For Adidas and rivals, sponsorships are good business

Multi-million dollar sponsorship deals of the kind between Adidas and the University of Louisville - in focus after a scandal over alleged bribes paid to high school athletes - are not just an effort to burnish the image of sports gear makers.

They can be a cost-efficient way to boost sales against tough competition, marketing experts say.

Whether in U.S. college sports or European soccer, Adidas and its major rivals Nike and Under Armour reach potential customers more efficiently by getting their brands used in the biggest events, say marketing experts.

Criminal charges brought last week against an Adidas marketing executive and 9 others drew renewed public attention to the perfectly legal practice of paying university sports programs to wear branded goods. Gatto and others are accused of funneling $100,000 to the family of a high school athlete to gain his commitment to play at Louisville and to sign with Adidas once he became a professional.

Louisville and Adidas announced at 10-year, $160 million extension of their sponsorship deal over the summer.

That deal is just one among increasingly expensive arrangements. The top recipients this academic year are UCLA with $16.5 million from Baltimorebased Under Armour, followed by University of Texas with almost $12 million and University of Michigan with $9.8 million, both from Nike, according to the Center for Research in Intercollegiate Athletics at the University of North Carolina at Chapel Hill.

Payments have risen as the big three competitors bid for exposure that, marketing experts say, can often be more effective and targeted than expensive television advertising.

Universities in the top five leagues, or “conferences” in U.S. sports speak, are in line to get over $200 million this school year, up from around $100 million just five years ago, according to the centre’s figures.

“Increased investment by Under Armour starting in the 2014-15 academic year, along with continued investment by Adidas, have led to a re-investment by Nike in the intercollegiate athletics space to retain national powers such as Ohio State and Texas, and bring Michigan back into the fold from Adidas,” the centre noted in its latest report.

George Belch, chair of the marketing department at San Diego State University’s College of Business Administration, put it this way: “It’s expensive, but if you want to sit at the table and play the game, you have to ante up.” How much is too much to spend on endorsements? Academics have been trying to figure out what the returns on investment are and marketing experts say the companies surely have their own internal metrics. But “only they know exactly what the return is,” said Belch.

Jonathan Jensen, assistant professor in the sports administration program at North Carolina, notes that the value of sponsorship deals measure the truckloads of equipment given to the schools at retail price, which is far more than the cost to the company to have them produced.

“When you see $250 million, it’s not actually $250 million, it’s more like $75 million,” he said. And based on what a 30-second commercial costs, having a team wear the company’s gear can far outweighs the investment in terms of valuable exposure.