A Transaction Cost Approach to Sport Sponsorship

Abstract

Sport sponsorship is an evolving area of interest to both academics and business practitioners. Despite recent advances, scholarly reviews of sponsorship attest to a lack of underlying theories and conceptual foundations on which to base empirical enquiries. This paper draws from the economics literature to provide an overview of Transaction Cost Theory – an approach that draws attention to the costs involved in negotiating, retaining and monitoring sponsorship exchanges. The term “costs” refers to those characteristics or dimensions of a sponsorship transaction that make exchange problematic. From the perspective of sport organisations, three sources of sponsorship costs are outlined relating to the need for: (1) planning and safeguarding, (2) adapting and servicing, and (3) monitoring and evaluating. Transaction cost theory introduces implications for sponsorship relations, particularly with respect to the possibility for costs to expand over time, the consequences of sponsor-specific investments and the choices of governing mechanisms used to manage costs. Critiques of the approach are discussed, followed by recommendations for empirical research and methodological considerations using transaction cost theory.