Introduction

Sponsorship can be viewed as a part of the profit-maximizing behaviour of a firm. In this

context, the primary motive is increased sales. A large portion of sponsorship industry is
sports oriented. Globally, the sports sponsorship industry accounts for two-thirds of all the
sponsorship activity.1

Sponsorship too is a very significant revenue generating practice for professional sports
organisations. For a sports event, there are two kinds of sponsors, the title sponsor, which is
the main sponsor whose name is associated with the particular sports or sporting event: and
the others are secondary sponsor, they may be the official suppliers of team jerseys,
hospitality sponsors and stadium sponsors etc.

A sporting spectacle per se is not protected under the Indian Copyright Act since it involves
live events, where there is no fixed script and the result is not determined. Therefore, the
question is, what are these event organisers actually selling for which they are charging high
fees? They basically transfer their right to the sponsors; to associate with the event and use
the name of the event and its protected trademarks. In sponsorship contracts the event
organisers, teams etc. Essentially transfer their intellectual property rights to the sponsors, for
them to use under certain stipulations regulated by contracts.

Need for Sponsorship Agreements

Companies sign sponsorship agreements with sports entities because they believe that an
association with them will generate an increase in the goodwill and resultant increase in the
sales. Because of commercial gains, the companies are very particular in deciding which
sportsperson, team or event they want to sponsor. Companies choose sportspersons and teams
to endorse their products depending upon the popularity and marketability of their puoduct
and the kind of consumers they expect to allure. Thus, the image of a sportsperson plays and
team plays an important part in the companies choice.

1
Chris Gratton and Peter Taylor, Economics and Sport and Recreation, Taylor and Francis, 2000, p 164.
Effect of Sports Sponsorship by Tobacco and Alchol Companies on Society

Certain restrictions have also been placed on the sponsorship contracts. Advertisement of
tobacco under the Cigarettes &Other Tobacco Products (Prohibition of Advertisement and
Regulation of Trade &Commerce, Production, Supply &Distribution) Act, 2003 is banned.
However, under the Rules of 2004 framed under the Act, if an individual is displaying a
tobacco product during a live sporting event he will not be guilty of advertising. In the case of
Mr. Mahest Bhatt and kasturi and sons v Union of India and Anr2 the Delhi High Court held
that live coverage of news, current affairs, etc. Whereby there is purely incidental or
unintentional coverage of tobacco products is also protected subject to the condition that
close-up of tobacco products, cigarette packets, etc., shall e edited and shall not be screened.
But, extended display of tobacco products or promotion of tobacco products by wayof
ebedding any particular brand, trade name or even the generic product is prohibited and are
required to be edited before screening or airing on television. Alcohol sponsorship and
endorsement is prohibited under the Cable TV Network Rules. In India, it is not permissible
for an event organiser to get a sponsorship from or for a sportsperson to endorse such
products, since sponsorship and endorsement by a sportsperson create an avenue for the
company to advertise its wares.

Tobacco companies often seem to direct their advertising campaigns at adolescentsfor

example, the campaign using the cartoon character Joe Camel.3These advertisements are
thought to influence adolescents' perceptions and behaviour,4 and sponsorship of sports
events by tobacco companies may have the same effect.

In 1965 the UK Government banned television advertisements for cigarettes. This was the
first response to the seminal report of the 1962 Royal College of Physicians report on tobacco
and health. We now know that about 120,000 people die prematurely each year as a result of
smoking, and millions are addicted to nicotine or harmed in other ways.5

2
147 (2008) DLT 561.
3 DiFranza JR, Rishards Jr JW, Paulam PM, Wolf-Gillespie N, Fletcher C, Jaffee RDet al. R J R Nabisco's
cartoon camel promotes Camel cigarettes to children.JAMA 1991;266: 314953
4 Charlton A.Children and tobacco.Br J Cancer 1992;66: 14.
5
Callum C.The UK Smoking Epidemic: Deaths in 1995. Health Education Authority, 1998.
Over twenty years after the TV advertising ban, surveys showed that almost two thirds of
schoolchildren still thought cigarettes were often or sometimes advertised on Television.6
What had happened? The tobacco industry's marketing budgets, like big balloons full of
money, had been squeezed out of TV advertising but had bulged into sponsorship of sport -
especially televised sport. Sponsorship is the continuation of tobacco advertising by other
means - including through the previously inaccessible BBC. Embassy snooker achieved 376
hours of TV coverage and cumulative viewers of 385 million in the 1996-7 season.7 Some
sports have admirably resisted the tainted tobacco dollar - notably association football and the
Olympics - but many others, such as cricket, rugby and snooker, have offered a willing
vehicle for promoting tobacco. Sport, with its associations with action, youth, and offers
excellent images and role models to the tobacco industry. This is especially important in
recruiting young smokers - a process of exciting experimentation eventually consolidated by
addiction. The approach is described in a tobacco industry internal document8 as follows:

"a cigarette for the beginner is a symbolic act. I am no longer my mother's child, I'm tough, I

am an adventurer, I'm not square ... As the force from the psychological symbolism subsides,

the pharmacological effect takes over to sustain the habit."

When the Indian associate of the British American Tobacco group sponsored the Indian
World Cup Cricket team in 1996 with its Wills brand, a survey showed that smoking among
Indian teenagers increased five-fold. There was also a marked increase in false perceptions
such as "You become a better cricketer if you smoke Wills" and "teams with more Wills
smokers will fare better".9 Contrary to the widely held perception among school kids, the
Indian cricket team had no smokers at all. Sport sponsorship also helps to 'normalise' tobacco
use and provide a rationalisation for continued use.10 For example one UK survey11 put the
statement; "smoking can't be all that dangerous, or the Government would ban sports

6
Carrick James Market Research, quota sample of 5-16 year olds, 1989 for the Health Education Authority,
Beating the Ban, 1990
7
World Professional Billiards & Snooker Association, A sport made for television: Embassy World Snooker
web site: www.embassysnooker.com/Guide/Page_3.asp
8
Philip Morris, Vice President for Research and Development, Why one smokes, 1969. Minnesota Trial Exhibit
3681
9
Vaidya SG, Naik UD, Vaidya JS, Effects of sports sponsorship by tobacco companies on children's
experimentation with tobacco. British Medical Journal August 1996; 313, 400.

10 Coney S.New Zealand: proposed ban on tobacco sponsorship.Lancet 1990;335: 342

11
Mori Research Ltd, Schools Omnibus Survey, 1996.
sponsorship by tobacco companies" to over 4,000 11-16 year olds. Substantially more
smokers agreed with this statement and only one in four (26%) disagreed, which suggests
these young smokers were drawing reassurance from the association between sport and
tobacco. The major counter-argument advanced by the tobacco companies and their fellow
travellers in sponsored sports is that promotional activities merely influence the choice of
brand. This means, they claim, that the total amount of tobacco smoked, and therefore the
harm caused, is not influenced by advertising campaigns. The influence of any advertising is
hard to measure, but econometric studies do successfully correlate advertising expenditure
and tobacco consumption.12 Under the Conservatives, who had no wish to ban tobacco
advertising, government economists found that "The balance of evidence thus supports the
conclusion that advertising does have a positive effect on consumption." And where smoking
had been banned:

"In each case the banning of advertising was followed by a fall in smoking on a scale which
cannot be reasonably attributed to other factors." (1994)13Studies by the World Bank (1999)14
and US Surgeon General (1989)15 reached similar conclusions. Honest advertising
professionals are not surprised by the link between advertising and increased smoking - if an
advertisement can persuade a consumer to switch tobacco brands, why shouldn't it switch
expenditure from non-tobacco products, such as football tickets, beer or kebabs, to cigarettes?
The World Bank's background paper on tobacco advertising16 suggests the "European
Union's ban could reduce cigarette consumption by nearly 7 percent." Even this relatively
small reduction would translate to tens of thousands of avoided premature deaths in the
European Union each year.

The Government and EU have acted to eliminate tobacco sponsorship by 2003, with an
extension until 2006 for events organised at the World level.17 This is both too slow and
unnecessary, and the inescapable consequence will be more entirely avoidable death and
illness - something that should weigh heavily in assessment of the risks to tobacco-sponsored

12
Andrews, RL and Franke, GR. The determinants of cigarette consumption: A Meta- analysis. Journal of
Public Policy & Marketing 1991; 10: 81-100
13
Smee, C.Effect of tobacco advertising on tobacco consumption: a discussion document reviewing the
evidence. Economic & Operational Research Division, Department of Health, 1992
14
Chaloupka F. et al. World Bank, Curbing the Epidemic: Governments and the Economics of Tobacco Control.
Washington, May 1999.
15
US Surgeon General, Reducing the Health Consequences of Smoking - 25 years of progress, 1989
16
Saffer, H. The Control of Tobacco Advertising and Promotion, Background Paper cited in Chaloupka et al.
World Bank op cit. Page 51.
17
European Union Directive 98/43/EC
sports. Despite dire warnings and much anguish among tobacco sponsored sports, tobacco
sponsorship in Australia was phased out quickly and without casualties. We already see great
progress in the biggest tobacco sponsored sport, Formula One. In July, the Williams team
announced it would replace Rothmans with BMW as its prime sponsor. Other automotive and
electronics companies are assessing their opportunities. Few will be prepared to be as
generous as tobacco and some modest downsizing may be needed, but in Formula One the
tobacco money simply fuels grossly inflated drivers' salaries and a technology 'arms race' that
has deprived the sport of some of its excitement. The delay to 2003 or 2006 in phasing out
tobacco sponsorship is a mistake. New sponsors will be reluctant to start negotiations in
competition with the tobacco companies until there are events available to sponsor. We
suspect that nothing much will happen until 2002, then there will be a flurry of intense
activity. Suppose the Government had announced that Embassy World Cup Snooker would
need a new sponsor in 2000. Does anybody seriously believe that a new sponsor, interested in
hundreds of hours of TV coverage, would not be found? Under current proposals snooker
will have until 2006 to find new sponsors.

It is important to recognise the consequences of tobacco promotion through sports

sponsorship. Through a chain of cause and effect, tobacco sponsorship helps to nurture
smoking in children and adults, which ultimately leads to illness and untimely death.
Delaying until 2003 or 2006 just prologs the agony.
The Sponsorship Effect: Do Sport Sponsorship Announcements Impact the Firm Value
of Sponsoring Firms?

Brand investment is a sign that the company are willing to invest and make positive decisions
in order to grow the business. Building a differentiated position in a crowded and competitive
market is essential. Sponsorship can position a business as an in-touch, exciting, innovative
and relevant to consumers the Singapore GP touches nearly all of Singapores residents
over the Grand Prix weekend.

When a company knows its market and is actively engaging with them through exciting
mediums, the result is positivity towards the company. Positive news and new investment
generally mean greater future earnings the most important factor that affects the value of a
company is its earnings.

Ultimately, sponsorship can be seen as a positive sign of a companys health, and as a

commitment to continue growing the business.

Sponsorship in general and specifically sport sponsorship is a vital part of every major
companys communication strategy in todays business world.18 Marketing professionals
consider sponsorships as an important tool to build brand equity and corporate image19,
especially in times of increased media fragmentation.20 Over the last two decades sport
sponsorship has gained a consistently increasing share of marketing budgets and has become
a key component of the marketing communication mix, which is on par with traditional tools
such as advertising, public relations, sales promotions and personal selling.21 On a
globalscale, the spending on sport sponsorships engagements has increased from $20
billionin 2004 to $29 billion in 2009 and is expected to increase to $35 billion by 2013.22
Unlike traditional marketing vehicles, sponsorships enable marketers to connect with
consumers in very emotional situations and brand and corporate image can be enhanced via

18
Cornwell, T. B. (2008). State of the art and science in sponsorship-linked marketing. Journal of
Advertising, 37(3), 4155.

19
Id.
20
Tripodi, J. A. (2001). SponsorshipA confirmed weapon in the promotional armoury.International Journal of
Sports Marketing and Sponsorship, 3(1), 95116.
21
Meenaghan, J. A. (1991). The role of sponsorship in the marketing communications mix. International
Journal of Advertising, 19, 3547.
22
PricewaterhouseCoopers (2010). Back on track: The outlook for the global sports market to 2013.
Retrieved from http://www.pwc.com/gx/en/entertainment-media/publications/outlookglobal-sports-market-
2013.jhtml
associations with positively viewed events.23 In addition, sport sponsorship also has the
ultimate goal to show bottom line impact by increasing future sales and profits. Incurred
direct costs (sponsorship fees) as well as indirect costs (activation costs, agency costs) are
expected to be offset by future benefits in terms of increased media exposure and brand
awareness, positive image building, and ultimately higher profits. 24 According to Mishra,
Bobinski, and Bhabra public announcements of sponsorship deals contain current and
unexpected information about the sponsoring firm. Investors process the news and might
adjust expectations for the sponsors future cash flow. As a result, the share price would react
accordingly.25 Up to now, there is very limited information available about the reactions of
share prices to sponsorship announcements for different sports. However, this information
would be important to corporate managers who are responsible for sponsorship deals as they
have to justify these expenditures and also the allocation of available funds across various
sport.

Therefore, the purpose of this study is to investigate the effect of sponsorship announcements
on firm value. This sponsorship effect is analyzed using the concept of abnormal returns
(AR). ARs are defined as the difference between expected stock returns and actual observed
stock returns. This study has two main research questions:

1) Do sport sponsorship announcements have an impact on firm value?

2) Which factors determine abnormal returns following sport sponsorship announcements?

This study presents analysis of the impact of official product sports sponsorships with the
ICC Cricket world Cup 2015 hosted by Australia and New Zealand Jointly. In the study we
are analysing the share price trends of 3 Companies (Hero Motocorp Ltd, Reliance
Communications, Castrol India Limited) listed at National Stock Exchange who have
officially sponsored for the Cricket World Cup 2015. The main subject of analysis is to note
the share price at the launch of the event i.e, 14th February 2015 and continue to notice the
graph for the first week of the event.

23
Miyazaki, A. D., & Morgan, A. G. (2001). Assessing market value of event sponsoring: Corporate olympic
sponsorships. Journal of Advertising Research, 41(1), 915
24
Farrell, K. A., & Frame, W. S. (1997). The value of Olympic sponsorships: Who is capturing the gold? Journal
of Market Focused Management, 2(2), 171182.
25
Mishra, D. P., Bobinski, G. S., & Bhabra, H. S. (1997) . Assessing the economic worth of corporate event
sponsorships: A stock market perspective. Journal of Market Focused Management, 2, 149169.