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THE YEAR IN FOCUS

Sponsorship practitioners have never doubted the power of association. But a survey of sector developments during recent years would show that marketers are also now buying into the medium in a big way. Among the many high-profile stories to have emerged in the last year, for example, the following give some idea of how big a business decision sponsorship selection has become for blue-chip brands managers:
Having paid US$40 million for the right to be associated with the FIFA World Cup, sportswear giant adidas spent another US$200m on activation in order to maintain its number one spot in the global soccer market. FIFA, aware of how powerful its property is, recently upped its price for World Cup 2010 to US$100m – and had little problem signing up Sony, Coca-Cola, Emirates, Hyundai, Visa and adidas.
Indeed, FIFA’s decision to allow Visa to usurp MasterCard as a top-tier partner was subject of a major US court case which resulted in victory for incumbent sponsor Mastercard.
It’s not only FIFA attracting record levels of sponsorship cash within soccer. Manchester United’s £16 million, four-year shirt sponsorship deal with US bank AIG smashed all previous records in the UK while the FA secured a batch of good increases from the likes of McDonald’s, E.ON and Nationwide.
Subsequently, Barclays Bank agreed to renew its title sponsorship of the FA Premier League for £22m a year over three years (2007/08-2009/10). In doing so, it upped the price paid from £19m a year (ostensibly because of the league’s growing appeal in Asia).
The London 2012 Olympic Organising Committee initially stated that it wanted four top-level partners to pay around £50 million each to become sponsors. But the level of interest has led some to suggest that deals will go for nearer £100m. At the same time, Norwich Union led a host of blue-chip companies seeking to take advantage of the Olympic scenario by renewing its relationship with UK Athletics through to 2012 at a cost of £50m. Other sponsors to make early moves included LG (gymnastics), Siemens (rowing) and Kelloggs (swimming).
Formula One saw a range of deals in 2006 which underlined the continued appeal that top-tier motorsports has for brands – particularly those in high-tech sectors. Telecom Italia, Martini (both Ferrari), Vodafone, Emirates Airline (both McLaren) and AT&T (Williams) all signed major long-term sponsorship deals. Most interesting perhaps was Dutch banking giant ING’s decision to unveil a three-year deal with Renault – which will see the team renamed as ING Renault F1 from the 2007 season. This is ING’s most ambitious sponsorship to date.
There are a number of reasons why sponsorship is in such demand at the moment. The first, quite simply, is that there is no more cost-effective way of building a positive brand profile rapidly –particularly at a time when many marketers are questioning the value of TV spot ads. While sponsorship, in itself, cannot articulate detailed information about products & services, it offers an engaging platform from which to build an integrated marketing strategy. Managed effectively, it is low on wastage, high on visibility and, generally-speaking, welcomed more by audiences than interruptive advertising models.
Secondly, a number of corporate sectors need to tap into the above attributes right now and are thus stimulating demand for top properties. Financial services companies and utilities, for example, need sponsorships that a) make customers like/trust them and/or b) allow them to build powerful hospitality programmes.
Online gaming brands like 888, Mansion and Bwin, meanwhile, need to build their profile in anticipation of a global boom in their sector. Other industries driving demand for top sponsorship properties include consumer electronics and fmcg (which both need sponsorship to create brand differentiation from their rivals) and mobile, which uses sponsorship to drive awareness and secure content rights.
Thirdly, new opportunities on the supply side are increasing the options for sponsors. From stadia naming rights to digital new media, there are more ways than ever to reach audiences. Similarly, event organisers are creating bespoke opportunities which allow big brands to target key territories and/or audiences. This is particularly true in Asia where revenue from sponsors is far more important to the sports marketing ecology than broadcast rights fees.
It’s not just these broad trends that explain the sponsorship industry’s success story, however. There’s also a genuine sense that brands operating in the sponsorship space understand how to make their investments work for them.
Not so long ago, sponsorship was often referred to as a soft option or a chairman’s whim. But the rigour applied to sponsorship activation these days means that clients are finding many more ways to achieve return-on-investment.

True, you can still find examples of badly-implemented sponsorships and a few misleading headlines about how a certain sponsorship failed because it scored low on consumer awareness. But the real story is the way clients are backing their initial investment in rights with a substantial budget for PR, advertising, hospitality and promotions.
Figures from The IEG Sponsorship Report during mid-2006 underline this point. According to IEG, the average sponsor was in line to spend US$1.7 for every US$1 it paid in rights fees during 2006 – the highest ratio in the report’s history. Nearly 23% of clients spent three times as much on activation in 2006 as on the rights themselves.
Assuming objectives have been clearly defined, this willingness to spend on support marketing inevitably makes sponsorship more effective (which explains why the IEG Report also found that 54% of its respondents felt they were getting better ROI in 2006 - despite media fragmentation and increased rights costs).
In turn, this encourages greater attention to evaluation - since more is at stake. In a virtuous circle built on increased professionalism, better evaluation then encourages targeted re-investment in the next sponsorship cycle and provides a clearer link between sponsorship and sales performance.
Before Germany 2006 was even over, for example, adidas declared that its football sales were up 30% year-on-year to Euro 1.2 billion while replica shirt sales of 3 million were double the total at Korea Japan 2002. Coca-Cola went as far as to attributing a 7% rise in European sales directly to its World Cup sponsorship activity.
Of course, it’s obvious from the deals listed above that the lion’s share of new money goes to a handful of big sports properties. But it would be wrong to assume there is no upside for other elements of the food chain. McDonald’s new £12 million deal with the FA will see significant sums pumped into the grass roots end of the game. Similarly, Norwich Union has made it clear that a big chunk of its own athletics investment will be going into grass roots.
Until now, the programmes have touched one million children each year. But with Norwich Union grassroots investment set to treble, the company predicts ten million children and 1.5m families will be involved in schemes by 2012. As a spin-off, 100,000 teachers in 5,000 secondary and 20,000 primary schools will be trained via schemes which the company says will transform the way athletics is delivered in UK schools.
Similarly, there’s no real evidence that second tier sports like cricket, rugby, sailing, golf, tennis and horse-racing are suffering because soccer is pushing through price increases. To cite a few examples: John Smith’s recently renewed its relationship with Aintree’s Grand National while Guinness, FedEx and Greene King have joined forces with rugby union in recent times. Even sports like snooker (888.com) and cycling (E.ON) have found high-profile partners.
Most impressive though is the commercial success engineered by the England & Wales Cricket Board. Notwithstanding the fact that there will be no live cricket on UK free TV from 2007, the ECB persuaded power company Npower to quit its current £3 million a year Test Match deal early and renew at a renegotiated rate of £4.5 million a year over three-years.
If ever you needed proof that sponsorship is in demand right now then this has to be it. But the story is also strengthened by a rush of activity at regional level – after a poor start to the year. Coming into the fourth quarter, for example, the Glasgow bid to host the 2014 Commonwealth Games signed up Clydesdale Bank, First ScotRail, 02 and Highland Spring as top tier sponsors. Although Glasgow’s bid has been overshadowed by London’s success in securing the 2012 Olympic Games, the 20th Commonwealth Games in 2014 would be the biggest event of any kind ever hosted by Scotland – making it the kind of stand-out property that sponsors are in the market for.
Clydesdale’s commitment to the Scottish cause was extended a month later when the bank also signed up as sponsor of the Scottish Premier League (SPL) from the start of the 2007/08 season. The deal, worth £8 million over four years, is a record for the SPL – which is currently sponsored by Bank of Scotland.
This entry by Clydesdale into the sponsorship market is an interesting test of the medium’s capacity to improve brand metrix. Australian-owned, Clydesdale has recently laid off a large number of staff. So it will be interesting to see if sponsorship can help the bank improve its image while also providing it with business benefits. Whether it does so or not will depend to a great extent on the bank giving the remaining staff strong incentives to buy into the two properties.
A more likely victim of sport’s success, perhaps, is the arts sector – which has felt for some time that sport is sucking investment away. But even this is not a clear cut situation when you have The Olympics coming to your country. While you might expect the Olympics to put even greater strain on the arts, the sector is not bemoaning its lot. Instead, the arts lobby is looking at whether there is an opportunity for it to piggyback the London 2012 Games by putting on cultural events. With London set to see massive infrastructural investment and also become the focus of global attention, it’s a chance for the UK arts sector to showcase the range and diversity of its offering to audiences.
Indeed, taking art in the broadest sense to include contemporary music and film, the sector seems to underline just how robust sponsorship overall is right now. At the more traditional end of the spectrum the likes of UBS and Deloitte are engaged in high-profile partnerships with the Tate Modern and V&A respectively. At the contemporary end is Orange – which won a Hollis Award in 2006 for a clever association with cinemas entitled Orange Wednesdays. In music, meanwhile, a useful barometer is the MTV Europe Music Awards – whose official sponsors this year were Replay Blue Jeans, the new Opel/Vauxhall Corsa and Sony Ericsson.
If music has had a scare in 2006, it was the call for a ban on alcohol advertising at music and sports events which could be attended or watched by under-18s sponsorship by the influential Advisory Council on the Misuse of Drugs. Events in the firing line included T in the Park and the Carling-backed Reading Festival (not to mentioned the Stella Artois tennis tournament, Budweiser’s link to the FIFA World Cup and the Carling Cup in sports sponsorship).
With almost half of all 15 year-olds drinking alcohol at least once a week, the Council blames irresponsible advertising and poor education for the trend. Presenting its findings, the council’s chairman Dr Laurence Gruer said: “Over the last 10-12 years, our consumption of alcohol has virtually doubled. (Yet) the industry spends £200 million annually promoting a very misleading picture of the realities of alcohol consumption.”
The issue has also come up at European Commission level. But after lobbying from drinks manufacturers, the European Sponsorship Association and other vested interests, the EC decided against introducing a broad-based ban. That presumably will also lessen the likelihood of the UK government taking draconian action.
Nevertheless, regulation is undoubtedly the one area where things have not played out quite as marketers would have liked. With some sports still on the backfoot since the end of tobacco sponsorship, the industry has had to contend with attacks on both alcohol and junk food sponsorship this year. In the latter case, the UK government is currently in the midst of deciding how far to control FMCG/food marketers in its bid to reduce the incidence of child obesity.
While, sponsorship has yet to be dealt with head-on, the recent decision by broadcast regulator Ofcom to ban television ads for food and drink high in fat, sugar and salt (hfss) that target children aged under 16 gives some idea of where any potential axe might fall.
The message seems to be that hfss sponsors will be able to keep marketing to mixed audiences (adults & children) as long as they don’t drastically overstep the mark in the near future. McDonald’s sponsoring the FA, for example, would seem to fall on the right side of the ban line. Cadbury’s much-maligned attempt to shift chocolate in return for school sports vouchers probably would not.
The government’s desperation to make the UK a market-leader in gambling means it has turned a blind eye to any potential social downsides associated with casinos and online gaming. The result has been a rush of sponsorship deals as leading players have sought to establish themselves in this market. Ironically, however, the US has taken a hardline on online gambling – even going as far as arresting executives from leading online gaming businesses BetonSports and Sporting Bet who ventured onto US soil.
The significance of this is that online gaming sites take a lot of revenue from the US – even though US law prevents them from being based there. The result is that most companies in the sector have seen their share prices slump.
In practical terms, this may mean that the bigger sites no longer have the necessary cashflow to maintain their current thrust into sponsorship. The seriousness of the situation for all concerned is likely to become apparent during 2007/08.
Given all of the above, it’s perhaps no surprise that the agency side of the sponsorship business has also been evolving. As global and multi-national marketers have moved into the sector, so too have the media and ad agencies that service them. For existing players in the consultancy space, this has demanded some kind of response.
A case in point was the November 2006 decision by marketing communications group The Engine Group to acquire consultancy Karen Earl Sponsorship (KES). This deal suited both sides. For Engine, which was formed following the buyout of ad agency WCRS from Havas, the deal provides expertise in this fast-growing sector. For KES, it is an opportunity to benefit from the scale and skillsets that exist within the group. The sale of KES is not the only evidence that sponsorship is a focus of attention in the broader marcoms business. Wendy Stephenson’s decision to sell her sponsorship consultancy SCL to the fast-growing First Artist Corporation is a further indication that sponsorship as a medium finally seems to have won its place at the high table.

Articles written by Hollis correspondent Andy Fry.

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