The Tuesday before Valentine’s Day is the most common day of the year for break-ups, known as ‘Red Tuesday’. This year it was also the day global petrochemical giant INEOS went public with their intention to split from New Zealand Rugby, three years early. A day of reckoning for partnerships worldwide.
Two weeks on from Valentine’s, there are still plenty of hearts fluttering and pulses racing in boardrooms across INEOS’s global partnership portfolio. Having ditched New Zealand Rugby, and seemingly downgraded the partnership with Mercedes F1 (despite denials), there is now speculation about an early annulment of the INEOS and Tottenham Hotspur marriage. That all follows the recent split between Sir Ben Ainslie and the INEOS Britannia team preparing to challenge for the 38th America’s Cup. A domino, or rather Man Utd, effect.
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There has been plenty of commentary on the reported reasons for INEOS’s All Blacks exit – not all buying into the official INEOS line about ‘de-industrialization of Europe’, high energy costs, and extreme carbon taxes – but the cost of Sir Jim Ratcliffe’s Manchester United adventure cannot be overstated in the drive to scale back investments elsewhere. The reality of re-booting the ‘worst-ever’ Man Utd team and bank-rolling a $2bn ‘Wembley of the North’ stadium project has clearly focused the mind and budgets.
The backdrop of the Man Utd debacle seems to be one of the many reasons the New Zealand Rugby controversy has dominated the sports industry conversation and LinkedIn feeds over the last week. ‘A deal is a deal!’ has been a popular refrain among commentators and comments.
The degree of scrutiny and ‘moral outrage’ seems to be bound up in INEOS’s relative wealth (we’re talking about a company with annual revenues of $68bn) and the alarmingly rapid re-calibration of their global sporting ambitions. Going from forging an A-List portfolio of partnerships with elite performance brands across football, cycling, sailing, F1, and rugby, to reneging on an $8m annual sponsorship and penny-pinching on stationary orders at Old Trafford is quite the slump.
Perhaps the jolt to the industry’s collective psyche also reflects who has been ‘snubbed’, and how. The All Blacks brand is about as strong as it gets in sport – the ‘winningest’ team with mystique, heritage, and identity that transcends rugby. Who would deign to break up with them early, let alone by summarily refusing to pay their dues as a way to force an exit? It’s like dumping a supermodel by text.
But there also seems to be an undercurrent of nervousness that INEOS’s unilateral action could set a precedent. It has spooked the horses. What if other sponsors decide they can just pull deals early? Well, that has always been the reality of sponsorship relationships and this is far from an isolated occurrence.
There are myriad examples of partnerships ending early and painfully, leaving rightsholders disgruntled and out-of-pocket. Sir Jim’s very own Manchester United have been in New Zealand Rugby’s position as recently as 2022, when the partnership with TeamViewer was terminated early. The German software firm’s investors reportedly derided the original decision to sign a £47m per year 5-year deal during the pandemic as ‘appalling judgment’.
The Crypto category has thrown up innumerable examples of sponsorships ending early as the free-spending sector hit a turbulent patch. Athletico Madrid were left chasing €20m in compensation when their 5-year deal with Whalefin ended early, while Mercedes suspended their multi-year sponsorship deal with crypto exchange FTX after the company collapsed.
Ultimately, the decision to accept a new sponsorship investment is a calculation of risk. Not just whether they are a reputable company that will pay the fee (plenty have escaped without doing that) but how likely they are to see the deal through the term. As many sponsorship sales professionals waiting for their deal commission will know, you can celebrate the feeling of brokering a new long-term deal, but you don’t count on the revenue until it is in the bank.
Whether it is a ‘sketchy’ category, or an over-priced deal that gets found out on the altar of ROI, there is undoubtedly some rightsholder culpability and complicity in many sponsorship deals that have historically ended early. Vetting and due diligence are not always as rigorous as they might be. The lure of a signed contract and ‘confirmed’ revenue is strong.
Certainly, there have been plenty of examples where the dollar signs in their eyes may have blinded commercial teams to the potential risks.
But in the case of New Zealand Rugby, you can’t lay that accusation at their door. This was a simple case of a sponsor wanting (or needing) out based on business imperatives elsewhere. At The Space Between, we’ve experienced it first-hand working with Mitsubishi Motors.
Having helped them renegotiate renewals with England Rugby and Scottish Rugby, the news came from Japan that Mitsubishi would be pulling out of the UK, kissing goodbye to those valued sponsorships and leaving those partners high and dry. No warning and very little runway for rightsholders shorn of seemingly guaranteed commercial revenue for a number of years.
For New Zealand Rugby now, as with England and Scotland then, that leaves a big gap in the P&L to be filled. They will be out in market seeking a replacement to mitigate the loss, but without the most favorable narrative backdrop. A messy divorce, played out in public.
As with many relationships, it will end with the lawyers. No matter what the pre-nup says, they will reach a settlement to avoid protracted legal process. New Zealand Rugby will save face but lose cash. INEOS seem beyond the point of reputational face-saving and their priority will be simply avoiding paying out the remaining value of the contract.
The fall-out could include a steady stream of broken-hearted commercial teams across the world of sport. But, hopefully, we’ve all been served a valuable reminder about the importance of picking the right partner.
