Do Olympic sponsors capture the gold?

Punch line: Corporate giants spent millions during the Olympic games with the expectation of a return on that investment.  What sales levels can Adidas, P&G, and McDonald’s expect to see after Olympics advertising?

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Excerpted from WSJ, “Companies Seek Olympic Legacy

The Olympics has highlighted the boost that companies can get from sports sponsorship in the short term but experts say that the real benefit is brand awareness over the long term, which isn’t so easy to quantify.

Over the past few weeks several companies have trumpeted how sports sponsorship has paid off in terms of sales, with Adidas reporting an 18% jump in second-quarter profit tied to sponsorships.

Olympics

Procter & Gamble expected its sponsorship of the London Olympics to bring in $500 million in incremental sales, with the hope that a bevy of commercials around the events would propel consumers to pick up more Bounty paper towels and Gillette razors.

And U.S. fast food giant McDonald’s Corp. will receive a boost to sales with the exclusive right to sell fries at four sites around the Olympic stadiums.

“There are not that many opportunities for brands to get the massive audiences that sporting events such as the Olympics, soccer World Cup and Euro 2012 attract,” said Graham Hales of Interbrand. “The value of being associated with, say, the Olympics, definitely makes for a stronger brand but working out the financial benefit is a trickier call.”

Adidas, as the sole sportswear partner of the Olympics and with individual deals with athletes including sprinters Tyson Gay and Yohan Blake, sped away from rivals Nike and Puma to post an 18% second-quarter jump in profits thanks to its strong sponsorship deals.  The German company invested $157.1 million in this summer’s Olympics which it has already made back in the past 12 to 18 months in license product sales alone, which have more than tripled since the 2008 games in Beijing.

Procter & Gamble were similarly vague about returns on sponsorship investment. CFO Jon Moeller didn’t disclose how much the world’s largest consumer-products company spent but said that a $600 million figure floating around some circles “is not the number we are spending,” and that the company is pleased with its expected return on this year’s games.

Paying for sponsorship must be weighed up in the context of a company’s overall marketing budget.  Each sponsor pays only to be allowed to be associated with the Olympics—you don’t get much more than that for your money particularly because there is no sponsorship allowed inside Olympic stadiums.  A company must judge whether a $300 million marketing bill with no direct Olympic association is better or worse than paying $100 million for sponsorship and then $200 million to activate it.

The exercise is complicated by “ambush marketing” strategies which enable companies to associate themselves strongly with a sporting event even though they aren’t official sponsors. Nike, for example, which isn’t an official sponsor of the International Olympic Committee or the London 2012 Olympics, but does sponsor the U.S. team, launched a global TV campaign featuring everyday athletes competing in places around the world named London timed to coincide with the Olympics 2012 opening ceremony.

Awareness is not an issue for these large companies and the short-term boost to sales is not significant in their world-wide sell, but being a sponsor is definitely a benefit and justifies the cost of the sponsorship.

 

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