, proposing to amend the sponsorship fees. Etihad wrote back that it took the email to be notice of Force India's intention to exercise its right to source an alternative sponsor and that Etihad was accordingly terminating the agreement. According to Etihad, (i) Force India was in breach of the agreement by using the Kingfisher logo, changing the team name and using new livery. Its notice therefore constituted an acceptance of the antecedent repudiation of the agreement by Force India; (ii) Force India could not claim for the loss of a chance of obtaining bonus payments for the points scored in the second and third years of the agreement since, at the apparent date of Force India's acceptance of the repudiation, the possibility of such bonuses accruing to it was speculative.

Sir Charles Gray upheld Force India's claims.

* Force India had told Etihad that the Kingfisher logo would be on the car during testing. At that time, the only concern raised by Etihad was that the car livery should not include a reference to the Kingfisher airline.

* The limited use of the Kingfisher logo in the new livery was not a material breach by Force India of its obligations under the agreement. Even if it had been, such breaches were remediable: all Force India needed to do was to remove the Kingfisher logo for the rest of the winter testing. It was up to Etihad to give notice asking the breaches to be remedied (the same considerations applied to the change of team name).

* There was no evidence to show that the acquisition by Force India was specifically for the purpose of promoting the Kingfisher airline.

* It was hard to reconcile (i) the duty of Force India not to enter any deal that might be deemed to conflict with Etihad's activities and the provisions that Etihad would be the exclusive airline brand associate with the team, with (ii) the clauses enabling Force India to source or obtain and contract with another sponsor.

* From the date Force India took over the team till the date of the letter of termination from Etihad, the latter elected not to exercise any right it might otherwise have had to terminate the contract. The various breaches of contract relied upon had been waived by Etihad or acquiesced in by their conduct over that period.

* On this basis, Force India was entitled to damages for the wrongful termination of the agreement and for the bonus for coming one from last in the constructors' championship. Force India's team had gained points in the second and third seasons which, under the agreement would amount to a points bonus; this was recoverable by way of damages.

The IPKat thinks this is an example of a sponsor alternately taking too little interest and then too much interest in the activities of its chosen licensee. As ever, good faith, good planning and good day-to-day management are pretty well foolproof if you want to keep out of court. Merpel says, what good fortune, to pick up bonus points even for one from last in the constructors' championship ...

Formula One here

Formula Two here

Formula Three here

Formula 21 here

Ferrero v FIFA (in the World Cup trade mark dispute) -- 1:0 says the German BGH

The German Federal Supreme Court (Bundesgerichtshof, "BGH") has today published its decision in a trade mark dispute between FIFA, the world football body, and Italian sweets company Ferrero concerning football World Cup trade marks, which Ferrero GmbH, Ferrero's German subsidiary, had registered. The court's decision is not yet available in its entirety but the court's press release (no. 232/2009 of today's date), on which this report is based, clearly indicates the score of this trade mark match: 1:0 for Ferrero.

So what was this dispute about? FIFA, based in Switzerland, organises the football World Cup and not surprisingly also owns numerous trade marks that relate to the football World Cup 2006, which was held in Germany, as well as trade marks relating to the upcoming World Cup to be held in South Africa next year.

FIFA tried to cancel Ferrero's numerous World Cup trade mark registrations arguing that the Italian sweets maker had no rights to register marks such as "WM," short for Weltmeisterschaft "World Cup" or "2010" in reference to next year's football World Cup in South Africa. FIFA has an obvious interest in controlling its World Cup franchise and claimed that Ferrero's trade mark registrations were an infringement of Germany's unfair competition law.

During past world cup tournaments, Ferrero had distributed free collectible stickers showing each player in the German national team with its Hanuta and Duplo chocolate wafers - and this Kat admits that in days gone by, she used to collected them herself.

The courts of the lower instances, the LG and OLG Hamburg, had both decided in Ferrero's favour. The German Federal Supreme Court agreed and ruled that FIFA could neither base its cancellation claim on trade mark law nor on unfair competition law. The court's press release states that there was no likelihood of confusion between both parties trade marks. (IPKat comment: yes, I am wondering about this bit too: what were the marks? What exactly did FIFA's marks cover? We don't know and the press release unfortunately doesn't tell us.)

Furthermore, the court further decided that FIFA could also not base its claim on the "work title rights" ("Werktitel"- a German quirk) it owned for "WM 2010", "GERMANY 2006" and "SOUTH AFRICA 2010". The judges ruled that FIFA was also barred under unfair competition law, including the so called "general clause" as stipulated by section 3 of the German Law of Unfair Competition (UWG).

Ferrero's trade marks did not influence the consumers to assume that the defendant (Ferrero GmbH) was an official FIFA sponsor. The court held that Ferrero did not unfairly block FIFA's efforts to market the World Cup events via licensing through sponsors. FIFA's basic constitutional right to commercially exploit the tournaments it organises did not extend so far that it could prevent all types of third party exploitation of this sports event.

This should be a very interesting decision to read (once the reasoning is available): with potentially far reaching consequences for organisers of sport (and other events) that seek to financially exploit its events.


Case reference: Bundesgerichtshof, I. Zivilsenat , I ZR 183/07 "WM-Marken" - to read the court's press release, please click here (in German!).

Zadie Smith keeps the money, spurns the beer

The Telegraph reports that stylish and articulate prize-winning novelist Zadie Smith (White Teeth, The Autograph Man, On Beauty) has launched a "blistering attack" on literary prizes. Most literary prizes were "only nominally" about literature, she said, adding:

"They are really about brand consolidation for beer companies, phone companies, coffee companies and even frozen food companies".

The IPKat is surprised that Ms Smith has taken so long to realise why it is that companies have been so happy so shower her, and her worthy authorial colleagues, with cash and fame. Merpel adds, I wonder how many avid readers of Ms Smith's works have even the faintest clue as to what the Man Booker brand represents.

Autograph Man here
Man Booker here