Unless you’ve lived under a rock the last few weeks you would have seen that financial markets around the world are in wide state of volatility. As the US Government tries to flesh out a bailout plan to rescue some of the world’s biggest companies, it is a good time to take a look at how this may affect your clients.
One of the companies listed on the DOW is AIG. AIG is the shirt sponsor of Manchester United, arguably the most popular and profitable soccer club in the world. They signed a 56.5 million pound 4 year deal 2 years ago, leaving 2 years remaining. Despite AIG’s share price taking a hefty knock recently, the company and Manchester United remain confident the partnership will remain. [Untied Shirt Sponsor 'Goes Bust']
Now to a less fortunate story, with West Ham, who operates in the same league as Manchester United. West Ham has lost their shirt sponsor, XL Holidays as they collapsed into administration. They were 1 year into a 3 year deal. [West Ham suffer shirt sponsor setback after XL holiday firm collapse] West Bromich Albion is also in the market for a shirt sponsor after recently splitting with T-Mobile. When these teams met a couple of weeks ago it was the first time in the Premier League’s history that two clubs faced each other without a shirt sponsor. [Credit crisis hits English soccer as sponsors tumble] Tough times indeed.
Aside from the overall team sponsors, let’s take a look at individual sponsors. With the so-called ‘credit crunch’ and companies reducing their sponsorships, some may find it difficult in getting that deal, or even worse, you may be inked to a deal with a company that has collapsed, or at least is in administration.
So what’s the best way to avoid the above from happening to your client? Here are a few things you should take into account before signing anything:
1. Financial conditions:
- Take a look at their financial statements. Does the company have the sustainability to continue growing in the future?
- Look at a few accounting ratios, such as Debt-to Equity and Liquidity.
2. Market conditions:
- What market does the company operate in?
- Are they a leader in their field?
- Does the company operate on a regional, national, or international scale? This is also important in determining the magnitude of the sponsorship. Obviously the larger the scale, the larger the fee.
- Where is the company based?
Generally, if an offer is too good to be true, it probably is. The largest contract might not always be the best contract. By giving the company a thorough examination financially, you may prevent your client from being deprived of future earnings.