Hard times signal a whole new ball game for sport sponsors.  
 
Story Tony Malkovic 
 
In sport, it’s easy to pick winners and losers. But with sport sponsorships, it’s so much trickier. The bottom line isn’t always clear-cut and as hard times bite, sponsors are chasing more than a ‘lunch, launch, logo’ deal… 
 
If you want a quick insight into why sports bodies are so concerned about the effects of the economic downturn on their sponsorships, take a look at Nortel Networks. 
 
Nortel, one of Canada’s biggest companies and a former stock exchange darling, was a tier one (major) sponsor of the 2012 London Olympics. That is, until it filed for Chapter 11 bankruptcy in January. Nortel’s sponsorship of the Olympics – for telecommunications and internet support – was estimated to be worth about £40 million. 
 
That means there’s a hole about as big as an Olympic swimming pool somewhere in the budget of the London Games organisers. 
 
And then there’s the case of Manchester United soccer club, which in 2006 signed the largest ever shirt sponsorship deal in English football, then worth £56 million over four years. 
 
The trouble is, the sponsor was the American International Group (AIG), the insurance giant which the US Government last year took over as part of a $US85 billion bailout. Not surprisingly, AIG has pulled out of the Manchester United shirt deal. But you don’t have to go overseas to see how today’s hard times are crash tackling sport sponsors. 
 
AIG also pulled out of its rumoured $800,000 a year sponsorship with AFL club Richmond. And the Western Bulldogs and Melbourne were also scrambling to find big sponsors only weeks before the NAB Cup season opened. 
 
The global financial situation has also slam-dunked the National Basketball League. Liquidators were appointed to the Sydney Kings after its main sponsor failed to pay players and staff; the Cairns Taipans went into voluntary administration after the economic downturn put the brakes on major sponsor Pacific Toyota; and Sydney Spirit players had to take pay cuts in order to play out the season. 
 
Sport sponsorship is big business around the world. But when business is bad, sport stumbles. The hard times are seeing sponsors tighten their belts, relinquish rights and drive harder bargains as they seek more creative sponsorship packages. Worldwide, it’s estimated that sport sponsorships are worth some $US40 billion a year but that is slowing as the hard times bite. 
 
In Australia, Francis Farrelly estimates it’s a fraction of that, but there are no exact figures. 
 
“Sponsorship in Australia would be in excess of $A1 billion, of which the lion’s share goes to sport, and that would be in the realm of 85 per cent by my guess,” he says. 
 
Associate Professor Farrelly, of Monash University, is one of Australia’s foremost sport marketing and sponsorship experts, whose research on sport sponsorship has featured in the Harvard Business Review. Farrelly says generally there are two main goals for any business sponsoring sport: to build its brand and generate sales. 
 
FORM OF PHILANTHROPY 
“Historically, for a long time, sports sponsorship was not well understood and regarded almost as a form of philanthropy, if you like,” Farrelly says. “But of course, it’s well and truly become a commercial investment and firms are looking to get a return on it. 
 
“One of the newer and innovative uses of sponsorship – and one I think we’ll see a lot more of in the future – is companies saying ‘we can use sponsorship to build the brand internally within the firm to achieve a number of critical objectives’. 
 
“The best example of that I have seen is UBS, the Swiss global financial brand, and its long-term sponsorship with Alinghi, the Swiss entry which won the America’s Cup the last two times.” 
 
Not surprisingly, UBS signage features on the sails and other Alinghi marketing. But what Farrelly says is more interesting is how UBS uses its sponsorship away from the public gaze. He says UBS has leveraged its sponsorship to motivate and unite its 67,000 employees worldwide with internal branding that incorporates the Alinghi campaign into its professional development programs and corporate messages. 
 
According to Farrelly, another innovative example of sport sponsorship involves the merger of two French banks – Banque Nationale de Paris (BNP) and Paribas. The banks used their sponsorship of French tennis and the French Open championship not only to advertise to the public, but also to help facilitate the merger. The tennis sponsorship was part of internal initiatives to help staff accept the merger, set the future direction of the new entity and motivate staff. 
 
In effect, Farrelly says such sponsors are devising more creative deals than those that just deliver courtside advertisements and free tickets to the big matches. 
 
And he reckons more such deals are likely to be struck as businesses seek more from their sport sponsorships. 
 
NEW STRATEGIC APPROACH  
“One area where I’m pretty confident it will grow is in service businesses,” he says. 
 
“And the reason I think that is because if you really understand it and build a strategy within the firm that links sponsorship, marketing and HR – and this is a whole new strategic approach – then you can actually drive the effectiveness of your service.“And given that service is purely about people, then you can drive the effectiveness of your people and your bottom line which will be critical especially in economic hard times“For instance, accounting firms are totally reliant on the quality of their people and keeping their people. This form of sponsorship lends itself to achieving those sorts of goals and I think we’re going to see more of it.” 
 
Alex Byars doesn’t know Francis Farrelly, but that analysis is likely to be music to Byars’ ears. 
 
Byars is a Chartered Accountant with Deloitte in Manchester, UK. He’s a senior consultant with the firm’s sport business group, a full-time unit dedicated to advising sports organisations around the world. Deloitte is the official professional services provider to the London 2012 Olympic and Paralympic Games. In effect, it’s aiming to achieve the same sort of objectives as Alinghi and the French banks (see story on page 41). 
 
Byars says times are tough, but people still need their heroes. 
 
“Sport is unique,” he says. “While there are clear signs of recession in the UK and retailers are finding it difficult as many consumers tighten the purse strings, there are still tens of thousands of soccer fans turning out to support their teams every week. 
 
“Sport captures people’s imagination and can often provide a welcome relief or escape from the real world. Going to the stadium to support their team is one of the things sports fans are most unwilling to give up when times are hard. 
 
“It touches people in a way that other things don’t. While sport is not recession proof, in many cases it would appear to be recession-resistant.” 
 
So what effect does he think the hard times will have? 
 
“The market is undoubtedly difficult, as sport is not immune to the current global financial situation but it’s not all doom and gloom,” he points out. “Particularly for those ‘must-have’ premium sports properties, we think the sponsorship values are likely to hold up – or even potentially increase because of how much companies value being associated with the top performing sports properties out there in the market.”  
 
Byars says because of sport’s popularity and global reach, it can be a valuable part of a sponsor’s marketing mix. But businesses have to be crystal clear about what they want to achieve and they need to know how to generate the most value out of a sport sponsorship. 
 
Back in Australia, Steve Rosich knows all about the crystal clear expectations of sponsors. 
 
Rosich is a Chartered Accountant who is also CEO of the Fremantle Dockers AFL football club. He says being part of the biggest sporting code in the country is helping cushion the effects of the economic meltdown. 
 
“We’re very fortunate to be in a competition that is seen to be a quality code to associate with,” he says. But even so, sponsors are after more than just tickets and free drinks and nibbles. Before dipping into their wallets, they’re demanding Freo and the other clubs provide measurable returns. 
 
“We have seen an increase in the measurability of the performance of sponsorships and also a requirement to have defined marketing plans which are closely aligned to the sponsors’ goals,” Rosich says. “We’re very fortunate that that’s the kind of operation we established four seasons ago. So we’re well practised and experienced in the demands of the new economy.” 
 
Freo has yet to win an AFL premiership, but Rosich says off-field things are faring better, with the number of sponsors and total sponsorship revenue having increased significantly in the past five years. And encouragingly, two major sponsors – LG and the Integrated Group – have either resigned or stepped up their sponsorships. 
 
“They’re positive examples of deals consummated over the last three or four months,” he says. 
 
But it isn’t all kicking with the breeze for the AFL. 
 
The global financial situation led to sponsors pulling out of an NAB Cup match between the Eagles and Collingwood, to be played in Cape Town in February this year. But Rosich says Freo is still keen on its plans to develop AFL in South Africa, and already has three South African companies on board as sponsors. 
 
Kim Skildum-Reid has also been looking at the effects of the global meltdown on sport and sponsorship. 
 
“I think all sport sponsorship is hurting right now,” she says. “I think the big sponsorship seeking organisations are probably faring better mainly because most of their investments are multi-year deals.” 
 
SCARY ECONOMY 
Skildum-Reid is a sponsorship expert, author and the head of the Power Sponsorship consultancy in Sydney. She recently published Sponsorship in a Scary Economy to help organisations facing crunch time with their sponsorships obligations. 
 
“What happens now will separate the shrewd marketers from the people who have always historically under-used sponsorship,” she says. 
 
She advises companies to carry out an audit of their sponsorships. “The aim of that audit would be to really look at what’s working, what might work better and what never was going to work,” she explains. “That way, you can get rid of any dead wood in your sponsorship portfolio. The likelihood is that most people’s portfolios are better than they think they are – it’s just that they’ve been under-using them. 
 
“The typical sponsor – and this is really behind the times – is one that has signage, they run some ads around the sport (if it’s televised), and they have the skybox – and that’s pretty much it.” 
 
Skildum-Reid says signing a sponsorship deal isn’t the crucial thing, it’s what you do with it that counts  
 
“When a sponsor buys a sponsorship, they’re actually buying an opportunity. It’s leverage that actually provides them with the results,” she says. 
 
“So if you write a cheque and congratulate yourself every time you see your logo on television and take a few people to your corporate skybox, then you’re completely wasting the opportunity. ”It would be like spending the money to buy a ladder, then never climbing it.” Skildum-Reid says businesses need to know what they want from a sponsorship – and how to measure it. 
 
“There are a bunch of people who say they can come up with the number of eyeballs on your logo, and give you all these figures on the visibility of a sponsorship and they’ll crank out a number,” she warns. “So they can say ‘we spent $100,000 on this sponsorship and we got $235,000 of media equivalencies and other benefits off it’. 
 
“But all that tells you is how visible it was, it doesn’t tell you what it got for you so it’s not really a return on investment, it’s just how many eyeballs saw your logo. 
 
“You can’t do a ROI in dollar terms on TV commercials or any other kind of media or PR. I mean it’s not accurate. If anybody is telling you they can do it on sponsorship or anything else based on a formula, they’re trying to sell you the formula. 
 
“Don’t expect there to be a neat, tied-upin- a-bow dollar value ROI at the end of it. It’s not going to happen. The thinking now is in terms of a return on objectives and those objectives fall into two categories: changing people’s perceptions and changing people’s behaviour. 
 
“And some of the changed behaviours are likely to come out in dollars, such as an incremental increase in sales of XYZ over the quarter that this promotion was running and the profits on the incremental sales were such and such.” 
 
She says many businesses need to re-assess the way they assess their sponsorships. 
 
“At the end of the day, when you commit to a sponsorship you say ‘OK, this is the plan by which we want to leverage the sponsorship. If we do all these things and this is the total cost of the sponsorship and any incremental additional costs of the leverage, if it costs this much and we achieve these things, is it worth it for us?’ 
 
“And if the answer is ‘yes’ then invest in the sponsorship and then measure it against those things that you’ve aimed for.” 
 
HIGH-PROFILE CASUALTY  
Kevin Roberts has a good perspective on the how the global economic downturn is affecting the global sport sponsorship industry. He’s the editorial director of Sport Business International magazine, based in London. 
 
He says the most high-profile sponsorship casualty has been Honda withdrawing from Formula One car racing due to the economic downturn. 
 
“There’s some evidence that sponsorships are being cut across key areas, but there’s not enough of it to suggest it’s an overarching trend,” says Roberts. 
 
In a recent clarion call to the sport marketing industry, Roberts said the current tough times make it imperative for the industry to educate sponsors and the public about sport marketing. 
 
He said there was a danger that sponsors might be driven from sport for fear of upsetting or alienating the public. “Think about it. How can you, Mr CEO of Megaglobal Inc, possibly sanction spending $1 million to sponsor a football team racing car/stadium/tennis tournament when you are in the process of laying off great chunks of your workforce to save money?” he asks. 
 
Roberts argues that the industry needs to get its message out that sport marketing is a hard-nosed and accountable business. “If a company decides to spend millions on a sponsorship deal, there should be an understanding that this is money which is being spent because it has been determined that it is the most effective means of delivering very specific results against precise business objectives… not because it looks a lot of fun,” he says. 
 
Roberts reckons tough times are going to weed out non-performing sponsorships. 
 
“Sponsorships that weren’t properly conceived, ones that were entered into simply because someone, somewhere thought it was a good idea – that they’d like to take their wife to the events, or they’re a supporter of a particular team, or they want to meet (tennis champion) Maria Sharapova – those sorts of sponsorships are basically built on sand and are likely to come to grief,” he says. 
 
But he also says the marketing industry has to lift its game in hard times and come up with better opportunities for sponsors. “Sport has to shape up,” he says, “because it’s never been the only game in town. Under financial pressure, people will look beyond sport as a first option.”