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John Davis on Sports Sponsorship and Branding:

The Olympic Games Effect

Published: July 04, 2008 in Knowledge@SMU http://knowledge.smu.edu.sg

Marketing professor John Davis is director of the Centre for Marketing Excellence at the Lee Kong Chian School of Business, Singapore Management University. In his new book, The Olympic Games Effect, to be published by John Wiley & Sons in the run up to the Beijing Olympics, Davis examines why companies and even host cities and countries invest so heavily in sports sponsorship and branding. He also offers valuable lessons -- drawn from a rich collection of real-life examples -- on the risks

involved, and how to maximise returns from these investments should businesses decide to go down this route. Knowledge@SMU talked to Davis about some of the highlights of his book.

Knowledge@SMU: Sports marketing and branding is a hot topic with the Olympic Games just around the corner. What are some of the highlights of your new book, The Olympic Games Effect?

Davis: A key emphasis of the book is analysing why companies sponsor sports events like the Olympics given the range of alternative marketing investments available. To do this, I start by examining the history of the Olympics, from ancient through modern times. For example, there are many interesting parallels between the Olympics of the ancient world and those of the modern era that will surprise people. The Olympics have developed innumerable traditions that have shaped our current understanding of the meaning of the Games, and why they have attained mythical, iconic status as a result. The modern era, especially in the past 40 years, has witnessed enormous growth in the size, magnitude and sophistication of the commercial side of the Olympic Games. I look at a selection of the TOP sponsors -- TOP stands for The Olympic Partner Programme. There are 12 TOP Sponsors in 2008 including Visa, Johnson & Johnson, McDonald’s, Panasonic and Coca-Cola. Each firm bid a set amount for the exclusive worldwide rights to sponsor the Olympics. For the current Olympic cycle, consisting of the 2006 Torino Winter Olympics and the 2008 Beijing Summer Olympics, the TOP sponsors are estimated to have spent between US$70 to US$80 million each for sponsorship rights.

The individual sponsor figures are not officially published, but a quick look at the 2008 Olympic Marketing Fact Book, published by the International Olympic Committee, shows aggregate revenues of US$866 million in this cycle. The rights fees represent about one-third of the final amount invested in the Olympic sponsorship by the average TOP sponsor, with the remaining two-thirds spent “activating” it. The activation includes a wide range of activities, from developing the creative, to infrastructure build-out, to coordinating with local company operations and strategic partners, to implementation, service, hospitality and more.

Visa, for example, installed new ATMs and banking centres, hired new service personnel, and expanded their membership base by adding new merchants and local banks. For each sponsor then, the US$70-$80 million rights fee is really just the ‘cost of entry’ since another $150 million or so is spent on activation. It is a sizeable investment no matter how you view it, so maximising both short and long-term value is vital.

Knowledge@SMU: What should companies consider when planning to sponsor a major sports event?

Davis: The Olympics are arguably the biggest and best-known brand in the world. Sponsorship success is not about creating a temporary increase in product sales around the time of the event. It is about leveraging the event for the purpose of creating sustainable, enhanced brand awareness, brand value and financial performance. It is incumbent on TOP sponsors, indeed all sponsors (including those at lower investment levels), to create the best possible conditions for superior sponsorship activation if the potential corresponding benefits are to be realised.

Among several considerations, a key question is whether the firm’s corporate values actually align with those of the sports event under consideration. For example, it would be very hard for the senior management at a tobacco company to argue in favour of investing in an Olympic sponsorship, because the very nature of their core product makes it hard for management to justify some kind of logical connection or shared values exist. While that may be an extreme example, company management needs to actively weigh whether their sponsorship of an event will be perceived as genuine and consistent with the “spirit” and traditions of the event. This is not meant to suggest a literal, word for word, value for value identical match. Instead, these decisions are about judgment, about what is in the best

interest of the firm, the sports event, and the marketplace of stakeholders.

Another important consideration is having a clear understanding of company objectives. If management’s objectives are purely focused on short term financial performance, then they ought to seriously consider investing the money in other forms of marketing. Sports sponsorship is increasingly about making a positive and lasting long-term impact, not spiking sales for a short period of time. Several of the companies I analyse in the book demonstrate the benefits of having a longer-term, strategic approach to sports marketing investments. Additionally, companies need to look at four central dimensions of successful brands, which I have talked about in my other books.

First, you need to have a clear sense of your Destiny. What is your ultimate contribution as an organisation? What are your competencies? What is your guiding philosophy beyond making money?

Second, management must develop a unique Brand Strategy. What is it that distinguishes and differentiates you from the competition? It requires you to think actively and deeply about what truly makes your company unique. If you don’t, chances are you will look the same as your competitors. Customers won’t see the distinction and they will buy what is

cheapest; they won’t see any value beyond that.

The third dimension is Culture. In the old days, this was narrowly and incompletely defined as personnel or human resources. That’s not what I mean here. Instead, management must ask: What is the kind of talent we want to bring on board? How do new hires add value to the organisation? Can they help push the brand strategy? What kind of atmosphere do our employees create? What is the personality of our company?

The final dimension is called Experiences. Experiences are what a company provides their customers. This can include retail outlets, the way employees on the phone handle the customers when they call, to how the products are designed and merchandised. In effect, everything is your brand. There isn’t anything that doesn’t affect perception. In the case of sports events, can you create a great experience by associating with this event – whether is it the Olympics, or World Cup, or anything else?

Knowledge@SMU: How can companies measure the returns from their sponsorship?

Davis: The question of a magic formula has been answered -- there isn’t one. Instead, as I have discussed in each of my books, marketing measurement depends on the specific marketing programmes being deployed, the objectives of those programmes, the amount invested, projections (financial and customer), and several similar considerations. This very complexity does not mean measurement isn’t possible because it is. But the right questions need to be asked and specificity is among the most desirable criteria.

For example, the TOP sponsors are spending US$200-250 million to be associated with the Olympics. They deploy everything from traditional advertising to non-traditional advertising (like digital media). They also deploy sales people in the field, they invest in complex infrastructure and distribution systems, and all these add up to huge amounts of money. So which of these activities should they measure? Each activity deserves its own criteria and measures to determine whether or not they have worked.

Let’s look at Visa again. Their first Olympic sponsorship was in 1988, although they actually started investing in1986 and have continued to this day. Visa has seen an enormous increase in transaction volume, credit card circulation and in their brand reputation. They are the most preferred card in the world over American Express, MasterCard and everybody else. They attribute part of their success to the 20 years of Olympic sponsorship. Visa could not have predicted this success 20 years ago when they first started sponsoring the Olympics. But they did recognise the potential value of being associated with such a prestigious event, and they found a way to deploy their brand in association with the Olympics in a way that got people excited.

Coca-Cola has been sponsoring the Olympics since 1928. Instead of a purely short-term focus, they review the sponsorship in the context of, “Has this contributed to the brand value of the organisation over time (not overnight)?” This long-term orientation is a challenging one to adopt when shareholder and market pressure is centered on the short-term. Yet many of the TOP sponsors have found the discipline to make the long-term sponsorship investment

pay-off.

Knowledge@SMU: Singapore is hosting the F1 race and the first Youth Olympics. What does this mean for local companies and the organisers?

Davis: Singapore has a great opportunity ahead if they pay close attention to the lessons I discuss in the book, as well as learn from other major events like the World Cup, golf’s 4 majors, and tennis’ Grand Slam. In Singapore’s case, the F1 and Youth Olympics present Singaporean companies with excellent opportunities to be associated with two major sports events. With the 2010 Youth Olympics, Singapore has the chance to position the country as a capable host of major international sports events in a way that looks inviting to the world at large, from consumers to tourists to businesses.

Local companies that make the sponsorship investment may not see a dramatic increase in sales in the short-run, but that is less important than having the chance to position themselves properly to the rest of the world, setting the stage for international growth. At the same time, the F1 and 2010 Youth Olympics do not guarantee global success for

participating sponsors. They have a lot of work to do to make that happen. Keep in mind what I mentioned earlier: Coke has been an Olympic sponsor since 1928, and Visa since 1986. These are not one-time expenditures by any stretch of the imagination. If a company wants to grow internationally, it is going to take a long time; it is not going to happen overnight.

Platforms like F1 and the Youth Olympics are incredibly valuable for a simple reason – they are highly visible. F1 is the biggest motor sports event in the world. People love the drivers and the constructor teams. 2010 is the first Youth Olympics ever, and Singapore has thehonour of being the first host, suggesting added visibility and media attention To take advantage of this, companies don’t all have to be the TOP sponsors. They can pay for local sponsorships that heighten the awareness of their brands in the region. They can secure retail sponsorships, for example, that gain more customers in Malaysia, Indonesia and Thailand, and so on. There are a number of ways to gain visibility.

Knowledge@SMU: Are you suggesting that small companies which can’t afford to be the major sponsors go for local sponsorship?

Davis: Possibly. And it’s not just small companies nor just about local sponsorships. Look at Lenovo for example. When they first started sponsoring the Winter Olympics in 2006, and now Beijing this year, part of their sponsorship value was paid with in-kind products, not cash. They supplied all the computer equipment during the Winter Olympics, reducing the actual cash outlay that had to be made. So companies shouldn’t be scared of the financial contributions since payment doesn’t necessarily have to be just in cash. But with that said, companies must be prepared for some amount of cash investment beyond any in-kind product.

The TOP sponsors for the Olympics, as well as lower-level sponsors, provide a total of over US$1 billion in funding for each Olympic cycle. A lot of that money is filtered down to the National Olympic Committees around the world, and then to the organising committees in the host cities. Some countries can’t afford to send teams to the Olympics without the support provided by the sponsorship funds. Corporate sponsorships are a vital part of the ecosystem of keeping the Olympic dream alive, giving opportunities to athletes who might otherwise not be able to go to the Olympics (since most athletes are not fortunate enough to have major endorsement deals). Sponsors help contribute to those less advantaged with the chance to share in the Olympic experience.

Knowledge@SMU: Should companies in general aim to sponsor a major sports event?

Davis: Sports sponsorships, like any investment, must be carefully weighed. I provide extensive checklists in the book to guide company management as they consider their options. It comes back to those questions of whether a company’s values are aligned to the sports (or any event, for that matter), along with the other factors I discussed. If the sponsorship is something disconnected from the company, then it is hard for management and employees to genuinely support the effort. So does it apply to all companies? No. Companies ought to take a deep look at themselves and consider whether they want to do this. Does the sponsorship fit our organisation? How would it benefit our organisation? How does it advance our brand and help us compete? Sports sponsorship is not a solution to failures in other areas. It is not a disguise meant to hide deeper-rooted problems, nor to distract and fool people into thinking the company is doing great things. Companies have to be doing great things for the sponsorship -- indeed

any marketing activity -- to be credible.

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