The British online car retailer Cazoo is estimated by GlobalData to have agreed ten sport sponsorship deals worth $30.98 million across Europe (outside the UK) during 2022 after the company announced a European expansion plan to build on its huge success in becoming one of the UK’s biggest online car retailers. Cazoo’s plans involved entering the car retail market in France, Germany, Spain, and Italy.

Over the last few years Cazoo, which was founded in 2018, had become one of the fastest-growing brands in Europe and raised over $1.4 billion of capital investment. In the UK, the company had become highly recognized through its major sponsorship advertising campaigns across multiple sports. However, by summer 2022, the company’s growth had stalled. Due to the economic uncertainty across the world, it has announced cuts of 30% in its workforce since June 2022.

Cazoo is estimated to have spent $5.88 million on sponsorship deals in the UK across 2022, a much smaller figure than its deals in continental Europe and a drastic decrease in its UK sponsorship spending over the last few years. The company’s largest deal in the UK is with the English Football League. Cazoo is serving as an official partner of EFL, with the company’s branding appearing on LED and digital branding during matchdays and across all of the EFL’s showpiece Wembley finals.

Choosing to spend $25.1 million more on 2022 deals across Spain, Germany, Italy, France, Ireland, and the Netherlands than in the UK highlighted the company’s decision to prioritize sponsorship spending on its European expansion prior to its change of course.

Cazoo’s European expansion plans comprised, firstly, of generating extra capital for the expansion by raising $630 million from an investor group led by Viking Global Investors who gained a stake in the company. Secondly, it expanded operations to five markets in Europe, launching in France and Germany in 2021 and acquiring Brumbrum in Italy and Swipcar in Spain in 2022. Thirdly, it deployed substantial amounts of advertising money on sponsorship deals across Europe, which consisted of six soccer front-of-shirt sponsorship deals with Valencia, Real Sociedad, Marseille, Bologna, Lille, and Freiburg worth $27.58 million in total annually.

The largest of these deals are with Real Sociedad, Marseille, and Freiburg, with each being worth an estimated $5 million annually. Across Europe, Cazoo also decided to invest in sponsorship deals in basketball, golf, and tennis. The largest of these deals was with the Open de France golf tournament. Cazoo agreed to serve as the title partner for the tournament for $ 1.75 million.

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Despite all the plans and preparation for the expansion across continental Europe, it was announced in September that Cazoo is to pull out of the EU and instead plans to focus on its operations in the UK. Other reasons for the company’s U-turn were the further investment required to scale up its operations in the UK and the conflict the European expansion strategy had with the company’s priorities of conserving money and generating profitability without the need for additional capital. Cazoo hopes to achieve cash savings of over $100 million by the end of 2023 and is also hoping to achieve cashflow breakeven by the end of 2023. This drastic change in strategy has forced Cazoo to contact the soccer clubs with which they have sponsorship deals to start negotiating a wind-down of the contracts.

This news has caused huge concern for the sports organizations that have sponsorship deals in place with the car retailer, especially the soccer clubs. They will urgently be searching for new front-of-shirt sponsors. It is highly unlikely that these clubs will be able to sign deals as profitable as those with Cazoo. Brands looking to partner with these clubs will believe they can sign a cut-price deal as the clubs are in no position to be negotiating over a long period of time.

The impact of Covid-19 is also still affecting teams, so it is essential that clubs disinvested by Cazoo find a new front-of-shirt sponsor as quickly as possible to secure much-needed funds. For example, it was recently announced that Manchester United and Juventus, two of Europe’s most iconic soccer clubs, have suffered combined losses of more than $370 million. Money generated from ticket sales was wiped out as matches were played behind closed doors in an aim to stop the spread of the coronavirus. The English club announced a full-year loss of $127 million, while the Turin-based club lost $247 million.

The reality is that all sports companies must be aware when signing sponsorship deals that situations like that with Cazoo can occur – it is one of the risks of partnering with brands developing a sponsorship portfolio. Soccer clubs especially should be following this story closely and ensuring that, when agreeing sponsorship deals with new partners, they are doing the background work to try to compel sponsors to fulfill their obligations as a partner of the club for the length of the contract.

Image: Aitor Alcalde/Getty Images