The sky is falling! The sky is falling!”
So heralds the title character in the classic children’s fairy tale Chicken Little after he gets bonked on the head by a falling acorn. He panics, recruits his friends into the hysteria and runs to tell the king that the sky is falling.
Net result: The sky wasn’t falling after all. All that happened was that Chicken Little misinterpreted the data, reacted hysterically and instigated a public panic to a situation that wasn’t so bad after all.
Let’s fast forward to what could be a modern fairy tale, framed by 2008 headlines from The New York Times and The Wall Street Journal:
“Recession Fears Intensify”
“World Markets Plunge on Fears of U.S. Slowdown”
“Data Suggest Economy Stagnating”
“Jobs Data Boost Recession Odds”
These headlines are tame, compared with what presidential candidates are saying about the economy, which is also heavily reported. Mass media consumption and political campaigns are fueled by the exploitation of fear and conflict.
Nobody buys a newspaper or makes a donation to a political campaign because everything’s OK. Shouting that the sky is falling sells newspapers and voters.
Defining a recessionBut it doesn’t mean that the U.S. is in an economic recession. Besides,can we even agree on what a recession is?
The newspaper definition is that a recession is under way when the gross domestic product declines for two or more consecutive quarters. The National Bureau of Economic Research takes a vaguer, complex view that charts cycles of growth. There’s no common definition.
Some economists say that a recession is not as
imminent as headlines would have us believe.
Defining a recession is reminiscent of the U.S. Supreme Court’s struggle with defining hard-core pornography. As Justice Potter Stewart, in the 1964 case of Jacobellis v. Ohio, said, “I shall not today attempt further to define the kinds of material I understand to be embraced … but I know it when I see it.”
That’s where we are. We can’t define a recession, but we’ll know it when we see it?
Sorry, not good enough. This kind of needless hysteria could have a big negative impact on the sports industry.
Besides, for every headline or candidate that shouts, “The sky is falling!” there are sober voices — and far less reported ones — insisting otherwise.
For example, Wachovia senior economist Mark Vitner, speaking at an economic forecast meeting in Florida last month, said the U.S. economy has slowed but that we’re nowhere near a recession.
Ditto the sentiments of Bloomberg economist John M. Berry, International Monetary Fund economic counselor and research department director Simon Johnson and 52 out of 54 economic forecasters surveyed by BusinessWeek magazine last December.
But the negative headlines are ubiquitous. And they could hurt the sports industry if sponsors and consumers believe what they read.
A more positive outlook Sponsorship think tank IEG tracks and publishes key industry markers and statistics. Its 2008 sponsorship industry outlook paints a more positivepicture.
How properties can survive challenging economic times 1. Get aggressively involved with helping sponsors measure ROI in terms that are clear and valuable to sponsors.
2. Be flexible and give sponsors the ability to best match property assets to rapidly changing needs and marketplaces.
3. Carve out, embrace and protect your property’s unique positioning in the marketplace.
4. Embed your property into as many operating business units of your sponsors as possible.
5. Drive out as much of the hard costs incurred in managing your property as is reasonable, but do not cut back on aggressively marketing your property to qualified sponsor prospects.
6. Consider reducing the rights fees of some categories in exchange for increasing in-kind sponsorships that can relieve property budget pressure.
7. Focus on signing multiyear agreements that bridge periods of economic boom and bust.
8. Examine your contracts’ sponsor exit clauses. They should be oriented toward encouraging a sponsor to work through challenges. Try to install exit clauses that provide incentives to sponsors to help you replace them by leveraging the exiting sponsors’ sister companies and vendors.
According to IEG, North America sponsorship investment will rise 12.6 percent in 2008, the biggest single-year jump since 2000. This year will also mark the sixth consecutive year that sponsorship growth will exceed the growth of the previous year.
Total U.S. and Canadian sponsorship spending should top $16.78 billion, according to IEG. The sports industry historically accounts for about 70 percent of that total.
The sports industry is anticipated to benefit from $11.7 billion in sponsor investment this year. That figure accounts for rights fees only, without regard to the billions more dollars that sponsors will invest in supporting and publicizing their sports sponsorships.
Last fall, IEG estimated that the four biggest U.S. stick-and-ball leagues would cash more than $2 billion in sponsor checks, a 15 percent increase over 2006. It cited new league deals with Bank of America, Home Depot, State Farm, KPMG, Pepsi, Wrigley and Toyota.
IEG also recently forecast that motorsports sponsor spending would top $3.5 billion this year, a 9 percent increase from 2007.
Hysterical headlines and kvetching candidates to the contrary, we’re not in a recession. But there’s enough evidence of fluctuations in consumer confidence and discretionary spending to warrant caution. Let’s respond accordingly.
Sponsors should be more careful in performing due diligence on prospective sports properties and in spending money to activate those sponsorships. Properties should be careful to set realistic rights fees, to overdeliver on meeting the needs of their sponsors and to be flexible.
Sponsors and properties together must make a commitment to sponsorship measurement, which has historically been the elephant in the corner of the conference room that nobody wanted to mention.
The current economic slowdown bonked us in the head. But the sky isn’t falling.
Let’s respond by improving our business practices. To do otherwise might be to script a fairy tale that, unlike Chicken Little, doesn’t have a happy ending.
Mel Poole (mp@sponsorlogic.com) is president of consulting and marketing firm SponsorLogic.
