Deepak Jain>Tue, Jan 12 10 06:55 PM
Stephane Fitch, Mike Ozanian and Kurt Badenhausen, Forbes.com
When consulting firm Accenture dropped Tiger Woods--and Tag Heuer, Gatorade, Gillette and doubtless others to come put him on ice--you could chalk it up to his tarnished reputation. But the unceasing focus on Woods is concealing a more substantial trend in the world of corporate sponsorship spending: Marketers are growing wary of, if not downright antagonistic toward, sports endorsements and sponsorships.
Drug cheating, thuggery and sleaze have taken their toll. But marketers are also wondering whether they are getting their money's worth from their dollars. That logo that you paid $1 million for on race-car driver Ricky Rudd's front bumper? You can hire a firm to tell you how many people saw it in person or on television and what kind of people they were. Then you can compare that sponsorship, in cost per thousand viewers, with an online banner or a Google search ad. The sponsorship may not look so smart.
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In 2009 spending on sports sponsorships shrank by $100 million to $11.3 billion, in line with weakness in marketing outlays generally. But some straws in the wind--like recent disappointments in stadium naming deals and the rapidity with which marketers opted out of Woods' contracts--suggest that sponsorships could be in for more trouble next year, even if the rest of the ad industry rebounds. (For more on sports sponsorships go to www.forbes.com/tiger-woods/)
For years sponsorship spending rose dependably by more than 10% a year, says IEG, a Chicago trade publication that follows the sponsorship industry. That's over. Says IEG Senior Editor William Chipps, "Companies are really stepping back and asking themselves if they're getting a return on their investments."
Athletes
Even before Woods' dalliances became public, longtime sponsor Buick ended an $8 million annual deal with one year remaining. The immediate reason was the carmaker's financial straits, but it showed that Woods was vulnerable. Perhaps GM was afraid that the public doubted Woods was in love with his Buick. Other companies have recently been having similar epiphanies.
The same month Buick dropped Woods, Pepsi split with soccer icon David Beckham, ending a ten-year relationship thought to be worth $4 million a year. Do you believe Beckham drinks a lot of soda pop? It was explained that the Englishman aimed to work harder on other endorsements, including Armani and Adidas.
In late 2008 Microsoft declined to renew a two-year $1 million deal with basketball's LeBron James. Cleveland utility-tractor maker Cub Cadet let its $2 million deal with James drop the following March. James was neither a hacker nor a farmer, it seems.
That disconnect between athletes and the products they endorse is a central reason endorsement deals are declining, according to Credit Suisse research analyst Omar Saad. Marketers have decided that they haven't fooled consumers into thinking the athletes love or even use the products they endorse.
Scandals have also hurt. "People are starting to recognize that having a star is too risky," says sports attorney Matthew Pace of Herrick Feinstein in New York, a former head of sports sponsorship for GM. "You may hitch your wagon to a person who can hurt you." Witness Roger Clemens, who hauled in around $3 million in endorsements from the likes of AutoNation, Coca-Cola and at&t. He got caught up in the steroid controversy and soon vanished as a pitchman.
Nike is bucking the trend. It had $4.2 billion in total endorsement contract obligations as of May, up 11% from a year earlier. Its athlete endorsements include James and his rival Kobe Bryant, tennis champ Roger Federer and baseball shortstop Derek Jeter. Nike is willing to weather a scandal--up to a point. The company won't drop Woods and stuck with Bryant through his Colorado trial on rape charges, which were dismissed. But Nike has refused to re-sign NFL star Michael Vick, just back from a stint in prison for dogfighting.
Events
Bank of America in June dropped its 16-year-old sponsorship of the U.S. Olympic Team. A BofA marketing chief insisted to a trade publication that the bank's bailout status didn't play a part: "It's about the insufficient business results we were able to generate [from the sponsorship]."
The key metric here, as everywhere in advertising: the cost per thousand views (CPM) of the sponsor's brand. The CPM of a cycling-team sponsorship, thanks to the Tour de France's enormous roadside audience, has always been a tiny fraction of the cost of, say, a Super Bowl ad, which has a CPM of $28, or Internet-portal ads, which have a CPM of a few dollars. But since drug cheats turned the Tour into a farce in 2006 and 2007, cycling's CPM has been cut even more, to less than $1.
Now big cycling teams frequently squeeze by on sponsorship revenue of $12 million or less a year--roughly half the level during the Lance Armstrong era. Jonathan Vaughters, a former Armstrong teammate and now a team owner, says his team had only one title sponsor instead of the usual two in 2009.
The LPGA Tour's television ratings and attendance are weak and shrinking, which caused the CPM of its sponsorships to jump, driving away marketers. LPGA tournaments dwindled from 34 in 2008 to 27 in 2009, and prize money tumbled by $10 million to less than $50 million.
Stadiums
Naming rights generated a combined $187 million for the 122 franchises in Major League Baseball, the National Basketball Association, the National Football League and the National Hockey League over the past year. That's only 1% of their revenue, but it's a crucial stream of financing for construction.
Banking giant Barclays, desperate to cut costs, recently managed to halve--from $400 million to $200 million--the amount it will pay the New Jersey Nets for the naming rights to the team's new basketball arena in Brooklyn, due to open in 2011.
The Dallas Cowboys' new $1.2 billion football stadium was supposed to pull in $20 million a year from naming rights for 30 years. Nope. Companies now think owner Jerry Jones' asking price is too high. Jones has remained firm. A new $1.4 billion stadium that pro football's Jets and Giants will share was supposed to garner $25 million to $35 million a year in naming rights. Buyers have been scarce, and the owners are standing firm.
This summer General Motors didn't save its stadium advertising inside Comerica Park, home to the Detroit Tigers. Owner Michael Ilitch offered to let GM keep its name and vehicles on a fountain beyond the ballpark's center field wall--for free.
Yes, they're giving sponsorships away.
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