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Being a good sport in business
29 November 2009
In this week’s special student guide on business issues, The Sunday Business Post looks at the big-money area of sports sponsorship and how the recession is affecting it.
Businesses use a number of methods to market and advertise their products. We are all familiar with advertising which appears on radio, TV and in the print media.
However, in recent years, companies have spent more and more on sponsorship, with the area of sports being key.
This is designed to increase the profile of the sponsoring company and associate it with sports events which the company feels are appropriate and of interest to their target market.
Like all areas of business spending, this has been affected by the recession. Companies have less money to spend and are examining how it is spent more closely. This means that professional sports are bracing for cutbacks, or even an end to the boom in sponsorship deals that reached a record $37.9 billion (€25.2 billion) in 2007, according to a report on global sponsorship published last week.
Sports sponsorship is also big business in Ireland. Estimates put the total value of sports sponsorship here at more than €100million per annum. So far, this sector has seemed reasonably resilient to the recession.
According to previous research by the Onside Sponsorship Company, about €6 in every €10 spent on sponsorship in Ireland is invested by businesses in sports-related sponsorship deals, with Gaelic games, rugby and soccer commanding up to 60 per cent of the overall major spend. The main companies involved have been drink firms, banks, financial services companies, car brands and telecom providers, such as Eircom.
Internationally, however, many of the companies involved in sponsorship are in sectors now being hit by the recession. For example, the financial industry, which is one of the most prominent paymasters in sports, is grappling with $966 billion (€660 billion) in writedowns and losses since the start of 2007. More than 150,000 banking jobs have gone in the same period.
‘‘You’d be naive to say you shouldn’t do anything other than expect financial services will be cutting back exposure to sports," said Seamus O’Brien, chief executive officer of World Sport Group, which matches sponsors to golf, cricket and soccer events in Asia.
‘‘These are extraordinary circumstances."
In just one indication of this, the US Ladies Golf Tour last week dropped three events from its 2009 schedule, citing the economic decline as a factor. The impact of the recession has also been visible in the Premiership in England. The US government’s $85 billion takeover of American International Group (AIG) gave it control of Manchester United’s shirt sponsorship which, thanks to the success of the club in the last two decades, is one of the most visible in world sport.
Last season, West Ham lost its shirt sponsor, XL Leisure Group, which went out of business. The club replaced this with sponsorship from a betting company. Shortly afterwards, when West Ham played West Brom at the start of last season, it was the first time in the Premier League’s 16-year history that a match had been played with both teams wearing jerseys without a sponsor’s name.
Typically, a shirt deal is a club’s largest single source of sponsorship revenue. AIG, which struck the deal with the US government at the end of last year, is in the third year of a four-year agreement with United worth stg£56.5 million. Overall, shirt sponsorship in the Premiership is falling, however, from its high of stg£75 million two seasons ago.
There have also been disadvantages for the teams being sponsored, such as Newcastle United, who were sponsored by Northern Rock. When newspapers needed to illustrate Northern Rock’s difficulties after it became the victim of the first run on a British bank in more than a century, they inevitably used a picture of Michael Owen with a Newcastle shirt on.
However, some companies believe that the benefit of involvement in sports events grows in uncertain times, as clients seek reassurance - and other companies are looking for bargains. Barclays, which backs English Premier League soccer and golf in the US, Europe and Asia, has said it might consider new deals as prices decline. Meanwhile, a recent survey here showed that sports sponsorship does create brand awareness, even among those not particularly interested in sport.
The survey by Pembroke Communications showed that sponsorships of high-profile teams in Ireland were familiar to the general public. Of the 600 people questioned nationwide for the survey, almost 97 per cent said companies should invest in sport. A similar percentage agreed that sponsorship was important for the development of sport.
Dublin Gaelic football team had the biggest results in terms of unprompted public awareness, with 63.9 per cent of respondents answering correctly that Arnotts was its backer. Arnotts sponsored the team for 18 years, although the partnership ended recently, and a replacement sponsor is being sought.
The Irish rugby team’s involvement with O2 was next (58.5 per cent), followed by Ireland’s soccer players with Eircom (58 per cent), Munster’s rugby team with Toyota (48.9 per cent), Cork’s Gaelic football and hurling teams with O2 (48.5 per cent) and the Leinster rugby team with Bank of Ireland (42 per cent).
Meanwhile, more than two thirds know that Aviva bought the naming rights for the redeveloped Lansdowne Road stadium, which is due to open next year.
From a sponsorship point of view, Irish rugby is now seen as a ‘hot’ property due to the success of the national team and the high recognition of stars such as Brian O’Driscoll. TV viewing audiences for big rugby matches now rival - and sometimes exceed - those for the traditionally more popular GAA sports and soccer.
Many companies also engage in smaller level sponsorship as part of programmes to help the local community. Companies are now more aware of their responsibilities to the communities, and put more modest amounts into sponsoring local teams and events.
Corporate and social responsibility is now seen as an important issue for major companies. Most importantly for companies, research shows that sports sponsorships work. Barclays have signed up tens of thousands to their premier league credit cards. And many Irish companies have been lucky enough - or clever enough - also to back a winner.
Questions to answer
* What sports sponsorships are you aware of?
* Which ones do you think have worked well for the companies involved?
* Would you be more likely to favour a company which was involved in sponsorship when you buy a product or service?
* Should alcohol companies be allowed to sponsor sports events?
* What are the other main elements of the ‘marketing mix’ used by companies?
* What are the pros and cons when a company considers spending money on advertising or sponsorship?
Business 2000
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Case studies
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