rlp
IN ANCIENT GREECE it was impossible to stitch a sponsor s logo to an Olympic
athlete s singlet or shorts, because the competitors were all naked. In today s
London it is still impossible. Though clothing is now allowed at the Olympics
indeed it is compulsory so is a veneer of amateurism. No advertisements are
allowed in the stadium; no logos may be emblazoned on the athletes kit (except
at the Paralympics: see article).
Behind the veneer, commercial interests are vying furiously for gold. The sums
involved make Russian weightlifters look insubstantial. The British government
s budget for the games has risen to 9.3 billion ($14.5 billion) from an
initial estimate of 2.4 billion. The International Olympic Committee (IOC) has
raised $4.87 billion in broadcast fees and sponsorship for the four-year cycle
that includes the London summer games as well as the Vancouver winter Olympics
of 2010. The London Organising Committee of the Olympic and Paralympic Games
(LOCOG), which is actually in charge of staging the games, has raised another
700m in sponsorship; it is raking in pots more by selling tickets and licensing
souvenirs.
Five rings to bind them
Eleven global sponsors (known as top Olympic partners, or TOPs) pay fat sums to
the IOC for the right to use the Olympic brand. Only one TOP sponsor is allowed
in each commercial category: Coca-Cola for soft drinks, Panasonic for
televisions and so on. This business model dates back to the 1980s. Before
then, the Olympics were a commercial mess, with lots of sponsors paying small
sums to borrow the Olympic brand in a few cherry-picked markets. Now, the IOC
sells much bigger contracts to fewer sponsors. Top-tier deals are long-term (at
least eight years) and global. The size of each deal is secret, but the total
for all 11 for 2009-12 is $957m.
Sponsors can pay in cash, in kind, or both. For example, Atos, a French
consultancy, is a top-tier sponsor. It also manages the information technology
for the games. In its command room overlooking London s Docklands, 450
technicians and support staff hunch over screens. Among other things Atos
handles the accreditation system for all 250,000 athletes, trainers and
hangers-on. This means creating a big database for personal information for
people from all parts of the world. It has to hook up with the British
immigration authorities, so everyone who needs a visa gets one. And it has to
be secure: visiting prime ministers don t want their private data published on
WikiLeaks.
The pay-off for Atos comes from proving it can do all this. It s the only
project of this magnitude that has a deadline you can t change at all, says
Patrick Adiba, Atos s man on the spot. There is also no room for serious
errors, he says: You can t ask Usain Bolt to rerun the 100 metres because the
technology didn t work. So every system has backups: some have four.
All this is costly. But it lets Atos boast to potential customers: if we can
handle both the summer and winter Olympics, we can probably handle your
project. The Olympics generate hundreds of millions of euros of new business
for Atos every year, reckons Mr Adiba.
The risk is that if you mess up, you do so very publicly. G4S, a British-based
security firm, was hoping that handling security for the games (which it, too,
sponsors, though not at the top level) would gild its reputation. If we can do
it for the Olympics, we can do it for you, said Ian Horseman-Sewell, G4S s
director of events, on June 21st. Shortly afterwards, the firm discovered that
it couldn t do it for the Olympics, having failed to train anything like enough
staff. G4S s share price did a passable imitation of an Olympic diver (see
article).
Most top-level sponsors, such as McDonald s, Omega, Panasonic and Procter &
Gamble, are not trying to prove their prowess. They are just trying to look
noble and global by association in a way that wows and woos customers. How they
do so reveals the brilliance of the IOC s stand against the crass
commercialism of corporate ads and logos at the games. Unable to advertise
inside, the sponsors must advertise outside, by way of posters and packaging
and every other platform at their disposal. And to reap the benefit of their
sponsorship, this advertising must be linked back to the Olympics: so every
billboard and chocolate bar and television set carries the Olympic logo. It is
hard to walk down a high street anywhere in the world without being reminded of
the Olympics.
In effect, the sponsors are paying to provide publicity for the Olympics. This
is a fantastic deal for the IOC. Is it also good for the sponsors? I don t
know, admits the boss of one big sponsor.
A study by Jonathan Jensen of Columbia College, Chicago and Anne Hsu of Relay
Worldwide, a sports-marketing firm, has found that in general companies that
sponsor generously tend to do well. They looked at the 51 American firms that
spent more than $15m annually on sponsorship (mostly of sports) between 2005
and 2009. Net income at these firms grew faster than at S&P 500 firms in
general (7.8% to 6.5% per year). The biggest sponsors did even better: the top
16, which spent on average $160m a year on sponsorship, saw net income grow by
22.1% annually.
The authors do not claim that sponsorship makes businesses more profitable.
Rather, big sponsors tend to be firms with brands that are already well-known.
Lesser-known firms buy ads to explain to customers who they are. The likes of
Coke and IBM back athletes to make consumers feel warmer about their brands.
There is evidence that such backing can work, at least on a team-by-team level.
Jorg Henseler of Radboud University has found that in the Netherlands
sponsoring football teams makes brands more valuable. And even if there is no
such direct effect from sponsoring the games, there is an indirect benefit: you
raise ever further the costs of entering the global market. It is spending like
this that makes competing with Coke hard, even when making fizzy drinks is
easy.
It is hard to argue the case for Olympic sponsorship from any effect it has on
the share prices of the TOPs (see chart). But the companies must believe they
are getting a good deal; otherwise they wouldn t keep doing it, and indeed
upping the ante. The IOC s revenue from TOP sponsors rose 10.5% in the 2009-12
quadrennium. Visa ran Olympic-themed promotions in 45 countries in 2008; this
year it has 71 in its sights. It is also passing on the rights to use the
Olympic brand to the banks that issue its charge cards: some 950 financial
institutions will join its marketing push.
Visa s first Olympic campaign was brutal. Having displaced American Express as
the official payment card, its ads crowed: At the 1988 Winter Olympics, they
will honour speed, stamina and skill but not American Express. Its recent
Olympic ads conform more closely to the generic feel-good norm. One shows Nadia
Comaneci, a gymnast, scoring a perfect 10. Morgan Freeman s soothing voice-over
encourages viewers to cheer for perfection.
Big boys games
Because the games are truly global, they offer a plausible springboard for
regional brands that want to conquer the world. Samsung is perhaps the best
example. It was once a big dog only in its native South Korea. In 1997 it
pipped Motorola to become a global Olympic sponsor. The American mobile-phone
maker, a longtime second-tier sponsor, wanted to upgrade but demanded a big
discount. The IOC was so annoyed that it turned to Samsung, which quickly
agreed to pay full whack. Motorola s managers realised they had been supplanted
only when they read the headlines. Such ruthlessness keeps sponsors in line.
Samsung s sponsorship covers just mobile phones. But if the Olympics burnish
the Samsung brand, that should help the Samsung Group sell televisions, ships
and insurance, too. It is now the second-most-valuable Asian brand (after
Toyota), according to Interbrand, a consultancy. Being seen alongside Coke
gives them global credibility. It shows they are at the top table, says
Clifford Bloxham of Octagon, a consultancy. Indeed, five out of the 11 top-tier
Olympic sponsors are in Interbrand s global top 20.
Below the global sponsors are the domestic ones: some 44 companies, from BP to
Cadbury, have signed deals with LOCOG that cover only Britain. As well as
dealing with these domestic sponsors, LOCOG hires contractors to help stage the
games. A separate body, the Olympic Delivery Authority (ODA), is in charge of
building the venue.
Between them, LOCOG and the ODA have awarded more than 2,000 contracts, big and
small. Some firms follow the games wherever they are staged: Mondo, an Italian
maker of running tracks, is there every four years. For others, it may be a
one-off. Touch of Ginger, a British design firm with 12 staff, is making
Olympic-themed trinkets such as stainless-steel fish-and-chip forks that pop
out of a credit-card-sized piece of steel. Gary Moore, the co-founder, laments
that retail sales have been slow. But corporate sales have been brisk. Sponsors
such as Lloyds Bank are snapping them up to hand out as gifts.
The eyes are the prize
Pierre de Coubertin, the idealistic Frenchman who founded the modern Olympics
in 1896, did not approve of betting. Heaven knows what he would have made of
the bets that broadcasters make on the games. For 2009-12, they have stumped up
$3.91 billion for television rights, up from $2.57 billion for 2005-08.
Such huge fees make bidding for the rings highly risky. NBC Universal, an
American TV company, lost $223m broadcasting the Vancouver winter Olympics, and
expects to lose money in London, too. Having paid $1.18 billion for the right
to broadcast the London Olympics in America it has so far booked only $950m in
advertising. It will sell more ads at the last moment. But it will also spend a
fortune on cameras, servers and breathless commentary, leaving it $100m-200m in
the red, by one estimate.
Comcast, the cable firm that owns NBC, is confident that the bet will
eventually pay off. NBC will pay $4.38 billion to broadcast the games from 2014
to 2020. NBC hopes the Olympics will boost adverts on its free channels, hook
more subscribers for NBC Sports (a pay channel) and popularise its digital
offerings.
NBC wants the Olympics to help it take on Disney s ESPN, the giant of American
sports broadcasting. This will be hard. The games are usually in an un-American
time zone, and involve dozens of sports, many of which make Americans shrug. It
is hard for broadcast highlights on a network to make the most of it all.
Technology may be coming to NBC s aid. It plans to offer 3,500 hours of live
coverage via 40 online streams, allowing people to watch on their computers and
mobile phones while waiting for the bus or pretending to work. When people are
desperate for distraction even dressage has its place.
Some worry that digital streaming will hurt the prime-time broadcasts that
command the highest advertising rates. After all, who will bother to watch a
race when the result is already online? But Michael Payne, a former Olympic
official and the author of Olympic Turnaround , a book about the games
commercial revival, downplays such concerns. He thinks that all those digital
offerings will create buzz. With 26 sports, there s enough news to keep people
interested. They ll watch the games on multiple platforms and then go into the
office and talk about it, he predicts. He may be right. Olympic organisers
once fretted that the first radio broadcasts would depress ticket sales. They
didn t.
For advertisers, the Olympics should be a bonanza. Martin Sorrell, the boss of
WPP, a British ad firm, often talks of the boost the global ad market receives
when the Olympics, an American presidential election and the Euro football
tournament more-or-less coincide every four years. Michael Nathanson of Nomura,
an investment bank, predicts that the Olympics will pump up the American ad
market by between $800m and $1 billion this year. The global bump in
advertising will be $1.3 billion, reckons Jonathan Barnard of ZenithOptimedia,
a consultancy.
Others are more cautious. Non-sponsors assume that, if they advertise during
the games, their message will get lost in the hubbub, says Ian Whittaker of
Liberum Capital, a bank. He predicts that many will wait until September, and
that the Olympic boost will be less than expected.
Governments of countries that host the Olympics usually boast that the games
will generate vast economic returns for the nation. David Cameron, Britain s
prime minister, promised to turn these games into gold for Britain , to the
tune of 13 billion over four years (see article). Several studies suggest that
is unlikely. Victor Matheson of the College of the Holy Cross in Massachusetts
finds that organisers of big sporting events tend to overestimate the benefits
and underestimate the costs.
They are particularly bad on opportunity costs, counting every penny that
sports-mad tourists spend while forgetting that others will cancel trips to
avoid the crush. South Korea attracted lots of football fans during the 2002
World Cup, but because so many non-fans stayed away total arrivals were the
same as the previous year. Some of those who pitch up for a sporting event have
merely rescheduled a trip planned for another date, and should not count as
extra arrivals. Mr Matheson concludes that, though the gross economic impact of
big sporting events is large, these losses mean the net effect is negligible.
It may even be negative. Host governments spend vast sums on building stadiums
and sprucing up nearby railways and roads. The Olympic authorities could pick
host cities that already have the necessary infrastructure in place, and in
such places the games might turn a profit. But the IOC likes host cities to
erect grand edifices with the Olympic name on them.
The billions that Britain has spent on revamping bits of east London will
generate benefits; but so would spending such sums on many other things. London
s Olympic aquatic centre looks great, but it cost 269m a great deal more than
most public swimming pools. The roads built for the games may prove useful, but
other projects might have done more good. They might have been cheaper, too;
Olympic infrastructure tends to break budgets even more than infrastructure
projects in general do. A recent working paper by Bent Flyvbjerg and Allison
Stewart of the Sa d Business School at Oxford University found that every
Olympiad since 1960 has gone over budget and that the average overrun, at 179%,
was worse than for any other kind of mega-project.
When the consumer sits down to watch the games, though, he is not interested in
efficient infrastructure investment. He wants to see something that lifts his
spirits. This cannot be guaranteed but unlike other purported benefits, it is
at least not ruled out by the data. A study by Stefan Szymanski of the
University of Michigan and Georgios Kavetsos of the Cass Business School in
London finds no statistically significant upswing in national happiness
attributable to hosting the Olympics (in this it comes a poor second to the
football World Cup). But it doesn t seem to do any harm. And maybe this one
will be particularly uplifting. After all, what could be more fun than watching
athletes sweat while eating fish and chips?
from the print edition | Briefing