When Sponsorship May Be Better Than Partnership

It’s fair to say that “We’re looking for partnerships, not sponsorships” has become the most over-used phrase in sports marketing, but with good reason. We can all agree that the thinking behind the statement is sound: The idea of partnership being based on two parties with mutually beneficial goals and a desire for both to succeed, while sponsorship has become aligned with the transactional purchasing of marketing rights and benefits.

But in that regard, sponsorships do offer one advantage over partnerships. If either side engages in bad behavior, it is easier to disassociate from a sponsor than a partner.

I was reminded of this while reading a fascinating article in the latest edition of The Atlantic about DC Solar, a company that promised to revolutionize mobile power generation but ended up defrauding customers, investors and taxpayers of nearly $1 billion.

Prior to the U.S. government shutting the operation down in December 2018, DC Solar was a major sponsor of Chip Ganassi Racing for four years, spending millions of dollars serving as primary sponsor of entries in the Xfinity, Cup and Camping World Truck Series. (In addition, one of the defrauded customers of the company was racetrack owner International Speedway Corporation, which signed a ten-year, $150-million deal to lease 1,500 solar generators. The agreement also called for $15 million in sponsorship payments from DC Solar.)

In addition to the company’s collapse leaving Ganassi without funding for a planned full-time Xfinity Series entry driven by Ross Chastain just about a month before the start of the 2019 NASCAR season, the team, although blameless, also was left with the unpalatable status of having helped promote what was essentially a nine-figure Ponzi scheme.

Ganassi’s experience provides a lesson to other rights holders that when signing agreements with upstart companies (DC Solar was just a four-year-old LLC when it first sponsored the team) it is wise to keep some distance from them in the event things go south, even if that is only in the way the relationship is described in public statements, marketing, etc.

Although there is never a guarantee that even the most established of corporations won’t do something to besmirch the standing of those associated with them, the risk of “partnering” with companies that have been in business for a long time and built trustworthy reputations is far lower than it is with a company where even solid due diligence is unlikely to uncover what’s going on behind the scenes.

While it may not be easy for a property to dissuade a company that has just cut a big check from wanting to position the two brands as closely as possible, putting even some space between the two can be considered an insurance policy in the unlikely but not impossible event that problems arise down the road.