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How Damaging Will Adidas' IAAF Decision Be?

With sponsorship deals falling like leaves, will the damage be more than financial?

29Feb

The IAAF came under significant scrutiny towards the end of 2015 and the start of 2016 for the reported rise in the use of performance enhancing drugs in world athletics.

There have been reports that several countries, including Russia and Kenya, have both had systematic doping systems in place that were known about by the IAAF. These are alleged to have been covered up by Lamine Diack, the former president of the organization and his son who was a marketing consultant there. These allegations were soon followed by a World Anti-Doping Association (WADA) report that strongly criticized the organization and the way in which they had dealt with the problem.

In the wake of all these problems, Adidas, a company intrinsically linked with athletics has pulled its 11 year sponsorship deal with the organization, four years early.

The implications of this move from the German sportswear giant are more than just a loss of revenue, which is ironically almost nothing, but has far reaching, long term consequences.

Due to the relatively complex nature of the deal, the IAAF will not technically lose any money as the deal itself was provided by Japanese company Dentsu. The company bought the sponsorship deals from the IAAF and then sold them on to other companies. It means that the burden of the loss will fall on them rather than the IAAF itself, however the damage caused will still see them lose money from the deal's cancellation. However, the short term financial loss incurred by both Dentsu and the IAAF have a tiny impact compared to the extensive long term issues caused.

Through pulling out of the contract and essentially shaming the IAAF, it has led to other sponsors doing the same. Nestle, the confectionary company also pulled out with a statement saying 'We believe this could negatively impact our reputation and image and will therefore terminate our existing agreement with the IAAF, established in 2012.' The question of whether the IAAF would have lost Nestle if Adidas has stayed in place is not easy to answer, but when a principle sponsor leaves it is not surprising that smaller sponsors also pull the plug.

However, whilst Adidas were a large sponsor across the entire organization, the Nestle cancellation arguably shows a more worrying trend and their sponsorship was of the IAAF Kids Athletics programme. Through Nestle's cancellation it shows that it will have a far bigger impact than just the sport today, but also for athletics in the future, Sebastian Coe, the new President said of the deal that he was 'Angered and dismayed by today’s kids’ athletics announcement. We will not accept it. It’s the kids who will suffer.'

The implication of both Nestle and Adidas' decisions is that association with the IAAF is poison, which will deter new potential sponsors and significantly decrease the value of future contracts. This threatens to have huge implications for the future of athletics, with less funding coming in from sponsors, meaning less money filtering down to grassroots programmes, potentially stinting future talents.

From Adidas' perspective it may be the best move, as we have seen with other brands who stood by athletes or organizations with similar allegations. A prime example of this would be their biggest rivals, Nike. After starting to move into cycling, they were forced out after their almost synonymous relationship with the disgraced Lance Armstrong. In fact, today it is almost unheard of to see cyclists wearing Nike cycling clothing, with the only athlete of note being Mark Cavendish, who wears their shoes. Elsewhere in the professional peloton they are unrepresented.

So the move may be incredibly destructive for the IAAF and athletes in general, but from Adidas' perspective it was certainly the smartest move. It is a divisive move given the overall implications that it will have on the future of athletics, but from a business perspective and Adidas' continued association with athletics, it seems like the only choice they had.

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