SBJ/February 4-10, 2013/In Depth

Is Sochi a tough sell for sponsors?

As Sochi continues preparations for the 2014 Winter Games, marketers temper their enthusiasm for the event

When sponsorship executives from the International Olympic Committee’s nine worldwide sponsors landed in Sochi last month for a sponsor summit, the first things they noticed were the cranes.

Hundreds of them dotted the skyline in various sizes and colors. They worked day and night building hotels, finishing venues and transforming a small town on the Black Sea into a host city for the world’s biggest winter sporting event.

That transformation, which is costing the Russian government and Sochi Olympic organizers $18 billion, is nearly complete. Most venues are finished, the mountain resort is ready, and a train is opening soon that can ferry spectators from arenas on the Black Sea to alpine events in the mountains.

Construction continues on Olympic Stadium while the completed Iceberg Skating Palace sits in the foreground.
Photo by: Getty Images
A year from now, the Olympic cauldron will be lit and the Olympics will return to Russia for the first time in more than two decades. But much has changed since the IOC awarded Sochi the Olympics in 2007.

Over the past six years, Brazil has been awarded not one, but two, major global sports events. A recession hit the global economy and is still straining marketing budgets. Trips to Sochi, which doesn’t have an international airport, have proven difficult. And working in Russian cities has required more local expertise than many marketers anticipated.

Those challenges have curbed marketers’ enthusiasm and dampened optimism that the 2014 Sochi Games will unlock the Russian market the same way the 2008 Beijing Games unlocked China. It’s been enough to make some observers wonder just how significant the 2014 Olympics will be.

“Sometimes the Winter Games can suffer a little bit because it’s bookended by the Summer Games,” said Gary Pluchino, IMG senior vice president and head of global Olympic consulting. “In the case of Vancouver, you had two iconic host cities, Beijing and London, but Vancouver did well in holding its own and people showed good interest from a marketing and activation perspective because it was North America. I’m not sure whether Sochi will do the same and garner that marketing interest while being bookended by London and Rio.”

Making a choice

The Winter Games offer a much smaller marketing platform worldwide than the Summer Games. Just as there are fewer sports — seven in the winter, compared to 28 in the summer— there also are fewer countries interested in winter sports.

The regions that follow the Winter Games are limited to Japan, China, Korea, Russia, Europe and the U.S. As a result, members of the IOC’s The Olympic Partner (TOP) program such as Visa, which activated in 70 countries during the London Games, will activate in half that many during the Sochi Games. Coca-Cola, which developed a global marketing program around London, plans to concentrate its marketing in Europe, the U.S. and Japan.

“The way we approach the Winter Games is a bit different,” said Thierry Borra, Coca-Cola’s director of Olympic Games management. “We usually activate in the winter markets.”

The Winter Games also falls in the same calendar year as the World Cup. As a result, IOC sponsors who also have FIFA rights — Coke, McDonald’s and Visa — have to divide their marketing budget between the 2014 Sochi Games and 2014 World Cup in Brazil. In many cases, Brazil is winning out.

“There’s a lot of focus on Brazil,” said Jan Katzoff, head of global sports and entertainment of the new GMR Marketing,
which works with Visa and P&G. “People have to make tough decisions. There’s only so much money to go around.”

That decision is even tougher for Visa, which also has an NFL sponsorship and plans to activate heavily around the Super Bowl in New York next year. Ricardo Fort, Visa head of global sponsorship marketing, said the company would concentrate on the Super Bowl in the U.S., Sochi in Europe and the World Cup in Latin America, Africa, Asia and Europe.

“There is a lot going on, but when you look at the global interest of our clients and consumers, there is a nice distribution across all three events,” Fort said.

While Visa won’t be activating in as many markets as it did during the London Games, it will roll out campaigns in more markets than the previous Winter Games in Vancouver. The same can be said for fellow Olympic sponsor Samsung.

The Russian market forces sponsors to make tough decisions about how they spend their marketing dollars. Sochi is closer to Istanbul than Moscow, which is 1,000 miles away, and its population is just under 345,000 — half the population in Vancouver and a third of the population in Turin, Italy.

That’s meant several sponsors are dividing their budgets between activities in Sochi and marketing in Moscow and St. Petersburg. For example, Omega plans to do something with its store in Moscow and a temporary store in Sochi, and Coke is employing experiential marketing programs in Moscow and St. Petersburg.

“(Sochi is) not a big city,” said Stephen Urquhart, president of Omega, a TOP sponsor. “It’s not Moscow. Not London. Not Beijing. Not even Vancouver. … It will be challenging, but it will be an interesting challenge. ”

Slow recovery

The recent recession and the slow recovery also complicate sponsors’ plans. TOP sponsor Dow, which announced plans to lay off 5 percent of its workforce last year, considered doing a public showcase pavilion in Sochi but opted to do a private one for clients instead. Panasonic, another TOP sponsor, is limiting almost all of its Olympic marketing to Russia because the company is in a difficult financial situation.

Coca-Cola, which trails Pepsi in the Russian market, is using a mobile display touting its Olympic ties and sponsorship of the torch run. The attraction is shown here in Moscow, and the brand planned a similar effort in St. Petersburg.
Photo by: Coca-Cola
“A lot of the TOP sponsors are not spending as much money there,” said Davis Butler, a former IOC executive and the founder of Encompass, a strategic marketing agency. “They’re going to spend but not nearly as much as in the past. It’s not a huge international destination.”

Despite ongoing financial challenges, most TOP sponsors plan to run hospitality programs. Those programs are expected to be smaller than what sponsors ran in Vancouver but comparable to what they did in Turin.

Hospitality agencies working with sponsors said they’re being more strategic with invitations than they have been in the past. To reach Sochi, travelers have to fly through Moscow or Istanbul. From the West Coast, it takes 20 hours, and from the East Coast, it takes 15.

Executives at Jet Set Sports and GMR Marketing, which run hospitality programs for official sponsors during the Olympics, said that demand was strong but corporate guests were coming predominantly from Russia or Scandinavian countries.

But demand from non-corporate sponsors is lower than it has been for past Games, said Adam Dailey, managing director of Ludus Tours, which offers tour packages to the Olympics. He added, “What we’re seeing is that if you’re a corporate group, and you don’t have Olympic business, flying 20 hours to the dead of winter is a harder sell.”

For some sponsors, working in Russia has proved as challenging as traveling to Sochi. The country’s rule of law is weak, so business is more reliant on relationships and trust than contracts and agreements.

To help deal with that and other cultural differences, Visa created its first project team in a country for an Olympic Games. It has a team of Russians in Moscow that is setting up payment systems for the Sochi Games, and it brought employees from its Russian division to its headquarters in California to help the sports marketing group prepare for the Olympics.

“One of the things that’s important there is the network that you have, knowing the people that do the work, understanding what’s important for them, how they value different things,” Visa’s Fort said. “We have to understand the culture.”

Room for growth

Those challenges may have tempered marketers’ enthusiasm for the Sochi Games, but they haven’t extinguished optimism about what can be accomplished in Russia during the Olympics.

Sponsors believe the Games offer an excellent opportunity to expand their businesses. Russia’s Gross Domestic Product remains the third strongest among BRIC (Brazil, Russia, India and China) countries, and it’s one of the most important
The local connections needed to successfully conduct business in Russia encouraged Visa to create its first project team in a country for an Olympic Games.
and fastest-growing markets for several TOP sponsors.

Interest in the Games is high there, and sponsors hope to cash in on that. When Coca-Cola, which trails Pepsi in the Russian market, launched a website last month to collect nominations for Olympic torchbearers, the submissions were so overwhelming that the site crashed. Coca-Cola expects to have more than 100,000 entries.

“Having that amount of excitement one year out is spectacular,” said Coca-Cola’s Borra. “That means it might not be a Sochi Games but a Russia Games. For us, it’s a great opportunity to develop and potentially take over a bit of (market share from) our competitors.”

The country also offers opportunities for business-to-business growth. TOP sponsor GE already has sold two gas turbines that will help power the Games, and Dow has had its products included in everything from insulation at venues to seating materials.

“We’ve made tremendous headway,” said Amy Millslagle, Dow’s vice president of Olympic marketing. “We’ve placed product in Sochi venues and hotels but we’ve also placed product with partners. It’s turning out to be a great Games for us.”

Marketers believe Sochi has the potential to be a turning point for their brand. Dow believes it can help the company win business during the 2018 World Cup in Russia. Visa believes it can help it increase card usage. Panasonic believes it can boost business-to-business sales. And no one wants to waste the opportunity Sochi provides in reaching those goals.

“For all of our traditional clients, when it comes to the Olympics, I don’t think you’re going to see steps backwards,” said GMR’s Katzoff, whose agency works with four of the nine TOP sponsors and three Sochi sponsors. “Everyone’s going to continue to be aggressive. Russia is a huge market.”




































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