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Even Olympics feel the squeeze from recession

The Vancouver Winter Olympics are proving a tough sell to the business world which seems willing to pass on an advertising bonanza that promises to deliver billions of TV viewers worldwide and an avalanche of good will.

Just how tough? The roster of companies that have decided to forego sponsorship deals for the February 2010 games reads like a who's who of advertising, among them Bank of America Corp, General Motors Co and Home Depot Inc who all dropped out as US team sponsors.

These deals add up. The International Olympic Committee, for instance, raises about $4.5 billion from the combined sponsorship and global TV rights deals for every four-year period, analysts estimate.

“You have a confluence of many factors happening here. One, winter versus summer. Two, a hangover from Beijing. And three, the economic times,” said Andrew Benett, the global chief strategy officer of Euro RSCG, part of advertising services company Havas SA.

“All of that together means it will not be as big of a bang -- even as past winter Olympics.”

The overriding issue is the recession, forecast to cut worldwide ad spending by 8% to 12% this year as companies avoid splashy new campaigns. The Olympic Games are hardly safe from those kinds of budget pressures, even if they do hold up better than other top events like the National Football League's Super Bowl or the Academy Awards.

Kelly Crabb, a partner with the law firm of Morrison & Foerster who previously worked for the Beijing Olympic Organising Committee, said “none of these companies miss a chance to put the five rings by their name and associate with the goodwill and the values of the Olympic movement” under normal circumstances.

But with corporations slashing expenses, Crabb concedes “there may be some sponsors that are going to bail out.”

In doing so, they would step away from a coveted chance to showcase their products to a blockbuster TV audience. Some 4.7 billion viewers, or 70% of the world's population, watched the Beijing Olympics, according to Nielsen.

What audiences see when they watch the Olympic Games is equally appealing to advertisers -- who love to be associated with the sort of feel-good stories and hard-fought competition that often come out of the Olympics.

“When looking for a sponsorship that can really elevate their brand, there are few opportunities out there like the Olympics,” said Gary Pluchino, senior vice president with sports, entertainment and media company IMG.

For all that appeal, the Olympic Games face challenges that stretch beyond the current economic collapse. Topping the list is the familiar problem of how to win the attention of younger audiences more interested in texting, gaming and web surfing than watching bobsledding or the decathlon on TV.

It is a particularly vexing issue for the Winter Olympics, according to marketing experts. Those 20-somethings that actually do watch winter sports on TV are often more taken with extreme sports like the ones on display in ESPN's X Games than many of the more traditional sports to be featured in Vancouver next year.

“Marketers can spend a lot less for an X Games package than a Winter Olympics package,” said Larry Vincent, a Group Director of Strategy with branding firm Siegel+Gale, a unit of Omnicom Group.

“And if the goal is to link your brand with something cool, the X games, for a lot of people, deliver far more on investment that the Winter Olympics do,” he added.

Another issue, experts said, is that the IOC and the United States Olympic Committee have not always worked well with potential sponsors.

 

"The USOC's problem has been, frankly, ineptitude," said Chris Welton, CEO of Helios Partners, an Atlanta sports marketing firm that represents corporate clients in sponsor deals.

“The IOC's problem has been bordering on arrogance and thinking that sponsorship dollars will always be there. They've taken sponsorships for granted,” added Welton, who also previously handled marketing for the IOC.

One result of the current pullback in spending, experts said, is the IOC and the USOC may be forced to rethink how Olympic sponsorship deals are priced or structured.

“They are going to have to wake up based on the economy. Sponsorships to the Olympics are not cheap -- companies put down $10 million or $20 million for sponsorships and today that will not happen anywhere nearly as frequently as it did in the past,” Euro RSCG's Benett said of national sponsorships.

Those involved in talks said the USOC already has started cutting deals.

The IOC, meanwhile, was forced to assure Vancouver organizers it would help with a potential budget gap because the IOC has fallen short on signing up corporate sponsors. Global sponsors like McDonald's Corp and Coca-Cola Co pay up to $100 million for a four-year Olympic period.

Advertisers are also holding out hope that NBC Universal, which has US broadcast rights to the Vancouver Games, will show a willingness to cut prices. US corporate spending on TV ads alone totaled almost $1 billion for Beijing, according to TNS Media Intelligence.

So far sources say NBC Universal, jointly owned by General Electric Co and Vivendi SA, has held the line. Negotiations are moving slowly, but NBC Universal executives nonetheless said advertisers are coming to the table and dealmaking is starting to pick up.

“Sales are accelerating significantly, particularly in recent weeks, across numerous categories,” Seth Winter, senior vice president, NBC Sports & Olympics sales and marketing, said in an e-mail.

Olympic organizers have reason to worry about any struggles by NBC as they are set to open the bidding for the next four-year period after the host city for the 2016 Summer Games is chosen later this year.

Many think a Chicago victory could boost the value of a TV deal dramatically as a US host city would be more attractive to the US broadcasters who account for the bulk of the IOC's TV revenue.

There is also some progress on the sponsorship front, with the USOC and Procter & Gamble announcing a deal this week covering the Vancouver and London Games.

“We are always looking for great opportunities to invest in our brands for the long term ... regardless of the economy,” Kirk Perry, vice president for North America at Procter & Gamble, said in an interview.

Still, Euro RSCG's Benett noted: “We represent 82 of the Fortune 100 companies and I can count on one hand the number of clients that are flat to up in terms of their marketing spend. So there is no way that the Olympics will be immune to this, the IOC will be immune to this, or NBC will be immune to this.” (Reuters)