Damien Venuto: Is Team NZ 'too hot to handle' for sponsors?

COMMENT:

Questions over the financial management of Emirates Team New Zealand have flung the organisation into the media spotlight for all the wrong reasons.

By default, the saga has caught up the collection of big brands that have paid handsomely for the privilege of pasting their names across the sails and hull of the illustrious boat.

So far, none of the major sponsors contacted by the Herald were willing to comment on their support for the team.

Spark spokeswoman Cassie Arauzo, for example, said the telco would be keeping an eye on proceedings.

"We understand MBIE is working with America's Cup Events (ACE) Ltd, and Emirates Team New Zealand in relation to the claims made, and so we do not feel it is our place to comment at this stage," she said.

"We will continue to work closely with Emirates Team New Zealand to understand how the situation is progressing."

Other major sponsors Emirates and SkyCity have both declined to comment on the matter, and the Herald is awaiting a response from ETNZ itself.

So could the sponsors pull the plug if they wanted to?

Massey University law professor Chris Gallavin says that all depends on what happens next.

"I doubt they will have good grounds at present," he says.

"It will likely depend on the depth and severity of the allegations and whether they gain traction in the media and with investigatory bodies.

"The question in their minds will be, no doubt: has Team NZ become publicly too hot to handle?"

That question isn't unique to this issue or even the sports sponsorship industry. There is always an element of risk when it comes to sponsoring an individual or a sporting body – and that risk has only grown in the online age.

"List any individual sportsman or woman who has ever received negative publicity or said something silly online, or conducted themselves disgracefully, and you will hear about sponsors abandoning them," Gallavin says. "Same for sports clubs who make wrong moves in the media over all manner of issues – sponsors will say, 'we don't want to be associated with this brand any more' and will rely on their termination agreement within their contract to end the relationship."

Sponsorship and reputation are interwoven concepts, and that's why sponsorship agreements usually have a termination clause that allows a sponsor to cut ties in the event of reputational damage.

"Sponsors want to be aligned with the reputation of the person, company, sport, etc that they are sponsoring," Gallavin says.

"If the entity being sponsored no longer has a good reputation, then the entire object of the sponsorship is likely removed."

That will ultimately remove a sponsor's motivation to provide money and support to an individual, team or sporting body.

Depending on the nature of the agreement, a sponsor could be within their rights to pull any future funding after activating the contract's termination clause.

Many questions are still unanswered. What we do know is that Auckland Council and the Ministry of Business, Innovation and Employment have raised a raft of concerns over the handling of public money, while police are now investigating how a hacker convinced ETNZ to send a large payment to a Hungarian bank account.

The council and MBIE say a financial dashboard that was presented in May - showing public spending - was "materially different" from what was presented earlier in the year.

This issue isn't likely to go away in a hurry. There's simply far too much money involved for that to happen.

The council and the Government have poured $250 million into hosting the 36th America's Cup - and the council is planning to spend a further $20m to support the regatta and other events next year.

If anything, this week's revelations have drawn attention to the staggering figures being thrown at this event and will only increase the resolve of critics who question why this even happens in the first place. That level of attention alone might be enough for some backers to consider their continued association with the event.

In the meantime, every leaked email, investigative inquiry and pointed question from a journalist will only cast a longer shadow over Team New Zealand.

And while the team itself might not be able to escape, the sponsors have an exit strategy should they wish to activate it at any stage.

Team New Zealand will hope it doesn't come to that, and the event's future is decided on the water, not in the sponsors' boardrooms