Aidan O’Connor | Environmental social and corporate governance in the sports economy, part two

Aidan O’Connor, associate vice-president at integrated communications and marketing firm, Prosek Partners, continues his examination of issues impacting investors’ relationship with sports.

In light of why sports organisations looking for investment need to shape up to the new rules, below are four examples of ESG – environmental, social and corporate governance – criteria more applicable to sports and media to formally recognize and routinely measure.

Resistance to media activism

For all its benefits, social media introduces many new governance risks. Like most consumer-facing brands, sports organizations are targets for media activism where third parties exploit owned communication channels to advance social and political movements. This may include hijacking websites, spreading information through community forums, or organizing campaigns across platforms like Facebook, Twitter and Weibo.

Luxury fitness company Equinox experienced media activism’s efficacy last year. After the Washington Post reported that executive chairman Harvey Spevak was hosting a re-election campaign fundraiser, news of this divisive political stance prompted many to boycott the company and its associated brands, including SoulCycle and Blink Fitness. Negative coverage was amplified by public outcry from celebrities like Chrissy Teigen and Billy Eichner. The damage even extended to Equinox’s parent company, amid speculation its own chairman, Stephen Ross, would be co-hosting the event.

While Equinox was not directly affiliated with the fundraiser, online backlash and loss of narrative control prompted the company to stem reputational damage by publishing an apology from Spevak, issuing a joint statement from Equinox and SoulCycle, and making a $1m donation towards charitable causes benefiting veterans and LGBTQ+ rights.

The ease with which information travels worldwide on social media also introduces cultural and regulatory backlash risk, which may hinder penetration, competitive strength and growth potential in select markets. Look no further than when Houston Rockets’ general manager Daryl Morey tweeted support for pro-democracy protestors in Hong Kong. The Republic of China, a major NBA growth market, perceived this as a challenge to national sovereignty and ceased ‘business-as-usual’ operations with the entire league. This put NBA in a no-win situation and unraveled the goodwill Houston Rockets had developed the regions through means such as their affiliation with native basketball icon Yao Ming.

Businesses in the sports economy must introduce controls that limit their exposure to contentious issues as well as protect parent companies, portfolio companies and regulators from incurring reputational damage via association. This may include monitoring key executives’ personal channels for signs of irrelevant, disruptive content, or reminding employees they are company ambassadors whose conduct has material impact on the organization.

By shielding a company from the likes of political or religious engagement, leaders reduce the risk of polarizing topics negatively impacting their reputation, strategic partnerships and commercial revenue.

Having a charitable giving strategy

There is tremendous upside to measuring an organization’s ability to provide goodwill, advance charitable causes and bring positive benefit to different communities.

A prime example is how different brands reacted to the ALS Ice Bucket Challenge – a viral fundraising campaign that golfer Chris Kennedy turned towards amyotrophic lateral sclerosis research in 2014. The freezing phenomenon became mainstream and helped raise more than $115m in ALS Association donations.

The Philadelphia Eagles embraced the concept in entertaining fashion when head coach Chip Kelly dove into an ice water pool. In similar fashion, Nike chief executive Mark Parker activated his network of sponsored athletes for the challenge, including Tiger Woods, Kevin Durant and Rafael Nadal. Both brands earned glowing media coverage for their efforts, which reinforced their commitment to philanthropy.

Consider the different ways to quantify cross-organization philanthropic effort each year. Measuring dollar amounts, total number of hours committed, and percentage of active employees are just some metrics that may add supplemental value in a commercial opportunity (acquisition, sponsorship, investment etc.). How an organization lands on a popular cause is also important to consider. Using employee forums,  consumer focus groups and stakeholder conversations can help inform the organization’s approach to philanthropy and narrow down a list of potential causes.

Leveraging the zeitgeist

Finally, sports and media organizations must quantify their ability to tap into, and extract commercial benefit from, the modern zeitgeist.

Take Under Armour’s successful collaboration with Dwayne “The Rock” Johnson. The apparel manufacturer’s co-branded Project Rock merchandise line harnessed Johnson’s charisma, discipline and 237 million social media followers. The Project Rock 1 sneaker range, released in May 2018, sold out in less than 24 hours. Analysts from Susquehanna Financial Group even cited the merchandise as an exception to Under Armor’s stumbling shoe business. Research firm Spotted named the endorsement 2018’s ‘best-matched celebrity-brand partnership in fashion and retail,’ an award that took public perception, audience overlap and potential celebrity risk into account.

A more recent example is the new Nike Grind apparel line. Released ahead of the 2020 Olympic games in Tokyo, the collection recycles polyester, nylon, rubber and yarn to create products like the Air Vapormax. In doing so, Nike combined its mission to optimize athlete performance with efforts to reduce causes of climate change that threaten athletic training and competitive conditions.

Organizations looking to follow these manufacturers should establish formal processes for seeking out causes aligned with their vision and objectives. They should also adopt tools to measure social sentiment, whether this translates to sales conversion, and at what cost. As a precaution, they might also introduce contract language to prevent commercial partners from ‘going rogue’ or speaking on topics that clash with the organization’s culture or principals.

Failing to seize these opportunities is an example of how insufficient governance can contribute to financial underperformance, especially when competitors have the means to monetize these opportunities for themselves.

The bottom line

Sports organizations that embrace ESG, and proactively measure it, have a unique opportunity to create and shape a formal framework for the industry. Business owners must find the combination of factors, metrics and datasets most conducive to their operations. Ignoring this need will hurt them in the battle to attract modern investors.

Those savvy enough to act on ESG must also have a comprehensive communications program in place that promotes these efforts in a manner and tone that improves intrinsic value.

Click here to read part one.