And now, a message from our sponsor… er, we’re a bit short

Sponsorship, one of the fastest growing sectors of US marketing, will have a much slower 2009 than in recent years. That will come as no surprise to anyone who hasn’t been under a rock for the past 12 months. But even with the obvious damage from the global economic recession, the immediate future of the sponsorship business might have been even bleaker but for the fact that many sponsorship contracts are multiyear deals that won’t all expire this year.

WPP-owned IEG, the world’s leading expert on sponsorship, says more than half of all North American marketers plan to cut their sponsorship spending this year and nearly as many are planning to pull the plug altogether, according to a survey of 110 top marketers last month.

In summary, 51% said their budgets would be down from 2008, while 36% said spending would remain flat. But the number that caught a lot of attention was the 47% of marketers who said they would try and get out of some of their current sponsorship deals, even though those deals aren’t up for renewal. It would appear that everything’s negotiable – even so-called airtight contracts.

McDonald’s, one of the biggest corporate sponsors in the world, has said it will be one of those companies that will keep its sponsorship budget flat year-on-year, although it will focus much more on events that can help it connect better with consumers. According to the last available figures from IEG in 2007, McDonald’s splashed up to $130m (91.4m) on sponsorship marketing, making it the 12th biggest spender in North America. Though figures for 2008 aren’t available it was one of the top line sponsors for the Beijing Olympics and numerous other events.

American Airlines is another company that has been reported as saying its sponsorship budget will stay flat year-on-year. Its flat budget has something to do with the fact that the carrier has been cutting business costs for a few years to cope with a difficult time in the US air industry. American Airlines has naming rights deals with stadiums for the Dallas Mavericks basketball team and the Dallas Stars ice hockey team as well as Miami Heat basketball team. It also has sponsorship deals with the Dallas Cowboys American football team.

Other names such as the brewing giants Carlsberg and Miller Coors expect to maintain their sponsorship budget but again see little chance to actually increase their budget.

The global recession has stopped sponsorship’s growth in its tracks. In recent years US marketers have had to watch TV ratings crumble and ad-skipping TiVo digital video recorders rapidly go mainstream. There have been few obvious ways to connect with younger consumers, who appeared to have honed their ad avoidance skills in their pre-teens.

Sponsorship has been one of the few answers for marketers in ensuring their brands are where their consumers want to be – at rock concerts and in sport. But the depth of this recession has not only economic implications for the sponsorship sector, it also affects the very reasons why any brand marketer would want to be a sponsor in the first place.

For example, IEG – which conducted its study with Performance Research – said an unidentified company paid additional money to a group whose event it was sponsoring to take down its signage and erase its name. It might sound a bit extreme but if one imagines this company had been a carmaker or better yet a large financial institution then it really doesn’t take much difficulty seeing why a company might do this.

The US Government has spent more than $700bn (492bn) to help prop up the financial institutions as part of its Troubled Asset Relief Program (TARP) fund. But it is evidence of sponsorship’s growing strength and popularity that even Bank of America says it expects to continue using sponsorship as an important part of its marketing strategy. IEG estimates Bank of America spent up to $125m (87.8m) in 2007.

Come out fighting

Bank of America chief executive Ken Lewis told a conference earlier this month/ “I was never inclined to pump big sums of money into sports marketing until I saw the facts and the numbers. In general terms, for every $1 (70p) we spend on sports marketing, we get $10 (7) in revenue and $3 (2.10) in earnings. This is not wasted money.” Lewis had to come out fighting. He, like every other big banker, is under pressure to show he’s not wasting taxpayers’ money. Ordinary Americans have grown weary of tales of excess by bankers, especially if a clear connection can be made to taxpayers’ money.

Citigroup is an example of one such company that has had to take harsh criticism for its sponsorship marketing strategy. It received more than $45bn (31.6bn) in TARP funds from the US Government but said it would still go ahead with a $400m (281.2m) naming rights agreement for CitiFields, the New York Mets baseball team’s new stadium. Some have inevitably joked that the critics were mainly just fans of the Mets’ bitter rivals, the NY Yankees.

Of course, one of the best examples of a US company’s sports sponsorship leaving egg on the face of both parties is AIG’s sponsorship of Manchester United Football Club, a global brand in its own right.

AIG has had a lot of negative media coverage with the company taking executives on company junkets and paying out bonuses even though the US Government has had to fund it several times to the tune of $173bn (121.6bn) to help keep afloat the insurance company (and by extension the US banking system it helps to insure).

Perhaps sensing how many Americans feel about banks right now, Senator John Kerry has proposed legislation banning all organisations that receive TARP funds from spending on sponsorship. He described it as an “idiotic abuse of taxpayers’ money”.

Good soundbites

But IEG felt Kerry’s call was misguided. “The senator’s grandstanding may make for good soundbites, but it is bad business,” said IEG chairman Lesa Ukman. “By any measure – awareness and attitude shifts, customer acquisition and retention, increased market share and shareholder value – sponsorship is as effective, if not more, than any form of marketing.”

Ukman argued in his rebuke of Kerry that sponsorship has helped companies like Red Bull build a whole new brand and drinks genre – energy drinks – from scratch. Ukman also points to the success of established brands like Coca-Cola and Visa. “Sponsorship’s ability to concurrently build businesses and the local and global communities in which they operate is why sponsorship’s growth rate has outpaced the growth of advertising and sales promotion for each of the last 15 years,” she says.

But Kerry is not completely off target, according to Performance Research. It says 68% of Americans would like to see less spending by companies that received Federal bail-out money and 32% say they are paying less attention to corporate sponsorship.