It’s a big question for many large companies but most sports fans do not care. Does commercial sponsorship of big sporting events yield any benefits to the corporations who are doing it?
Official sponsors of this year’s soccer World Cup in Germany have paid up to €45m each for the privilege of becoming an official partner of the tournament and seeing their names beamed into billions of television sets around the world for a month.
Now, thanks to a handful of investment products developed by JPMorgan, some investors in Germany and elsewhere will be at least as interested in the fortunes of the sponsors as in their national team.
The investments will allow them to take a shot on whether the corporate sponsors will benefit from their participation.
Distribution of the first of these products – a two-year note whose capital investment is guaranteed – begins in banks and savings institutions in Germany next week, and in Austria from February 13.
It will allow investors to wager that eight of the 15 official partners of the World Cup will perform better on the stock market than their nearest competitors.
The basket of sponsors comprises Coca-Cola, Anheuser-Busch, McDonald’s, Deutsche Telekom, Fuji Photo Film, Adidas-Salomon, Continental and Yahoo.
For investors to get an annual coupon above their guaranteed cash back, those eight companies will have to outperform their competitors who are not World Cup partners: PepsiCo, Heineken, Yum! Brands, Telecom Italia, Eastman Kodak, Nike, Goodyear Tire and Google.
Daniel McNeill, a product structurer in the bank’s exotic and hybrids group, said the idea came from JPMorgan’s German marketing team, which wanted a locally themed product that added in World Cup sponsors.
Mr McNeill’s team said they thought that a similar product could be sold more broadly to investors across Europe and beyond.
JPMorgan has developed at least three other products that allow investors to bet on the Dax index of blue-chip German stocks, on the basis that the tournament will bring the country an economic boost, or on the performance of the eight tournament sponsors.
However, in initial market soundings, the outperformance product appeared to be the favourite in Germany.
JPMorgan bankers say it benefits from the association with the World Cup. But retail investors have also displayed preferences for shorter-maturity products in recent months and like the outperformance – or “alpha” – feature of the instrument.
The products are structured using equity derivatives, from which JPMorgan makes its profit. Distributors are expected to take a commission of up to 1.5 per cent. The notes will be sold in minimum €1,000 denominations, but most retail investors are expected to invest up to €50,000.
The coupons are subject to a cap of 12 per cent at the end of the first year and
24 per cent at the end of the second year.
Though it has no retail distribution arm, JPMorgan has developed a significant business structuring retail products for the German and Austrian markets. Over the last four years, it has structured and sold about 300 separate products through retail banks there, its bankers say.
But it is not the only bank trying to tap into World Cup fever. Other banks are getting in on the act too, with products that, for example, pay out rewards if the German stock market beats the Brazilian market over the course of the tournament, or the year.
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