Who pays the price when big business muscles into sport?

It’s possible for commercial sponsorship to go too far. With the rising costs involved in backing sports events, George Pitcher wonders who will foot the bill. George Pitcher is joint managing director of media consultancy Luther Pendragon

I cringe to think of some of the media coverage that could follow a positive drugs test of an athlete competing in the Deep South Olympics, which start this Friday.

The fact that it has not been used as a catchline for decades – or that modern and proscribed performance-enhancers are now as sophisticated as the modern recipe for the fizzy drink – will surely not deter high-minded commentators from wheeling out “Things go better with Coke” to accompany crestfallen photos of a disqualified contender. So much the better if the athlete can be caught in front of one of the mega-sponsor’s hoardings.

Not that Coca-Cola is alone in the risk it has taken in sponsoring these Olympics. Communications conglomerate AT&T is there, and Nike has its logo plastered all over Atlanta.

What has become known in some quarters as “The Curse of Nike” should serve as a cautionary tale to big-time sponsors of sport. The majority of readers will have heard of the seven-figure sum that Nike blew on its posters for Euro 96, featuring footballers who had not been selected or for whom an early exit sat uneasily with Nike’s declarations of forthcoming glory.

Such are the perils of sports sponsorship. At the life-threatening end of sport, the corporate risks are even more highly geared. Which marketing director, one wonders, has not had sleep denied by the vision of his brand name burning, literally and metaphorically, in the wreckage of a Grand Prix pile-up?

But I would argue that the commercial risks of sports sponsorship go far deeper than falling flat on your corporate face as a consequence of backing the wrong horse or even fronting the wrong event.

There is also a very real and present danger that the commercialisation of major sporting events can devalue or destroy the events themselves – a case of killing the goose before it has laid a golden egg. Furthermore, it may exercise undue influence on the sponsor’s markets by exerting pressure on pricing strategies.

The most obvious example of the effects of big bucks in sport comes not from brand sponsorship but from the broadcasters who bid for the media rights. This is, needless to say, another form of sponsorship in that the money generated by the international media auction becomes an enabling factor for the event itself.

Rupert Murdoch’s bid of $1.2bn (75m) for the media rights to the Olympics was, as it happens, rejected, but Mark McCormack has recently bid $1bn (650m) for the 2002 World Cup. The previous three World Cups went for $400m (250m) as a package – no mean price, but an indication of how inflation operates in this market. Meanwhile, BSkyB has paid some 750m for its coverage deal of the UK Premier League.

All of which is likely to improve the standards of the “product” itself. The internal economies of the UK’s football league have improved to the extent that top foreign players can be attracted for salaries of over 1m a year (itself an inflationary factor).

But what this process also implies is that increased costs are either absorbed by operators or are passed on to the market. Given the rocketing inflation to which I refer, the latter seems to be the only viable solution. So we see BSkyB’s subscriptions rise. And, more ominously, we can only speculate on what the BBC will have to do with its licence fee, due for renegotiation next year, to keep up.

If an inflationary spiral exists in the broadcasting of star sports events, then the brand sponsors of such events must face the same problem. The Olympics are said to have cost Coke some $500m (320m). That may have arisen from some long-established, cyclical and doubtless inflation-linked marketing budget, but one wonder’s what other brand manufacturers are doing to keep up with the inflationary march of sponsorship.

We are ill-equipped to know whether a Snickers chocolate bar costs more as a result of the brand’s support of Euro 96 or how Nike’s efforts at the same competition, at Wimbledon and now in Atlanta, has affected its pricing policy. Nor should we overlook the value of brand awareness reflected in sales performance as a consequence of such sponsorship exercises. And conversely, we should not ignore the havoc that rampant inflation in sports sponsorship could cause to pricing policies if companies become stuck on an up-escalator from which they dare not jump.

The other point to be made is that the commercialisation of sport really can, in fact, undermine it. With all eyes focused on striking the most lucrative broadcasting deal for the tournament, it appears that rugby union’s Five Nations Championship could become the Four Nations, with England excluded.

Congratulations to big business for that – it might have created a sporting event that relatively few will watch, which in turn dissipates the value for its sponsors. In creating commercial value, we should be wary of destroying values that attracted the sponsors in the first place.