Strategy

Olympics sponsorship: The value of gold

Is Beijing Olympics sponsorship worth the big money?

This year’s Olympic gold medal is 70 millimetres in diameter and 6 mm thick. It also contains no less than six grams of bullion. Melt it down and it’s worth less than $200. But a Canadian athlete good enough to win at the 2008 Beijing Games will pocket $20,000, courtesy of the Canadian Olympic Committee. The medal’s real value, of course, might be much more. A winning performance can generate endorsement money down the road. Wheaties, anyone?

The stakes are even higher at the corporate level. Companies are betting as much as US$100 million that they can tap into the goodwill the Games generate. It’s a big gamble — not least because Olympic sponsorship doesn’t really change how the public feels about a brand, at least in the short term. In the long term, well, maybe. If a company sticks with it. And has some luck. “Perceptions don’t change that fast,” says Andrew Grenville, chief research officer at Angus Reid Strategies, a market researcher based in Toronto. “Most companies’ images and reputations are built slowly and are slow to erode, which is good, because when there is a crisis, you can bounce back if you handle it well. Or people will forget, eventually.”

Backing the Olympics, though, is not a fast way to build reputation. The more philanthropic a sponsorship is, the more it resonates with the public. Giving money to the Games or its athletes is viewed as just a bit more altruistic than plastering your corporate name on a professional sports ticket. Something more community-based, such as education, charity or health organizations, will typically lead to stronger perceptions of leadership and citizenship — solid predictors of whether consumers will recommend a company to others. In fact, education is three times as powerful as the Olympics in that regard. That’s according to the Corporate Reputation and Sponsorship Index, a weekly survey by Toronto-based Angus Reid Strategies, which tracks public perceptions of more than 200 firms.

Still, billions are spent every year on sports sponsorships because of their national and popular profiles. In total, companies will spend US$43.5 billion sponsoring various endeavours worldwide this year, a 14.8% increase over last year, according to research firm IEG in Chicago. And 69% of that spent in North America will be on sports properties. For Beijing, Manulife has signed on as a worldwide sponsor, joining Lenovo, Visa, Coca-Cola and others, while Canadian companies such as Bell, HBC and RBC are Canadian sponsors.

A peek down the road to the Vancouver 2010 Games shows even more Canadians lining up to be sponsors, supporters and suppliers. Molson is the official supplier of beer. Weston Bakeries is supplying bread and baked goods. Epcor is the official water boy — OK, manager. Such deals can reportedly bring in $3 million to $15 million each, while higher sponsorship deals easily reach into the tens of millions.

Measuring return is tough. In general, the more people know a company is involved in sponsorship, the more they look upon it as a community leader and a good corporate citizen. Unfortunately, most companies in Canada aren’t known for any type of sponsorship, even though many do quite a bit. Loblaws, Samsung, Suncor, HSBC — big names all, yet fewer than one in 10 Canadians are aware these companies are actively engaged in the community. The public also generally treats the Olympics as a professional event, which isn’t a powerful agent of change. While most athletes don’t benefit financially (in Canada, roughly 70% of them live below the poverty line), a small number of superstars grab lucrative endorsement deals before and after the Games. “This has skewed our perception to the point where the entire event feels essentially like a commercial enterprise,” says Paul Klein, founder of Impakt Corp., a corporate responsibility and community investment program consultant in Toronto. “This perception is compounded by the Olympic sponsorship program.”

That’s not to say the Olympics are unworthy of sponsorship, only that companies should ratchet back expectations of what such an intangible asset can do for them. “The Olympics is an important profile-raiser,” says Grenville, “and comes with huge opportunities for hospitality, rewarding employees, and other benefits that are beyond public opinion. You can’t judge whether the Olympics is good or bad on the basis of public opinion.”

To bean-counters, the value of any asset is the cash you expect to get from it. If, say, Nike sponsors a certain athlete, it would expect the audience attracted to that athlete to go out and buy its shoes. That’s where the value of sponsorship comes in. But translating name recognition into name recommendation takes time, and there’s no certainty it will pay off. “It’s a long-term process,” says Vimal Kotecha, a director at LECG Canada Ltd., a business valuator in Toronto. “If I’m going to go out and buy a computer, who am I going to think about? Maybe at that time Lenovo may be one of the top three, because you’ve seen their name over and over again and it’s associated with somebody who has done very well.”

That’s why companies should look at holding on to an Olympics sponsorship for years or decades — which makes Lenovo’s decision to stop being a sponsor after this year curious. Anyone can see a major company largely owned by the Chinese government would be involved in Beijing 2008. And Lenovo, which bought IBM’s PC business back in 2005 for US$1.25 billion in cash and stock, still doesn’t have huge name recognition outside China. “The sponsorship is designed to be a brand introduction technique, for the most part,” says Bob Page, who handles sponsorship activities for Lenovo. “By the time the Games are over, we will have succeeded on that specific goal.”

Page says sponsorships also give Lenovo the opportunity to show what its products can do. It is supplying the personal computing technologies and servers for the Beijing Games — one of the most complex sporting events ever. It’s also created a blogging program called Voices of the Summer Games, giving athletes the opportunity to document their Olympic trails, and setting up on-site Internet lounges. “Our basic message is if Lenovo can do this for the Olympics, imagine what Lenovo can do for you, and imagine what Lenovo can do for your company,” says Page. “It’s basically a case study for Lenovo.”

Aside from providing technology, Lenovo is sponsoring 14 athletes worldwide — including Canadian kayaker and medal hopeful Adam van Koeverden — as well as hosting Chinese and international guests to see the Games and learn about business in China. “It’s more than just connecting the name and the brand to the organization,” says Page. “It’s also Lenovo becoming an active participant in the overall management of that season or sports event.” Lenovo will still sponsor the NBA and the Williams team in Formula One racing, but those are designed to build the brand regionally; the Olympics is more of a global stage. Page says the Olympics spending has worked, but Angus Reid’s index suggests Lenovo’s reputation nationally hasn’t changed much yet. Grenville cautions that the real buzz of being a sponsor probably won’t occur until during or after the Games, but changes likely won’t be eye-popping. “Buzz is kind of the seed that grows into a reputation, and it occurs through multiple fronts,” he says. “It’s not just the media, it’s not just sponsorships; it’s experience with the store, it’s using the products. It’s all the ways that you touch the public.”

At least Lenovo isn’t making the mistake of not activating its sponsorship. “This is huge for the Olympics, because there are tons of sponsors that are having their lunch eaten by somebody else if they don’t get behind it in a powerful way,” says Grenville. Ambush marketers are always ready to capitalize on the awareness and goodwill associated with major events, without getting an official connection. Typically, ambushers advertise around the event, distribute free gifts and use images designed to mislead consumers. And it works, according to a report by the Centre for the International Business of Sport at Coventry University in England. As many as 50% of consumers may end up believing ambushers are official sponsors.

That’s a huge problem for sponsors who spend millions just getting an official designation. In April, Forbes reported that 11 global sponsors, including Coca-Cola and McDonald’s, spent a combined US$850 million sponsoring the Turin and Beijing Olympics. That’s just the tip of their spending. The average company shells out about US$1.70 for each US$1 on a sponsorship deal, and Klein believes it’s probably even higher for the Olympics. No wonder the public isn’t buying into the altruistic reasons for Olympic sponsorship. “A corporation’s ability to derive reputational value from a community investment is directly proportional to the degree to which its actions are seen to be genuine and authentic,” says Klein.

Indeed, a company such as Tim Hortons, which heavily invests in community, gets credit for being an Olympic sponsor — even though it isn’t. Tim Hortons is what Angus Reid calls a “Platinum sponsor,” because people assume it is associated with all kinds of sponsorships. It scores very well in all aspects of the Angus Reid index, but is primarily involved in two major initiatives: the Timbits Minor Sports Program, which sponsors 200,000 children across Canada and in the United States, and the Tim Horton Children’s Foundation, which sets up camps for kids from disadvantaged homes. The key is that the coffee chain never tires of telling us what it does: the message is on cups, TV ads, in-store signage and brochures. And apparently, consumers never tire of hearing about it. Tim Hortons is part of the community — your community. Sure, the company also sponsors seven NHL teams, the Canadian Football League, curling and many local events, but its youth-oriented tactics mean it’s largely immune from the woes that can affect some sports deals. Athletes take drugs, beat their spouses and say bad things probably just as often as anybody else, but their misdeeds are more likely to get into the news.

The Beijing Olympics has an additional problem: China’s authoritarian regime, whose tactics inspire enmity in some quarters. There have already been well-publicized campaigns against the country in the lead-up to the Games, centering on its backing of the Sudanese government and its ongoing genocide in Darfur, and the repression of Tibet. The International Olympic Committee awarded the Games to China on the promise of substantial improvements in human rights — a promise that has largely been ignored, say human rights groups.

For the most part, though, China has taken the brunt of criticism while Olympic sponsors have escaped. Any bad publicity has had a very short shelf life. For example, the reputation of RBC dipped for exactly one week in April, the same time protesters were disrupting the Olympic torch relay. But the blip was so small you wouldn’t notice it except when comparing RBC’s reputation directly with competitors. “As far as the public is concerned, the sponsors weren’t particularly implicated in any plot to abuse Tibetans or abuse people,” says Grenville. “It got huge play; it was captivating; it brought out all sorts of strong emotions in people. But sponsors seemed to have got off unscathed.” Lenovo hasn’t suffered any decrease in reputation, but it is prepared to deal with any issues that do arise, says Page. “The argument has been made that politics is one thing, but primarily this is a sporting event, and it’s one of the few remaining sports events that’s designed to unite geographies, countries and cultures,” he adds. “Hurting that is not necessarily a good idea over the long term.”

Other companies are more cautious. Reebok is apparently so concerned about political fallout that it won’t let its sponsored athletes near a reporter. Instead, it’s preparing a series of soft profiles for media to quote from. It’s a kind of censorship, certainly, but it’s also protecting a massive investment.