What happens when a company puts all of its grade-A sponsorship eggs into one big, star-spangled basket, only to see that basket shattered?

It’s a question that confronted more than a dozen big-name sponsors last month, when NASCAR legend Dale Earnhardt died tragically in a racecar upon which companies had spent up to US$15 million to splash their names.

Losing a superstar to death is rare. But it dramatizes the problem that ‘if you hook your wagon to one individual, you run the risk of living or dying with the outcome of events beyond your control,’ says Paul Shugart, director of corporate properties at Labatt Breweries of Canada.

All too frequently, celebrity endorsers bite the hands that feed them by engaging in bad behaviour – everything from boorishness to violence to drug abuse. The ensuing publicity may be negative enough to threaten a sponsor’s reputation, brand equity, product sales and stock value.

The worst jolt to date for Canadian sponsors was, of course, the yanking of sprinter Ben Johnson’s gold medal at the 1988 Seoul Olympics because of steroid use. Ever since, the prevailing wisdom has been that it’s safer to hedge sponsorship bets, not only by putting money into a variety of smaller grassroots baskets, but also by building in a measurable return on investment (ROI).

Coca-Cola Canada, for one, ‘looks for local needs and focuses on local initiatives,’ says director of corporate communication Wendy Kubota, who points to the soft-drink maker’s partnerships with Variety Village and Ronald McDonald House. The costliest item in Coke’s sponsorship budget, she says, is the company’s longstanding support of athletes headed for the Special Olympics.

Coke’s newest community initiative, which Kubota expects to be formally announced within six weeks, will be a series of local events tied into one of the hottest literary entities in the world – author J.K. Rowling’s Harry Potter.

‘Harry is strong, self-reliant, imaginative, fun and has high energy – the qualities we associate with Coca-Cola,’ Kubota explains.

Similarly, the Molson Indy auto races were inaugurated by Molson in 1986 ‘because they obviously appeal to our key demographic – young males,’ says Jo Ann McArthur, vice-president of marketing assets for Molstar Sports and Entertainment, the Toronto-based sports marketing firm responsible for promoting the auto races. She says the same logic applies to many of Molson’s other sponsorships, which include hockey, basketball, football and lacrosse teams, as well as assorted musical events.

For Labatt, which backs the Toronto Blue Jays, the National Hockey League, the National Football League and the Canadian Olympic Association (among other sports organizations), Shugart says the brewer starts by evaluating whether there’s a good strategic fit between a team and the target audience. ‘Then we see how we can link the two together, whether it be in-stadium or on television.’

What companies such as Molson and Labatt cannot do, by law, is hire athletes to directly advocate alcohol consumption. The solution to this promotional straitjacket, says Shugart, is to use athletes ‘tactically’ to boost attendance and dazzle consumers and corporate customers at company-sponsored events.

All in all, the client’s modus operandi is evolving from the shotgun approach of the past to a more carefully targeted strategy. The reason, says Nathalie Cook, director of athlete representation for IMG Canada, is because ‘consumers are now so sophisticated that the days of just throwing any face on any product are long behind us. First and foremost, there has to be a good fit between the [celebrity’s] personality and the brand personality.’

Michael Gouinlock agrees that credibility is the key to any successful deal. As president of the Toronto office of The GEM Group (formerly Lang & Associates), he says he advises many deep-pocketed clients that, ‘sponsorship is no longer a luxury, or something that’s just nice to do. It needs to pay off.

‘Getting Wayne Gretzky to endorse a budget rent-a-car would probably backfire because people think he’s far more likely to get a limo than an economy car,’ he explains. ‘And when Tiger Woods uses Nike golf balls, we know he knows if they’re good. But convincing people Tiger Woods actually eats a kids’ cereal would probably be a stretch.’

So what does work well enough to be a sure thing? Supporting the patriotic, unifying Olympics – especially at the squeaky-clean grassroots level.

For starters, the risk that a young figure skater in, say, Flin Flon will sully a sponsor’s reputation is pretty low – it’s certainly less likely than the chance of a millionaire celebrity running amok. Additionally, community sports organizations often offer sponsors the chance to ‘own’ Olympic lead-up events in terms of signage and other promotional opportunities. And there’s always the chance that the resulting goodwill may pay off in customer loyalty.

As well, Labatt’s Shugart points out, you may get in on the ground floor by launching a future champion. ‘I think of someone like Catriona LeMay Doan, the speed skater who’s now on top of the world. For a relatively small investment a few years ago, you could have become a sponsor of hers and it would be paying major dividends for you now.’

But hold on. What if Team Canada winds up having an off-year, as happened last summer in Sydney, when our athletes won only 14 medals, compared with Australia’s 58?

Ironically, disappointing returns are providing marketers with an urgent incentive to do whatever it takes to help Canada’s athletes perform better in the future – especially because the future just might include Toronto snagging the 2008 Summer Olympics and Vancouver hosting the 2010 Winter Games.

And that hard truth – that heading off national embarrassment demands that interested parties wise up and cough up – is just what the Canadian Olympic Association addressed in a much-anticipated white paper released in December.

For the first time, says Deborah Allan, COA’s executive director of communications, sponsorship servicing has been brought in-house. There, she says, a team headed by Nick Marrone, executive director of development and marketing, is poised to ‘help new and existing sponsors leverage their commitments and [thus] get more benefit for their investments.’

How? Allan says the COA has come up with ‘innovative ways for companies to promote their association with the Olympic brand. So they will not only have the right to use the [Olympic] rings but, if they want to take it to the next level, they can actually stage events to raise awareness of their association with their team.’

The COA’s new deal has already prompted two new ‘major sponsors’ to sign on, although Allan says she’s not yet at liberty to release their names.

The mounting enthusiasm among his colleagues doesn’t surprise Labatt’s Shugart. ‘Corporate Canada would love to play a bigger role. But obviously, there has to be a certain return to make that viable.’

Which brings us to the main feature of the COA’s white paper. The report doesn’t only reiterate the need for increased private and government support. It also outlines the means for ‘getting the most bang possible for our high-performance buck,’ says Allan.

‘In a nutshell, we are developing a [strategy] similar to one adopted by Australia.’

For athletes, she explains, this means centralization of support and increased focus on ‘multi-game, world-level people.’ And for sponsors, it means ‘more return on their investments’ by maximizing the chances for the success of Team Canada.

While some dither about whether to spend their sponsorship budgets backing up-and-comers or established stars, others have decided to have it both ways.

One such sponsor is Home Depot Canada, which has been an Olympics sponsor ever since opening its first store in Canada in 1996. At the grassroots level, the company supports athletes directly by offering them jobs that pay full-time wages and benefits for half-time work, allowing them ample time for training and competitions. And, says public relations manager David Day, ‘we are also the primary sponsor of a world champion athlete, [Quebec kayaker] Caroline Brunet.’

In the non-Olympics sector, Home Depot sponsors the Toronto Maple Leafs and the Toronto Raptors – which includes benefits such as stadium signage in the Air Canada Centre and, says Day, ‘a lot of positive feedback from our customers.’

Some sponsors will likely continue to be blinded by the light of a celebrity in whose radiance they can bask, while fervently hoping the stardust will rub off on them. But others are managing to keep their feet on the ground long enough to build clauses into sponsorship contracts specifying recoupment of their money in the event of a disaster, according to GEM’s Gouinlock.

It’s even possible to put a positive spin on a profoundly negative event such as the death of Dale Earnhardt, he adds. ‘Crass as it may sound, his sponsors may come up with some sort of memorial promotion.’

And sure enough, one of the deceased racer’s many American sponsors has confirmed, through Coca-Cola Canada’s Kubota, that plans are already in the works ‘to include his career and likeness in future Coca-Cola racing family activities [for which] he was the cornerstone.’

Sidebar: When sponsorships go bad…

How many things can go awry after a company signs a big cheque? Let us count the ways:

• Even when you pay millions to slap your logo on a NASCAR speedster, you can fall victim to the machinations of TV honchos like those at Fox, who, according to a Canadian Press report, refused to show the logos of any companies that hadn’t bought ad time in promotional graphics for the season’s first race.

• United Parcel Service proudly served as official courier to the Olympic Games for eight years, but yanked its sponsorship after Australian Olympic officials allowed a local rival to muscle in on the delivery dollars at last summer’s Sydney games.

• Vancouver-based A&W Food Services of Canada hired TV star Drew Carey to tout its root beer, only to see his sitcom character chow down at a rival fast-food chain.

• As would-be sponsors squabbled over who could shower the most riches upon Super Bowl MVP Ray Lewis last year, the Baltimore Ravens linebacker was charged with two counts of murder. (In return for pleading guilty to misdemeanor obstruction of justice, Lewis was acquitted and is still playing football, sans endorsement deals.)

• U.S. retail chain Montgomery Ward paid big bucks to both baseball star Sammy Sosa and Who Wants to be a Millionaire host Regis Philbin to sing its praises, but still went belly up in January after 128 years.

• Invesco Funds Groups is currently waving US$60 million at the Colorado state government for the right to switch the name of Denver’s famous Mile High Stadium to ‘Invesco Field at Mile High.’ But negotiations have stalled because of the booing of disgruntled football fans.

• Even Olympics organizers can let you down, as evidenced by the bidding scandal surrounding Salt Lake City’s procurement of the 2002 Winter Games. Said hopping mad John Hancock CEO David D’Alessandro in last month’s issue of Money: ‘We sell trust and credibility. If I’d wanted to deteriorate our own brand, I didn’t have to pay someone to do it.’

• And there’s always the possibility of signing a big cheque, only to have your star athlete traded to another team or, worse, see your entire team sold to another city – a prospect that may soon befall the Vancouver Grizzlies. TP

Also in this report:

– The right match: Sponsors reveal the strategy behind the sponsorship p.B4

– Milking it: Sponsors pump ROI with ‘experiential’ approach p.B7

– Edgy SnowJob helps sponsors reach youth: MuchMusic’s venerable mountain-top concerts take sponsorship to new heights p.B8

– Beyond signage: Using equity to make your sponsorship soar p.B9