The British are out in front, but London 2012 is still chasing sponsors
With costs doubling over the next four years, major corporate backers of the Olympics are pulling out. Is £80m for 16 days too great a leap of faith? asks Richard Northedge
Sunday 24 August 2008
Which names do you remember from the Beijing Olympics? The Mansfield Mermaid Rebecca Adlington? The cyclists Chris Hoy or Rebecca Romero? Manulife? Atos Origin? The last two did not win gold, they spent it, but if their names have passed you by, their £50m sponsorship looks like money badly spent.
Several of the Olympics' 12 main sponsors are questioning whether the cost has been worth it, and that is worrying London as it tries to persuade commercial companies to bridge its funding gap for the 2012 Games.
When Christine Ohuruogu warmed up for her gold-winning 400m sprint last week, London 2012's website displayed the logos of 11 "worldwide partners" – the Beijing dozen minus the Canadian assurance group Manulife, which had already thrown in the towel.
By the time Ohuruogu breasted the tape the list was down to eight. Three major names had been hastily removed.
Johnson & Johnson has been waiting until after the Beijing Games close today before making a statement, when it is expected to say that it is cutting its involvement. Lenovo, the Chinese computer company, like Manulife, sees no gain from a link with the London Games. Kodak has been involved with the Olympics since their revival in 1896, but its chief executive Antonio Perez said its sponsorship was no longer the best use of the company's money.
London is aiming to raise £650m from so-called tier-one sponsors and so far has commitments for about half that from BT, Lloyds TSB, BP, British Airways, the Canadian computer equipment giant Nortel and the French energy group EDF. It had hoped to complete its sponsorship list before today's closing ceremony in Beijing but is still seeking backers from sectors such as clothing, cars and homewear.
British athletes' unexpected tally of gold medals and the absence of political or drugs scandals should help London, but the economic slowdown is making it harder for companies to justify paying up to £80m to have their name associated with an event that will last just 16 days. That price does not even allow sponsors' names to appear inside the stadia. The cost can double as companies use advertising and other promotions to publicise their association, and some experts think the outlay cannot be justified.
Lesa Ukman, chairman of the Chicago-based sponsorship consultants IEG, says: "The price of the Games is just going through the roof. It's absurd. London is looking at numbers that cannot be justified. If I was a shareholder in the companies that are sponsoring, I'd want to know, is this just a personal thing by the chief executive?"
There is a suspicion some companies agree to Olympic sponsorship because they dare not decline. Coca-Cola has backed the Games since Amsterdam in 1928; stopping now would break an 80-year relationship when the cost is just a drop in its global marketing budget. And while McDonald's – a mere 40-year backer – could live with an oil or motor company taking its place, it would be shattered if rival Burger King were to become a sponsor.
Iain Ellwood, head of consulting at the branding agency Interbrand, admits: "In some markets where there's a duopoly there's defensive play." He cites Coke and Pepsi, or Visa – another of the Beijing dozen – and Mastercard, from which it took the World Cup sponsorship.
But Ms Ukman, whose consultancy is part of WPP group, says: "I do not think that mentality has played a role in 10 years. No one's big enough to spend defensively."
The International Olympic Committee president Jacques Rogge says the Games provide unparalleled returns on investment for sponsors. Some four billion people watched them on television but sponsorship works only if these people are potential purchasers of the sponsor's products. And to gain most, the companies need to be consumer-focused global brands. The strict controls on sponsorship by the IOC appeal to such sponsors: it is tough on attempts at ambush marketing by businesses that have not paid to use the logos, and the Chinese were ruthless in clearing the streets of rival companies' advertising.
Besides the select dozen group of worldwide partners, there have been 11 Beijing partners, each paying an average of $40m (£20m), including Volkswagen and Bank of China. Then came another 10 Beijing sponsors at $20m each – among them United Parcel Service and BHP Billiton (which mined the gold for the medals) – plus 15 more "exclusive suppliers", such as Snickers bars and the office stationery retailer Staples.
London's UK sponsors, asked to pay more than double the Beijing rate, will thus be competing for public attention with worldwide partners that must be replenished following last week's defections.
Some of the contributions made by sponsors are in kind rather than cash. In Beijing, for example, Lenovo, the Chinese computer group, supplied 24,000 desktops and 800 electronic notebooks; Atos Origin had 4,000 IT staff servicing the network of computers. The US giant General Electric doesn't just own the NBC broadcaster, which provided multimedia coverage of the Games; it was awarded $700m of Olympic contracts, including a system to recycle 100 tons of rainwater an hour at the Bird's Nest stadium
In London, BT will be supplying services as part of its UK sponsorship. Its head of communications, Suzy Christopher, says: "We did a full business case on the overall return on investment that satisfied our board. BT has been transforming itself from a UK telephony company into a global company and we see 2012 as part of this."
Sponsorship has risen sharply and now provides 40 per cent of the IOC's $5bn budget, reducing broadcast rights to 50 per cent while ticket sales (26 per cent at Atlanta in 1996) are now just 8 per cent.
Mr Rogge says: "The main benefit to an Olympic sponsor is an association with the 'rings' – one of the most widely recognised symbols in the world."
But with McDonald's golden arches and Coke's logo probably at least as well known, Mr Ellwood at Interbrand argues that the main benefit for a tier-two sponsor is to be associated with the top backers. "By association with the tier-one sponsors they become tier one," he claims. He thus justifies Manulife's support even though it will not be backing London. "They're a tier-two company trying to become tier-one – just as Samsung did 10 years ago."
And he defends Lloyds TSB's backing for the London Games, even though the bank is little known outside the UK. "They're tier-two – not like HSBC or Citigroup – but it's better than advertising," he says.
The Lloyds deal, reputedly worth £80m, was struck more than a year ago. Since then, the credit crunch has struck and some in the City question whether Lloyds can even afford to pay its dividend to investors, never mind the Olympic promotion.
"Would we have made the same decision now?" asks the bank's director of London 2012, Sally Hancock. "We probably would. But we'd be just as rigorous in our analysis."
The decision, she says, is based on gaining business, building the brand and raising staff morale, but she denies the bank is supporting a national cause for its own sake: "There's no sense from our point of view that this is a philanthropic event." The bank is already using the 2012 logo and hopes to gain five years of benefit, not just a few weeks.
Having failed to complete its sponsorship programme in time for Beijing, London now faces selling into a global economic slowdown.
Ms Ukman says: "It's going to be very much harder for London. If I was trying to sell it in a recession, I'd try to tie some part of the fee to performance." This might, for instance, be measured in terms of audience ratings when the Games are televised.
Mr Ellwood is more positive. "By 2010-11 the economic cycle should be swinging back up," he says. "As the economy comes out off recession, it's the best time to grab market share."
FIVE INTERLOCKING RINGS AND HUNDREDS OF CORPORATE LOGOS: HOW MARKETING BECAME AN OLYMPIC SPORT
Programme advertising helps solve financial problems of the first modern Olympics. Kodak starts its support.
Ten Swedish companies buy sole rights to sell memorabilia and take pictures.
Stadium advertising permitted for first and only time.
Hospitality rights sold. Coca-Cola's first sponsorship of the Games.
1932 Los Angeles
First Games to make a profit. Bungalows in the Olympic village are sold after the closing ceremony. Omega, which remains a leading sponsor today, becomes official timekeeper.
168,000 viewers see first televised Games, planned by Hitler and his propaganda minister, Goebbels, as a showcase for the Third Reich.
TV rights to the Games sold for first time. BBC bids 1,000 guineas but its cheque is not banked after it pleads poverty.
First global marketing programme: Eleven firms donate food and flowers.
1956 Cortina Winter Games
IOC president Avery Brundage declares: "We have done well without TV rights for 60 years and will do so certainly for the next 60 years too."
46 sponsors and official suppliers.
240 official backers, among them Olympia cigarettes. Seiko creates quartz timing for the Games.
Games televised in colour. McDonald's becomes a backer.
Logo licensed for first time; the Games' first official mascot introduced.
628 sponsors and suppliers.
1984 Los Angeles
Different sponsorship tiers introduced.
Sponsors reduced, with nine in top tier. Samsung and Panasonic become backers.
Satellite TV rights sold separately. Top tier increased to 12 sponsors.
Totally private-funded Games break even. Visa begins its sponsorship.
Qantas balks at sponsor's fee; Ansett, its replacement, goes bust.
Sponsorship income reaches $2bn.
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