Hospitality – Sports Stars

The hotel sector and the sport sector may, at times, appear worlds apart. Yet there are an increasing number of collaborations between hotel groups and sport stars.

Examples include:

• MIM – Lionel Messi and Majestic Hotel Group collaboration
• Pestana CR7 – Cristiano Ronaldo and Pestana Hotel Group
• ZEL – Rafael Nadal and Meliá Hotels

When you analyse the reasons, collaboration between the two sectors is far more intuitive than at first glance.

Firstly, with the ever-increasing proliferation of brands it is an eye-catching USP to set their product apart from others in a crowded marketplace.

Secondly, sport stars have a large international fan base, so hotel groups with international presence or looking to expand their international reach are able to target that fan base to expand their own customer base.

This engagement can be bolstered by the sports stars themselves – either via direct posts on social media platforms or by sharing experiences at the hotels with their social media followers. Effectively inviting their fans to experience an element of their lifestyle to bring them closer to their idols.

Furthermore, celebrities are often seen as a 'brand' in themselves with their own distinctive attitude or lifestyle. Whilst that 'brand' is held in high esteem it can add a matching veneer to the hotel in question – whether that is to add luxury, street 'cred' or some other quality that the relevant sports star embodies.

Finally as the wealth of sports star grows exponentially they are themselves in a position (either directly or via private equity platforms) to provide funding for the development and operation of the hotel/brand in question. It can also be seen as a positive way to extend one's sport star brand as they approach the end of their playing careers.

Reputation

As is often the case, the merits of such collaborations are also where the risks lie. The opportunities in collaboration are built upon the reputation of the sports stars, so any negativity arising from sports or personal related matters could also impact the reputation of the hotel group. Similarly, if the hotel group garners any bad press for its business policies, it could also tarnish the sport star's reputation.

The rapid speed that news travels via online platforms, coupled with the dangers of 'fake news' and the fame of celebrities, can lead to a fickle rise and fall of individual brands in a short space of time. For example, the antisemitic remarks made by Kanye West on social media and during public appearances has sparked public outrage affecting the business of the Yeezy brand (a fashion collaboration between him and Adidas). This ultimately led to Adidas severing ties with him.

Similarly, Tiger Woods faced widespread backlash and cancellation of sponsorships in 2009 when infidelity claims were revealed closely followed by an arrest for careless driving, exacerbating the impact had on his image. The longevity of the repercussions on Woods' career highlights how grave reputation damage can be.

Moreover, consumers are now far more likely to enquire into a business' practices, the provenance of their food and beverage, their choices in trade partners and supply chains. Likewise, influencers and celebrities are scrutinised for their values and conduct on similar issues but on more a personal level. If, for example, a business or individual is accused of 'green-washing', it can have extremely damaging consequences for both parties. It is, therefore, crucial that collaborators or business partners gain a thorough understanding of one another's past and current practices and agree to continue or improve these practices in the future.

Legal protections

From a legal perspective, parties should work together to agree mutual obligations and protections to govern their relationship and ensure that there are sufficient protections to allow a degree of control over their counterpart's actions or at least provide for a suitable (inexpensive) way to terminate the collaboration. Careful consideration should be given to the term of the arrangement as it may be helpful to have a break clause allowing a smooth exit if things are not going as hoped.

Structure and tax

The parties will need to agree on the level of collaboration between the parties. Is this simply a form of licensing agreement or are the parties effectively agreeing to a joint venture agreement to fund and develop a new hotel/brand. In all likelihood it will be something in between and so careful consideration will need to be given in this regard.

Any structure will also be determined by the location of the relevant entities, the location of the properties in question and the relevant tax treatments that will arise accordingly. Detailed early legal and accountancy advice will need to be obtained to ensure structures are created that are 'fit for purpose'.

Involvement

The parties will need to agree on the level of involvement of the sports star in question. Will they have any involvement in the day to day design/operation or branding? Will they be required to spend a certain amount of time at the property? What will be their social media, press etc obligations? All of these considerations will need to be taken into account and documented accordingly.

Intellectual property

Aside from reputation, working closely with another business requires each party to share assets including intellectual property and data. Suitable legal protections should be put in place to ensure these are well protected in line with each party's interests as well their obligations under the law.

The parties will also have to consider the extent to which the sports star has control over their own image rights (as in certain circumstances these may be controlled to an extent by a third party such as their football club or there may be potentially conflicting provisions in sponsorship agreements to consider).

Financial incentive

Ultimately, a successful collaboration or partnership will hopefully lead to a business success.

At the outset, parties will need to commercially agree how each party should be renumerated for their efforts. This could be a simple licence fee or allow an element of profit sharing. They might divide profits (and losses) proportionately, so all risks and gains are shared. Alternatively, a party might choose to agree a fixed fee structure to limit their risks but, as a result, this would also limit their reward when the business flourishes.

At various milestones and/or at the end of fixed periods, parties may wish to evaluate performance indicators and review whether the collaboration has been a continued success. This might then trigger a financial review or perhaps a termination right.

Lastly, parties should also consider a termination mechanism linked to particular events, where one party has said or done something that caused or may cause damage to the other party's reputation or goodwill. This protection could give the parties the added comfort that, should the collaboration not go to plan, a straightforward severance can be achieved.

It is clear that this is an area in which we are likely to see future growth.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.