At the recent Leaders Week London conference, our team had the opportunity to meet with key professionals in the Sports industry and discuss some of the business challenges they are facing. Unsurprisingly, many of these conversations focused on governance in sports and reputational diligence. Here’s a snapshot of our insights on these topics.

Landscape

Sports are a big business, with (pre-pandemic) analysis estimating that the global industry generates revenue of over $100bn a year and more recent estimates that the industry is currently worth between $400-$500 billion. Interest in watching sports, both live and through traditional television channels or streaming platforms, has increased markedly and anticipation of monetizing this fanbase has attracted investment on a scale not previously seen.

Why Does It Matter?

Sports are experiencing a period of unprecedented change, driven on one hand by increased societal expectations relating to ethics, transparency, and governance, and on the other by a rush to professionalize to cope with expectations of the wave of investors pouring money into sports and seeking a return.

Sports and business are becoming increasingly intertwined, and sports have some way to go to match the governance and compliance structures that exist in the corporate world.

Consequence of Poor Governance

Despite the risks, governance and compliance are often overlooked and considered secondary to commercial and sporting issues. It often takes a crisis within an organization or sport for governance to be taken seriously – a crisis that in many cases could have been prevented by good governance in the first place.

Poor governance can set off a chain reaction:

• It breeds a culture where risks are not identified or mitigated
• When issues emerge, they bring the organization or the sport into disrepute
• This leads to a lack of trust and engagement between participants/fans and governing bodies
• Loss of faith occurs from sponsors/partners/organizers, who don’t want to be associated with a tarnished brand

This all leads to a reduction of funding across the sport.

The Future

We expect to see an increased push to improve governance in sports, specifically driven by the following factors:

• Crises – emerging through whistle-blowers, journalists, regulators, or via social media
• Stakeholder pressure especially from an evolving fanbase demographic
• Expectations of sponsors and investors

Reputational Diligence

With the increased flow of sponsorship and investment into sports, there are increasing concerns about the ultimate providers (and recipients) of investments and the source of sponsorship monies. This is driving increased interest in conducting reputational due diligence both prior to accepting funds from third parties or for investors in sports looking to de-risk their investments.

Clubs and leagues, for instance, are receiving frequent offers of sponsorships from companies that have opaque ownership structures and a limited track record. There have been numerous recent examples where clubs have withdrawn from active sponsorship deals due to reputational concerns emerging in the public domain, highlighting that clubs should ensure that they conduct the appropriate diligence prior to accepting any funds.

Similarly, investors in sports want to fully understand what they are investing in and who may ultimately benefit from the funds. This is especially important where investments are made in higher-risk markets or across whole sports where there may be a large number of benefiting parties. Cash leakage links to organized crime, sanctions exposure, or concerns about money laundering present both financial and reputational risks to an investment, and minimizing exposure to these risks is key.