Just back from his first week’s holiday in 18 months, London 2012 commercial director Chris Townsend reflects on the Olympics, which he and his team attended on a fact-finding mission. While impressed by the sheer scale and spectacle of Beijing’s Games, Townsend says that London 2012 will be just as well-organised and also commercially viable.
This is the kind of faith that Townsend will need to maintain as the London Organising Committee of the Olympic and Paralympic Games (Locog) prepares to run the Games in four years’ time.
Entirely privately funded, Locog has to raise £2bn in commercial revenue to stage the Games. The £9.3bn budget for the building of the infrastructure, transport links and venues falls under the remit of the Olympic Delivery Authority and comes from the National Lottery, the London Development Agency, the Government and the Greater London Authority.
The money for Locog will be generated from many sources, including the International Olympic Committee (IOC) and its Tops partners programme, where global marketing rights are sold to sponsors such as Coca-Cola and McDonald’s. Broadcast rights and ticket sales, merchandising and licensing will account for another chunk of revenue.
But Townsend says it is sponsorship that forms the “core element” of Locog’s commercial funding. The domestic partnership scheme is earmarked to raise £700m. To date, Locog has secured over £400m from eight separate deals.
It is claimed that the maximum number of deals made by any previous “ocog” at this point is two. London 2012 Tier One partners, with an entry point of £40m, include Adidas, BP, BA, BT, EDF Energy, Lloyds TSB and Nortel, with the Lloyds and BT deals reputed to be approaching £80m to £100m. In the second tier, with an entry point of £20m, is Deloitte.
Townsend says: “The sponsorship programme is the number one priority for business. That’s why we started so early.”
The partnership programme is not just a matter of raising cash. Much of the £700m will be made up of goods and services required to stage the Games.
Director of commercial negotiations Charles Wijeratna says the BT deal took 18 months of planning. “By the end of it we had signed a sponsorship agreement, so BT knows what it is doing marketing-wise, but we had also signed a 1,200-page supply document. We know how many phones we’re going to have, how many engineers and how much that is going to cost.”
Locog talks about applying the same attention to detail to every aspect of the Games’ commercial partnerships. In the Olympic Village, for example, it is not simply a case of finding a partner willing to furnish the athletes’ and officials’ accommodation. Wijeratna says: “It comes down to things like calculating how much toilet paper we’ll need – and then where that might be stored and how it will be transported. The logistics are endless.”
Although Locog expects to build on the momentum created by the interest in the Beijing Games, aided by Team GB’s medal haul, the sands beneath the organisation’s feet are constantly shifting. The economic gloom has made companies look closely at marketing budgets. Business sectors that Locog had originally envisaged as being in Tier One, such as automotive or retail, may now appear in Tier Two or Tier Three.
“It’s the market that dictates where companies will appear in terms of tier,” says Wijeratna. “It is not fixed in stone. The idea that there are ten deals that every Olympic organising committee will make is just lazy thinking.” He explains that the only immovable aspect is the IOC’s deals with global partners. Locog must ensure its own partners do not conflict with those of the IOC.
“We are always thinking of how we can create a category. We look down the list of FTSE 100 companies and consider if we can do something with them. The skill is in dividing up the categories to fit companies that exist,” says Wijeratna. “Of course it has to match against the business plan because there is no point doing a Tier Two deal for £20m of goods-in-kind that we can’t use.”
Wijeratna, who was already in his post during London’s bid for the 2012 Games, which it won on July 6, 2005, heads a team of eight working on the commercial deals. None of his staff come from sports sponsorship backgrounds, but rather have business analysis or consultancy experience. Townsend says: “Because of the sums involved, these are serious business deals where companies’ boards want to know exactly what the return on their investment is going to be.”
The most fascinating part of the process for Wijeratna is the variety of reasons for companies wanting to get involved. “For Deloitte [professional services] it is as a demonstration of capability and a means to ensure it recruits the best talent out of universities,” he says. Townsend adds: “EDF took a completely different position, its interest is our sustainability programme, which it has recognised as a huge asset in creating consumer-facing differentiation.”
Others, such as BP and BA, are concerned with staff motivation and driving cultural change within their businesses, each having had a difficult couple of years. Previous Olympic partners have measured the impact sponsorship has had on their workforce with demonstrable increases in morale, productivity and reduction in absenteeism. A further factor partners take into consideration is what an Olympic partnership might do for one of their competitors.
Wijeratna recognises the “emotional connection” associated with the Olympics as a major tool in negotiations and says that, to date, virtually every company that has seen presentations has wanted to be involved. “It is then a matter of making the numbers work. And we are not asking for charity. It’s an investment where they will get more out than they put in,” he says.
While thankful that Locog has secured so much so early, neither Townsend nor Wijeratna seems fazed by the financial downturn – both believe there are many business sectors not yet badly affected. Townsend says Locog is seeking between 30 and 35 deals of varying sizes for the £300m that must be found over the next four years. Townsend says he is “very confident” that the task will be accomplished. Wijeratna adds: “We’ll be fine.”