SBJ/Jan. 24-30, 2011/Opinion

Understanding why sponsorship continues to grow

“They’re like sleeping in a soft bed. Easy to get into and hard to get out of.”

— Hall of Fame catcher Johnny Bench, speaking on slumps

As the recent economic fallout settled in globally, but particularly in the United States, cutbacks in consumer and corporate spending were observed in numerous settings. And yet, despite the doubts and concerns of chairmen, CEOs and COOs, and despite bottom-line blame placed on numerous CFOs, researchers, marketers and sales staffs, sponsorship kept growing.

It’s been an interesting conundrum (as Newman of TV’s “Seinfeld” might say), because as 2011 begins and we watch CEOs (across the U.S. and Canada) increasingly announce improved quarterly results, the marketing budgets of most organizations appear radically different from five years ago. Just look at the reductions in hospitality budgets or companywide moratoriums on travel to corporate-sponsored events.

This has meant that, like crazed, wild-haired scientists, we’ve been obligated to ask, “Why is it so?”

The two most-read analyses of sponsorship spending in North America — IEG’s Sponsorship Report and the Canadian Sponsorship Landscape Study — both noted that although there was reduced growth rate in companies’ investment in sponsorship, it continued to grow (or, at least not contract to any great extent) in 2009 and is expected to grow again in 2010 in the U.S., Canada and globally.

Likewise, the PricewaterhouseCoopers’ hospitality and leisure sector report for 2010-13 suggested that sponsorship would remain the fastest-growing global sports sector, eclipsing gate revenue, media rights and merchandising by a compounded annual growth rate (CAGR) of 4.6 percent.

All of these studies are supported by happenings in the marketplace. The IOC last year announced two new first-time TOP sponsors (Dow Chemical and Procter & Gamble) to its stable of partners, now at 11, who commit an estimated nine figures each quadrennium for the rights to associate with the Olympic Games. Rumors abound that a 12th TOP sponsor will be added in 2011.

In Russia alone, MegaFon ($260 million), Rostelecom ($260 million), Aeroflot ($180 million), Rosneft ($180 million) and Volkwagen ($100 million) are readying five-year plans to inject nearly $1 billion into the Sochi 2014 Olympic Games. This outpouring of financial support from national partners continues the trend established for the Vancouver 2010 Games, where a reported $750 million was contributed by Canadian sponsors.

How, we ask, is this possible and why is it happening?

First, sponsorship works. There are dozens of academic studies and hundreds of professionally produced evaluations backing this up. Sponsorship is an effective tool to reposition brands, alter consumer perceptions and increase sales. In fact, one of our Ph.D. dissertations found more than 150 objectives that marketers had established as reasons to invest in and embark upon a sponsorship.

Second, sponsorship works efficiently. By this, we mean research has shown the effectiveness of sponsorship to reach specific target markets through association with properties that resonate with those markets. Think Burton Snowboards, Shaun White and snowboarders, or Gillette, baseball and men who shave.

Third, sponsorship works better than advertising. Although debate still exists over the difference between advertising and sponsorship, there is general agreement among many that the two marketing tools are notably different and play different roles.

These three theories support the argument that it is the association differentiating sponsorship from advertising. The old saw has been that advertising is one-dimensional and nonpersonal, whereas consumers who follow sponsorships see the sponsor, the sports property and the linked association between them.

Quite simply, as the consumer is exposed to the association, images are more easily transferred from sponsor to property and vice versa. Conversely, in a (typical) nonintegrated advertisement, the consumer sees the advertisement (often shown during a sports event or on a sports website) but without a compelling association to the property. Each has its advantages and disadvantages, but most will agree that sponsorship is a hybrid form of advertising.

Fourth, sponsorship appears to be more fun, with hospitality, backstage passes and locker room visits, plus it can be staged to incorporate a social responsibility hook to aggressively assuage the guilt that accompanies massive investments in activities that appear (to some) socially trivial. In other words, sponsorship can benefit a charity while executives tour the pits or drop the ceremonial first puck.

But all is not perfect in the sponsorship world, and PwC notes that the mercurial economy “has focused a rising proportion of attention and spending on the biggest sports brands with global reach and pulling-power.” This means “mid-level brands [properties] have found it harder to attract major sponsors while sponsorship of the smaller local sports brands has been hit [hard] by potential backers reducing discretionary spend in the economic downturn.”

To be sure, it is notable that sponsorship continues to grow and in North America will reach a CAGR of 5 percent in 2012 and 5.6 percent in 2013. The question for many is whether the biggest fish (NFL, IOC, FIFA, EPL, UEFA, etc.) will leave the minnows high and dry.

We’ll also have to watch to see if player strikes, owner lockouts or terrorism change sponsorship’s trajectory.

Rick Burton is (rhburton@syr.edu) is the David B. Falk Professor of Sport Management at Syracuse University and the former chief marketing officer of the U.S. Olympic Committee. Norm O’Reilly (norman.oreilly@uottawa.ca) is an associate professor of sport business at the University of Ottawa.


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