The London 2012 Olympic Games might still be more than five years away but the event has been in the headlines more than almost any other recently.
Last week, it emerged that the National Lottery will have to stump up a further £675m after projected costs for the Games rocketed to more than £9bn. The news came just days after Lord James of Blackheath, the corporate troubleshooter who oversaw the rescue plan for the Millennium Dome, warned that the Olympics risks being "an enormous waste of money" if the Government does not get a grip on running costs and sponsorship. On top of all of that, Lloyds TSB was unveiled as the first domestic sponsor of London 2012 and is rumoured to be paying between £50m and £80m to become the Games’ official banking partner.
During a recent House of Lords debate on the social and economic benefit of the Olympics, Lord James said one of his main concerns was the "frightening" area of sponsorship. He added that the event would be a "complete and utter disaster" if the mistakes of the Dome were repeated.
"There’s a big budget assumed for sponsorship here as there was at the Dome," said James earlier this month. "If the same shortfall of sponsorship achieved occurs in the Olympics as happened with the Dome you have got to put another £0.5bn on the budget now."
However, Chris Townsend, commercial director of the London Organising Committee of the Olympic Games (LOCOG) and the man tasked with raising £2bn to host the Games – excluding infrastructure costs – has no fears of a similar thing happening in 2012.
He says the Olympics is a once in a lifetime opportunity that cannot be compared to the Dome, adding/ "The Dome’s legacy is not an issue for us. We will have a permanent legacy from the Games."
Garry Dods, vice-president of sports and entertainment agency Octagon UK, agrees. "It’s not fair to compare the Millennium Dome and the obvious legacy the Olympics will bring," he says. "LOCOG has a very clear approach and it has a very clear, considered set of rights for sponsors. The Dome was very ad-hoc on rights. The Olympics has a very fair way of dealing with brands."
Roughly speaking, a third of the £2bn will come from sponsorship, with the same amount coming from ticketing and the International Olympic Committee (IOC). Sponsorship is broken down into three tiers and Lloyds became the first tier-one sponsor last week. Similar deals will be signed with companies in seven other sectors: insurance, utility services, oil and gas, automotive, telecommunications, aviation and sportswear.
Lloyds TSB marketing director Nigel Gilbert says the Games make sense commercially for the bank and is a "fantastic" opportunity to engage its customers. "It’s universal and everyone gets involved," he says. "It’s not like football, rugby or Formula 1. It’s going to be the biggest event in this country in our lifetime. It aligns perfectly with our brand identity."
Gilbert admits that not everyone at Lloyds TSB was convinced it was the right move, but adds: "It’s a big investment, but branding was perfect for us, not only because of the ‘journey’ idea but also because we’re a British bank."
However, there has always been a question mark over exactly what sponsors get for their money when the venues are "clean" and devoid of corporate branding. Companies in the top tier are paying to be associated with the Olympics and as a general rule will spend a similar amount activating that sponsorship. Leveraging the deal can be expensive but Andy Westlake, managing partner of sports marketing agency Fast Track Events, says it can be worth it.
"It’s clearly a lot of money but sponsorship that works and works in a number of ways is worth a large amount," he says. "The World Cup cost a lot of money but it worked in a number of ways and was worth it. I think being behind the Olympics can have a massive effect and can be worth the amount LOCOG is talking about if it is used through every part of the business."
Without the traditional stadium perimeter boards and a guaranteed number of "eyeballs", sponsors need to be ever more creative in how they make the most out of their deals. Townsend has developed the "5Cs model" – customers, communities, colleagues, country and company – to highlight the benefits of becoming a partner.
Gilbert says he sold the sponsorship deal to the board of directors by calling it "purpose beyond profit". As part of the deal, LOCOG and the bank will put on a number of live sites around the country with big screens and performance spaces. "Of course the sponsorship is a business case," he adds. "We’re going to make money out of it, but it’s a great opportunity for the community."
One such benefit of being a sponsor, according to Townsend, is improved employee relations. He says: "It has a long, positive effect on retaining staff, particularly if you can involve them. Engaging staff provides better staff performance."
Lloyds TSB made a film that was screened to six centres around the country to announce the sponsorship to employees. Each centre was also visited by an Olympian, including Daley Thompson. "If we motivate our people with something they can engage in they are going to be fantastic when talking to our customers," adds Gilbert.
New media is also going to play a major part in the 2012 Games. Townsend, who has a strong background in new media after working at BSkyB and the BBC, says watching the Games will be a different experience to what it would be today. "We’re looking to develop this area and there will be a lot of online content," he says. LOCOG will be using the strapline "Games for the connected world" to highlight its new media credentials. By 2012, Townsend believes people will watch the Olympics on mobile phones and online.
Townsend will announce the remaining tier one sponsors over the next two years and will start naming tier two and three partners later this year. Raising £2bn to host the Games is no easy task, especially at a time when colleagues working on building the infrastructure are seeing their budgets going through the roof and subsequently onto the front pages of newspapers.
Westlake adds: "Of course it’s a big budget but the Olympics is about the regeneration of east London. I know the budget is going up but you have to look at the good it will do for the country and the benefits for the infrastructure and east London."
It is a point picked up by Townsend, who adds: "The chance of this coming to London and coming to the UK is once in a lifetime."