May 07, 2010 at 02:57 PM
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Hansen Reports Monster Rise in Q1 Sponsorship Spend

Hansen Natural, maker of Monster Energy Drinks, reported that first-quarter profit fell 22%, partly attributable to higher sponsorship and endorsement costs. Sponsorship and endorsement costs were approximately $3.7 million higher than in the comparable first quarter period from a year ago contributing to a 14.5% rise in the Corona, California-based company's quarterly operating expenses.

We just think that [sponsorship] was necessary for the brand to keep the brand's positioning," CEO Rodney Sacks said. "In the extreme action sports both in the U.S. and in Europe and in many cases, unfortunately, you have to spend ahead of sales and ahead of distribution."

Sacks said that while the company will look to activate deals across multiple markets, the largest sponsorship expenses came from international countries where the company was trying to build a brand presence.

"The international piece, which rubs off on, gives credibility to the brand, that creates awareness for the brand through TV. Formula One, Motor GP, all of those properties get shown in Euro Sport and get shown on TV in Europe and around the world," Sacks said. "On a per case basis, we should start seeing some real benefits and reductions as we continue to leverage those properties out in the rest of Europe because we're not planning on increasing the basically the international marketing spend for those international properties, the Valentino Rossi, etc. It's the local market that we will simply have to ramp up in each country as we go into it."

While Hansen will look to stabilize costs throughout the remainder of 2010, sponsorship will continue to be a critical staple of its expansion strategy.

"We also are going, obviously, to take steps to stabilize and to ensure that we don't increase our spend on sponsorships and supporting the brand, but we believe that [sponsorship] ultimately is essential to feed the brand and make sure that it continues to have the growth for years to come," Sacks said. "We don't want to cut back on that irrationally."

The company also noted a softness in the overall beverage market and increased competitive pressures from Red Bull's 16-ounce products. Shares in Hansen Natural dropped by nearly 16% following the announcement.