Can Sponsorship Weather The Storm?
Tunji Adeyinka
Late in 2008, in one of the issues of the SportBusiness International magazine, an article with this same title was written by Kevin Roberts. If Kevin’s question was apt in 2008 because of the general ‘economic down-turn’ , it is even more apt in 2009 because the effect of the down-turn is now more apparent in different economies. In our own market, exchange rate swings, stock market meltdown, interest rate hike, oil price drop, are signs that show that it is not business as usual. We have also seen cuts in total marketing budgets in different sectors of the economy.
The Beginning
Early signs of the impact of the economic slide on sponsorships was demonstrated by AIG’s decision not to renew her shirt sponsorship deal with Manchester United at the end of the contract in May, 2010. The deal which was around $27 million per year cannot be renewed by AIG because the company is currently receiving a bailout of $150 billion from the US government as part of the Bush bailout plan. AIG has maintained that they will honour their deal, which is better than the Vodafone six month notice before pullout in 2006. Perhaps the reason AIG will honour the deal till 2010 is because it has another deal with Manchester United. They have a $6.8 million per year deal with the club to run MU Finance. This is a very good example of integrating sponsorships into the fabrics of the business. Of course, closing that deal will lead to loss in revenue. General Motors has announced that it is ending the deal between the Buick brand and Tiger Woods and it is also evaluating its partnership with the US PGA Tours. The same General Motors has renewed its sponsorship of NASCARS’s Daytona 500 which it has sponsored for the last 40 years because it can measure the sponsorship against sales.
More Withdrawals
In the same vein, Japanese car maker, Subaru has withdrawn from the sponsorship of the World Rally Championship and Honda had done the same for F1. According to a statement released by Fuji Heavy Industries, the owners of Subaru:
“Our business environment has been dramatically changed due to the quick deterioration of the global economy. In order to optimize the management resources and to further strengthen the Subaru brand, FHI decided to withdraw from WRC activities at the earliest timing”.
While brands like Honda are leaving F1, the CEO of Petronas, the Malaysian oil giant states that the annual cost of sponsoring F1 is 5% of what it would have cost his company to achieve awareness in international markets in a business where 40% of the revenues come from the international business. The level of awareness for the brand in China was unprecedented at launch because of the F1 association. Also, news coming out of F1 says that Virgin has taken up the sponsorship of the Brawn’s GP Team which raced as Honda last year.
A Ray Of Hope
William Fenton of the Sponsorship Ideas agency believes that in Europe, there will be a drop in sponsorship activities only in the short term.
“There can be no doubt though that as discretionary spending declines, as it must with the recession and inflation working together, that sports bodies will be squeezed from both sides…There will be poorer consumers and the sponsors will be changing the way they buy sponsorship. Not only this but the industry sectors most hit (cars, banks, airlines) happen to be the biggest sponsors and we are also seeing consolidation in banking and brewing, reducing the sponsor pool.
A Persistent Difficulty
In an interview with SportBusiness International, Fenton explained that it will be difficult to find sponsorship managers who are sure of their budgets and these people will be less likely to tie themselves down for a long term contract. We have monitored the deals done in the first quarter and it is a mixed bag. In January alone TSWM monitored over 154 deals. Some of them are Olympics sponsorships, soccer sponsorships and other sponsorships across the globe. General Motors is confident that it can prove the economic value of some of her sponsorships and therefore will like to retain them. This is the same case for Petronas in Malaysia. Clearly, when the entire process is adhered to and the key considerations are upfront, the benefits of sponsorship are clear.
In the Nigerian context, we have not started to see published withdrawals from sponsorship commitments because of the level of disclosure in the environment. This is an environment where it is sometimes difficult to know the details within the sponsorship contract . Of course, from feelers in the market, the financial sector , which has fueled the growth of sponsorship spend in the past three to five years will be taking a ’short-break’. The ‘long-termers’ are likely to be more cautious but less rattled but the ’short-termers’ are likely to be more rattled.
The Telecommunication Sector
While some banks have decided to slow down and see how the first and second quarter pans out, it is not the same in the telecommunications sector. Apart from existing properties that have been bought by telecommunications companies, the telecommunications sector is still active in the sponsorship space with new deals coming from some of the companies. Of course, while the Big Three are still responsible for about 90% of the sponsorship spend, the newest entrant into the sector is also beginning to build some momentum in sponsorship. The companies called the PTOs have not been strong in sponsorships and they do not seem to be in a hurry to play in that space. The level of brand affinity clearly mirrors the investment in engagement platforms like sponsorship. MTN has been leveraging its sponsorship of the World Cup while Glo has continued to maintain the pace of her national and regional football properties. The company has also invested in the marathon and is about to sponsor another one. Zain has been stronger in broadcast sponsorship with the University Challenge and the programme ‘Don’t Forget the Lyrics’. Etisalat has been active in the university and in other face to face engagement platforms. In conclusion, the telecommunications sector has not really had any strong knee-jerk reaction, partly because the companies are still in the ‘land grab’ era and need to continue to get new subscribers, this is combined with the imperative of building loyalty and reducing churn. Also, the marketing practice in this sector is in the average, more sophisticated than in the banking and finance industry.
Conclusion
We have seen the most impact coming from the Banking and Finance sector. A lot of banks are holding back and they have definitely not spent as much as they spent in the previous year. However, for some banks, they have continued to honour their long term sponsorship commitments while they have not signed new deals. However, for some of them, they have not spent any money to leverage their existing sponsorship investments meaning that they are losing money for their existing properties. In summary, we still believe that the depth of understanding of sponsorship is still not high in this sector. The potentials are high, even in this current economic climate. A lot of budget cuts have been on a knee jerk basis.
The manufacturing sector has been the most active and even though there are budget cuts, their investment has been more aligned with their overall marketing targets for the year. Some of them have already started the year on a high, based on existing commitments and their expectations for the year.
In terms of trends and lessons we have seen, we can safely make the following conclusions;
1. The first sponsorship properties that are likely to go are the properties that do not have any business relevance and that have been signed without any strong business rationale.
2. More sponsors are likely to request for value for money and justification for every naira
3. Measurement will be a key factor in sponsorship spend
4. Sport associations and other property owners will need to work harder for every naira
Our advise will be as follows;
1. This is actually the best time to sign some sponsorship properties
2. For every company that invests considerably in sponsorship, it is time to move sponsorship to a strategic level within the organisation
3. Invest in sponsorship research
4. This is not the time to sponsor a property because others are sponsoring
5. It is time to look at new sponsorship platforms
6. It is time to hire a sponsorship consulting company, it is not more expensive, it is more value
