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Wrigley Field

Economy’s Toll on Sports Sponsorships Evident in Cubs-Under Armour Dispute

January 27, 2009 11:26 AM
by Josh Katz
The Chicago Cubs are suing Under Armour for breach of contract; it is the most recent occurrence of sponsors pulling out of sports contracts due to financial woes.

Cubs Bring Under Armour to Court

The Chicago Cubs filed court documents on Jan. 22 to sue Under Armour Inc., claiming that the company that makes that athletic apparel pulled out of a $10.8 million sponsorship contract for five years. The Cubs assert that Under Amour was supposed to pay the Cubs more than $2 million per year from 2009 through 2013, according to Reuters.
As part the deal, the Cubs would have placed the Body Armour logo on the Wrigley Field’s outfield doors, and the company would also be able to use the Cubs logo in its products.

Under Armour’s abrupt, unilateral action has left the ball club with no choice but to file suit to enforce its rights,” the team said in a statement, Bloomberg reports.

The Cubs had displayed Under Armour’s logo on the outfield walls for the 2007 and 2008 seasons, and the team claims that the recent deal was made in September 2008. But in December Under Armour said it would not abide by the agreement, Reuters reports.

Under Armour Vice President Steve Battista contested the terms of the agreement. “Under Armour entered into a three-year agreement with the previous management of the Chicago Cubs for a comprehensive marketing package that included the exclusive signage on Wrigley Field,” he said, according to Bloomberg. “This past summer the Cubs new management sent us a letter terminating the agreement after the second year. Unfortunately, we were unable to agree upon terms for a new deal.”

Under Armour appears to be another victim of the economic crunch, reporting worse-than-expected fourth-quarter numbers on Jan. 15. As a result, company shares fell about 15 percent, according to Reuters.

The owner of the Cubs is suffering financially as well: the bankrupt Tribune Co. has put the team up for sale. On Friday, Tom Ricketts, the head of a Chicago investment bank, was chosen as the highest bidder for the Cubs, clearing the way for him to buy the team.

Background: Sports sponsorships drying up in tough economy

Under Armour is one of many companies to rethink their sports partnerships because of financial problems.

Derek Schiller, executive vice president for sales and marketing for the Atlanta Braves, said in November that DHL desired to end its sponsorship with the baseball team, Bloomberg reported.

The news also raised questions about DHL’s other marketing commitments with Major League Baseball teams. For the next two seasons, the company has promotional contracts the Cincinnati Reds, Los Angeles Dodgers and San Francisco Giants, for example. In 2007, DHL also renewed its agreement with MLB to sponsor the monthly and yearly relief pitcher “DHL Delivery Man” awards.

A number of other companies find themselves with expensive sports sponsorships on their hands as the economy tanks. British tour operator XL had to abandon its shirt sponsorship with the English soccer Premier League team West Ham United, according to Time magazine. Insurer AIG, the shirt sponsor of soccer powerhouse Manchester United, was saved from the brink of financial death by the U.S. government.

According to Bloomberg, “The situation’s so dire that even the bookies are getting involved. Irish bookmaker Paddy Power has started taking bets on which team will be the next to announce that it’s ending the current shirt sponsorship.”

Auto racing has been hit hard as well. On July 1, news surfaced that car owner Chip Ganassi shut down the race team of 2007 IndyCar Series champion Dario Franchitti because the team lacked sponsorship; his 71 employees lost their jobs, according to the Associated Press.

NASCAR teams are also fighting to win sponsors. Bob Margolis of Yahoo Sports explains how vital sponsors are to the sport: “Approximately 65–70% of the cost of this infrastructure, along with a team’s other operating expenses, is funded using sponsorship dollars. The rest comes from purse money and endorsements.”

Investing in a team or stadium is rarely the reason a business goes under, according to Time; most companies pulling sponsorships are doing so as part of larger budget cuts. However, sponsoring a team does provide the opportunity for growth, even though it is considered risky.

Trouble with sports team sponsorships is nothing new. In 1999, Enron made a 30-year deal for $100 million to name the home of the Houston Astros Enron Field. The contract was terminated soon after Enron’s fraudulent finances were exposed. 

And in 1996, Fruit of the Loom signed an agreement for $20 million with the Miami Dolphins to name the football stadium Pro Player Stadium, for the company’s new line of athletic wear. The company filed for bankruptcy in 1999 and cancelled the clothing line but the court ruled that Fruit of the Loom couldn’t get out of the stadium contract. The building retained the Pro Player name until 2005, when the contract expired.

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