MLB scandal threatens endorsements.

The media have compared the crisis over alleged steroid use by Major League Baseball players to the so-called Black Sox scandal, in which eight members of the Chicago White Sox were banished from the game for allegedly throwing the 1919 World Series.

There is symbiosis between corporate America and professional sports, as evidenced by sponsorship revenue. The IEG “Sponsorship Report” noted that US pro sport sponsorship revenues showed robust growth in the past two years, from $1.5 billion in 2005 to $2.1 billion in 2007.

So corporations may be asking themselves how the current scandal will affect the marketability of pro sports.

Only time will tell whether the situation is as damaging to the game as the Black Sox episode was. In the short term, a look at the endorsement earning potential of the athletes involved yields a projection of the potential fallout.

Former Senator George Mitchell’s report to the baseball commissioner on players’ illegal use of performance-enhancing substances implicated scores of players, including all-stars and shoo-in candidates for the Hall of Fame. Four of the players named in the report—Roger Clemens, Barry Bonds, Jason Giambi and Andy Pettitte—are among the top 50 earning American athletes, according to the Sports Illustrated “2007 Fortunate 50” ranking, published in July 2007.

A breakout of the endorsement income of these 50 athletes shows that those four baseball players took in a combined $6.5 million in endorsements in the period covered, essentially the 2007 season.

It is important to note that no player has been formally charged with a violation or disciplined for his alleged actions. Further, the Mitchell report encouraged MLB to treat alleged past offenders with leniency.

Nevertheless, the cloud of suspicion hanging over these athletes is likely to cause endorsement partners to take a fresh look at the relationships they’ve established with the players.

The silver lining, if there is one, is that the endorsement dollars these four players commanded in 2007 was a drop in the bucket relative to the estimated $387 million that the top 50 athletes earned in endorsements in that period. True, Tiger Woods alone accounted for more than one-quarter of this endorsement income, but even taking him and No. 2 endorsement earner Phil Mickelson out of the equation, the endorsement income of four players named in the Mitchell report makes up only 2.7% of the total endorsement income of the top 50.

This is largely because baseball players generally earn most of their income from salaries. The percentage of salary relative to total income among the baseball players in the Fortunate 50 is 88%, according to SI.

By contrast, the three golfers on the list earn only 9.2% of their income from salary and prize money and the remaining 90.8% from endorsements. So if a hypothetical crisis were to envelop the pro golf circuit, the effects on sports endorsements as a whole would be deeply felt.

Another way to look at the MLB situation is to compare it to the Michael Vick dog-fighting scandal in the National Football League. Even though Vick is only one player, and the crime for which he is serving jail time is an isolated incident, Vick stands to lose endorsement earnings worth about $7 million. That is more than the combined endorsement earnings of the four top-50 MLB players named in the Mitchell report.

Athletes may be a hot commodity on the endorsement market, but no single sports figure outside of pro golf commands enough dollars to make a noticeable difference.

Courtesy of http://www.emarketer.com