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Less gold for Olympic sponsors?
Feb 11, 2010
Less gold for Olympic sponsors?
The winter games are big business, with advertisers and other sponsors paying huge sums to try to reach the world's consumers. But the Great Recession may foil their plans.
By Michael Brush
MSN Money
As millions of viewers tune in to the Winter Olympics, starting with Friday's opening ceremonies, some of the world's biggest companies will zero in on their own pricey, though unofficial, competition.
Olympic advertising and sponsorships are big business. This year, Olympic organizers will take in more than $1.1 billion in broadcast rights. They'll earn almost as much in sponsorship and advertising fees.
Consumer-oriented giants such as Coca-Cola (KO, news, msgs), McDonald's (MCD, news, msgs) and Panasonic (PC, news, msgs) pony up millions to sponsor the games, and they'll run ads costing as much as half a million dollars for 30 seconds of airtime.
The prize? The hearts and minds of 3 billion viewers in more than 80 countries expected to watch the 17 days of coverage. The logic? Associate your brand with the "we are the world" zeitgeist of the Olympics and hope that translates into sales.
Does it work? Since these games are in the Great White North, consider the story of Canadian clothier Roots, whose goods went international after the company clothed several teams at the winter games in 2002 and 2006.
More broadly, consider the Dow Jones Summer/Winter Games Index ($DJOLX), a collection of publicly traded partners, sponsors and suppliers of the games. It posted a three-year annualized return of 10.5% through the end of last year. In contrast, the Standard & Poor's 500 Index ($INX) was down about 21%.
That's the sort of differential that might draw investors' attention.
This year, though, a payoff is tough to predict because of -- you guessed it -- the economy. Olympic organizers negotiated high sponsorship fees back when no one saw the Great Recession coming. Today, many sponsors no doubt wish they hadn't paid so much, as no amount of feel-good marketing seems likely to persuade dazed and confused consumers to spend more.
Here are this year's likely winners and losers in the business of the Olympics.
The gold: The Internet
Four years ago, during the Winter Olympics in Turin, Italy, NBC broadcast two hours of the games over the Internet. This year, online coverage will jump to 400 hours at NBCOlympics.com, put up with help from MSNBC and MSN. (The site is part of the MSN network.)
Web-based live programming will make up half of an overall 835 hours of coverage -- more than in the past two Winter Olympics combined. NBC will also offer 1,000 hours of on-demand highlights and replays online. In short, the Internet is clearly a big winner in this year's winter games.
"It makes sense, given the way online video viewing habits have changed since Turin," says Bryan Hjelm, the vice president of marketing at Unicast, an online advertising company.
Bing
Let's call it the iPhone effect. "Consumers like to get in there and look for a specific piece of content online and digest it in a minute and get out and look for the next one," Hjelm says. In addition, many more sports fans have broadband Internet connections at home now compared with four years ago.
Two other big winners will be Facebook and Twitter, whose social-networking formats are ideal for swapping links and brief commentary on event clips.
The silver: Vancouver
Cities that host huge sports events inevitably overhype the amount of money they'll bring in, no doubt to rationalize the costs and headaches. But they typically make two big mistakes.
"Their projections ignore the people that would have gone there anyway and the people that will avoid the area because of the mess," says Robert Baumann, an associate professor at the College of the Holy Cross who has studied the economic impact of major sports events.
Cities also conveniently overlook the fact that many companies reaping the benefits, such as hotel chains, are national companies that siphon away the profits, says Steven Craig of the University of Houston, another expert in the field.
But Vancouver will get a break for two reasons. It's not a major tourist city, so the displacement effect isn't as big. And the Olympics will give Vancouver the chance to showcase features such as a picturesque waterfront and snow-capped mountains.
"The big winner here is going to be Vancouver, provided that everything goes well," says Rob Frankel, an expert on brand development. "When you do a showcase event like the Olympics and you have as much to offer as Vancouver, it tends to reverberate for years and years."
At least some Vancouver-area real estate could get a boost from the games. A group of lenders will hold an auction Feb. 19, during the games, to sell ownership in the vast Whistler Blackcomb Ski Resort, which will host several events. Intrawest is owned by Fortress Investment Group (FIG, news, msgs), which has had trouble meeting debt payments since last fall.
The bronze: Sponsors' shareholders
I can't really explain why, but sponsoring the games clearly brings a benefit to companies' shareholders.
So why not give investors the gold?
Well, making it to the Olympics is all about hard work and sacrifice. To simply earn money by investing in an index of sponsors seems too easy to warrant a gold medal, and picking out individual stocks likely to benefit seems almost impossible.
The losers
As is fitting during a year when there are major questions about the world economy, there are likely to be more losers than winners in these winter games. Here's a roundup of the biggest losers:
NBC. The network just can't catch a break. On top of low ratings and the late-night wars, it's expected to lose big money on the Olympics -- something that seemed unthinkable even a few years ago.
In fact, that's exactly the problem. Because the Olympics have regularly brought in decent profits for broadcasters, NBC agreed in 2003 to pay more when it negotiated deals to broadcast the games in 2010 and 2012. Like everyone else, it didn't foresee the Great Recession. So NBC paid $820 million for the broadcast rights for the Vancouver games, compared with $613 million for the Turin games.
NBC had hoped to pass the higher costs on to advertisers, but some of the biggest traditional sponsors, such as banks and automakers, have been hit particularly hard by the recession. "NBC is going to lose a boatload of money on the Olympics," says Jeremy Mullman, who covers sports marketing for Advertising Age. "That's a function of how badly they overpaid."
General Electric (GE, news, msgs). GE finance chief Keith Sherin recently projected that NBC, which GE owns, will take in between $650 million and $700 million in ad sales, or $120 million to $170 million shy of fees for broadcast rights. That shortfall doesn't include the cost of producing more than 800 hours of live coverage.
But you have to hand it to NBC for sticking with so much coverage despite the economic challenges. "That is extremely ambitious," says Rick Gentile, the head of programming at CBS for the Olympics in 1992, 1994 and 1998. "I am in awe." CBS offered less than a fourth of that amount of live coverage.
The sponsors. Many studies by marketing research groups such as Millward Brown and Performance Research confirm that sponsorship of big sports events like the Olympics can pay off when done correctly.
But the problem for major Vancouver Olympic sponsors is that, like NBC, they negotiated their deals when the economy was humming. "There's obviously a timing issue, coming out of a recession," says Kevin Lane Keller, a professor of marketing at the Tuck School of Business at Dartmouth College in New Hampshire.
The good news for sponsors, at least, is that they'll get to use the Olympic rings in advertising for years. "The Olympic rings are still the most recognized sports brand in the world," says Mary O'Connor, the director of Olympic marketing at The Marketing Arm.
NBC is putting a positive spin on things by predicting that 200 million people will watch at least part of its coverage of the Vancouver Games -- more than the 184 million who watched its broadcasts of the Turin Olympics. NBC says it will benefit this year because there are no real time zone obstacles to broadcasting events live in the U.S.
Still, there doesn't seem to be much Olympic buzz this year. One reason is that there's no megastar. Sure, the games will feature celebrities such as speed skater Apolo Ohno, who was a hit on "Dancing With the Stars"; alpine skier Lindsey Vonn, who posed provocatively for the cover of Sports Illustrated's Winter Olympic preview issue; and highflying redheaded snowboarder Shaun White.
But there's no standout women's figure skater, the Olympian who typically draws the most attention. Indeed, a poll recently conducted by Gentile, the former CBS sports programmer who is now the director of the Seton Hall University Sports Poll, found that 44% of Americans didn't even know where this year's Winter Olympics were being held. And 16% of avid sports fans said they had less interest in watching the games this year than in the past.
The U.S. Olympic Committee and the athletes. The USOC has lost three main sponsors because of the recession: Home Depot (HD, news, msgs), General Motors and Bank of America (BAC, news, msgs). It hasn't been able to find new sponsors in those categories. TV comedian Stephen Colbert stepped in to raise money to keep the U.S. speed skating team on ice after a key sponsor pulled out.
Athletes have had to dig deeper to fund their dreams. Patrick Rishe, who runs SportsImpacts.net, a sports marketing research company, cites speed skater Katherine Reutter: Her sponsors include her hometown police department in Champaign, Ill., and a Lasik surgeon in New Jersey.
"It used to be if Olympians excelled, (sponsors) could cash in," Rishe says. "But now we will be looking at some of these sponsors and saying, 'Who the heck are these companies?'"
The ambush marketers. That leads me to the "ambush marketers," companies that cleverly design ads to glom on to the Olympics, even though they aren't paying sponsors.
Sandwich-shop chain Subway has been running an ad featuring Olympic swimmer Michael Phelps with a Vancouver skyline in the background. Verizon (VZ, news, msgs) has an ad with speed skaters.
Who doesn't have a college prankster inside who wants to cheer such efforts on? But these are the Olympics, after all, one of the few venues where the ideal of fair competition still prevails. So bending the rules just doesn't seem right, particularly when the athletes are fighting to find sponsors. "It's murky territory," says Mullman, of Advertising Age.
For me, that puts these companies in the Olympics' loser category.
