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When the Company Is a Contestant in Sports Competitions

Yvonne van Everdingen, Vijay Hariharan and Stefan Stremersch

Sports sponsorships are nothing new. Athletes like Roger Federer, LeBron James, and Serena Williams and teams like Manchester United have eight-figure sponsorship deals from multiple companies. Sponsors invest in sports stars and teams to increase their brands’ exposure, recall, recognition, trust, loyalty, and sales.

However, some firms go beyond branding to breeding–driving innovation returns from athletes who use their gear in sports contests. A new study in the Journal of Marketing is the first to systematically analyze returns from both breeding and branding—demonstrating how sponsorships drive innovation and sales, respectively. The study also investigates how breeding and branding effects depend on firms’ investment in other areas, such as R&D and advertising.

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To understand breeding returns, our research team focused on cases where gear manufacturers move beyond sponsorship to become a contestant in a sports competition.

The manufacturer is involved as a contestant if it competes in the sports contest with a team. Gear manufacturers can use the extreme conditions under which athletes on the team use their gear and closely cooperate with them to develop and test new technologies that improve the competing team’s performance. It’s easy to see that branding returns from competing in sports contests may be different from branding returns from sponsorships. For example, the performance of the firm as a contestant may affect its branding return.

Current examples of firms that invest in both breeding and branding include race bike manufacturer Trek, which invests $14 million annually to compete with its Trek-Segafredo team in the UCI World Tour; car manufacturer Daimler, which invests around $200 million annually to compete with its Mercedes-AMG Petronas Motorsport team in the Formula One (F1) Championship; and ski manufacturer Atomic, which invests around $9 million annually to compete with its own team in the FIS Alpine Skiing World Cup.

Competing firms may invest varying amounts in such sport contests and achieve varying success, both of which may affect their breeding and branding returns. The allocation of resources to contesting in sport competitions is likely not independent of the firm’s investment in other areas, of which R&D and advertising seem most relevant as one considers the breeding and branding returns of competing in sports contests. Thus, we sought to answer the following question: To what extent do gear manufacturers competing in sport contests gain positive outcomes in terms of breeding, branding, or both and are these outcomes contingent on the gear manufacturer’s R&D and advertising spending?

To answer this research question empirically, we constructed a novel data set on car manufacturers’ participation, spending, and performance in the F1 World Championship where R&D personnel of automobile manufacturers closely collaborate with drivers and engineers. The sample consisted of nine car manufacturers that competed in F1 at least at some point during 2000-2015. To examine the effect of participation between contestants and non-contestants, we included seven manufacturers that did not compete in F1 during our sample period. To examine the breeding effect, we supplemented F1 data with information on these manufacturers’ R&D spending and innovation performance measured in terms of patent citations. To investigate the branding effect, we obtained the brands’ advertising spending and the brand’s sales performance in terms of number of vehicle registrations in five countries (France, Germany, Italy, Spain, and the U.K.).

Key findings include:

First, competing in sport contests and R&D spending are complements. Competing in F1 generates a significantly positive breeding return only for car manufacturers that spend at least €3.8 billion annually on R&D (e.g., BMW, Honda), while this effect is not found for car manufacturers such as Fiat and Renault that spend less than that on R&D. Thus, if manufacturers decide to invest in F1 to enhance their innovation performance, i.e., to enhance their patent data base, they have to complement it with a high R&D budget to fully exploit the innovation potential contesting in F1 offers.

Second, we demonstrate that a gear manufacturer competing in sport contests and the gear manufacturer’s advertising spending for that brand are substitutes in inducing an increase in sales performance of that manufacturer’s brand(s). The branding returns of competing in F1 are the largest among brands that have the lowest advertising (e.g., Ferrari, Jaguar, Lotus). Competing in a sport contest clearly helps the gear manufacturer in building its brand by showing its products and brand(s) in a relevant context. Therefore, manufacturers do not have to complement competing in sport contests with a large advertising budget. This is an interesting finding as it may contradict managerial practice to leverage sport investments with greater advertising spending.

These findings are relevant to managers and analysts in the automotive industry specifically (including tier 1 suppliers), but also to other sport gear manufacturers for which competing in sport contests is a relevant consideration (e.g., motorsports, cycling, skiing). They can use these findings to assess the potential economic outcomes of contesting in sport competitions. Moreover, these findings may guide gear manufacturers as they consider tradeoffs of allocating budget among contending in sport competitions, R&D, and advertising.

Read the full article.

From: Yvonne van Everdingen, Vijay Ganesh Hariharan, and Stefan Stremersch, “Gear Manufacturers as Contestants in Sport Competitions: Breeding and Branding Returns,” Journal of Marketing, 83 (May).

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Yvonne van Everdingen is Associate Professor of Marketing Management, Rotterdam School of Management, Erasmus University Rotterdam, The Netherlands.

Vijay Ganesh Hariharan is Associate Professor of Marketing, Erasmus School of Economics, Erasmus University Rotterdam, The Netherlands.

Stefan Stremersch is Chaired Professor of Marketing and Desiderius Erasmus Distinguished Chair of Economics, Erasmus School of Economics, Erasmus University; and Professor of Marketing, IESE Business School, Universidad de Navarra.