The 2020 Summer Olympics Are Officially Postponed Due to Coronavirus

The previously unimaginable combination of a world largely without any spectator sports and the economic wallop of COVID-19 is accelerating the trend for pay-for-performance endorsement deals.

With countless sports stadiums and playing fields empty of competitors and fans, athletic and fashion brands may be more inclined to use the performance-driven model when negotiating contracts with teams, leagues and athletes. That was the takeaway from a study about the coronavirus’ potential impact on future endorsement deals that was released by GlobalData’s Sportcal.

Traditionally, major activewear brands like Nike, Adidas and Under Armour labels paid more cash upfront in multiyear contracts. But with the spring-summer season a complete wash financially for many apparel and footwear companies, that formula is increasingly likely to be reconsidered, according to Conrad Wiacek, head of analysis and consulting for Sportcal.

As of December, Sportcal analyzed 2,394 active endorsement deals for apparel brands across all sports and 364 fashion ones thanks to labels like Hugo Boss and Prada. Combined, the fashion deals generated an annual value of nearly $250 million, according to the study.

Anticipating how the COVID-19 shutdown is having an impact on the way that deals are structured, especially due to the effect on the global economy, Wiacek said, “With less money available for marketing activities given the financial pressure, brands will be more selective in the partnerships they enter into. Nike has already moved in this direction over the past few years, coalescing its spend around certain sports and athletes, while moving away from other sports, i.e. golf. This is a trend that I would expect other brands in this space to follow. While there will still be plenty of money available to partner with top-level sports, those teams and athletes without a significant profile will likely find partnerships harder to come by and generate less revenue.

“Brands’ visibility, due to the lack of sports’ visibility, has decreased significantly. Deals are having to be reimagined to get a better value. Any new deal heading into the Olympic year, next year, will be based largely on the performance of that partnership,” Wiacek said, adding that “…there are already performance-based clauses in a lot of the contracts. What I think is going to happen is that will become much more pronounced.”

Wiacek pointed to Nike’s pay-for-performance multiyear deal with the Liverpool Football Club as an example of the types of endorsement deals that will become more common. To be the club’s official kit supplier, Nike paid a lower annual fee than its predecessor New Balance, but Nike sweetened the agreement with increased royalties and cash bonuses based on good on-field performance. He also noted that that agreement was a pre-COVID-19 one.

Nike will suit up the men’s, women’s and academy squads for Liverpool, as well as the coaching staff at the Liverpool Football Club Foundation. The deal is scheduled to go into effect with the start of next season. Last year, Nike had to defeat Liverpool’s current supplier New Balance in a court battle in order to secure the deal. Nike is paying about $37.8 million a year, which is reportedly about 50 percent less than what New Balance paid annually. Royalties on sales of merchandise offered in the Nike deal and the sneaker giant’s global reach are expected to bolster the contract’s overall value, however.

What exactly the new normal will be for the sports world post-COVID-19 is largely contingent on the development of a vaccine, Wiacek said. In the meantime, sports and fashion brands that have athletic endorsement deals are dealing with the detrimental impact of the pandemic shutdown, as well as being in a recession. Despite those challenges, brands will still want to be associated with sports.

“Sports are one of the few appointment viewing events that are left. That is sports’ appeal. If you can’t watch it live, you tend not to watch it,” Wiacek said. “The entire ecosystem has to change post-COVID-19. We’re not going to see huge sponsorship deals and significant investment from brands. That [in turn] will have an impact on other sports.”

That shift may move at a slower pace in the U.S., due to the lengths of some of the more significant endorsement deals, such as with the National Football League, which tend to run longer, Wiacek said.

”Absolutely” expecting that pay-for-performance trend to continue, he said, “Before, a lot of the power lay with the clubs, teams and leagues, because brands wanted to be associated with them. Ultimately, what’s going to happen over the next 12 to 18 months mostly depends on whether a vaccine is produced. With lots of empty stadiums, the lack of fans and spectators will have an impact on the way that products are seen. With sponsorships, you’re buying access to an audience. If that audience isn’t there physically in the stadium or watching on TV, then the value of that deal is reduced,” Wiacek said.

Before the coronavirus-fueled financial turmoil set in, brands were already scaling back their investments in non-key sports ahead of the Tokyo Olympics where less sponsored athletes are expected to compete, according to the survey. The fallout from COVID-19 has of course included postponing the Tokyo Summer Games until next summer. Should that event proceed as scheduled, there is already talk of “a diminished Games,” due in part to social distancing requirements, Wiacek said. “Just the spectacle of what you’re buying into isn’t as largely pronounced.”

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