Corporate sponsorship - risk or reward?

Sponsoring either sport or the arts is always a risky sort of marketing venture, although the rewards can, if events turn out right, easily outweigh the benefits of ordinary advertising.

In sport, the thrills and spills involved in attaching one's corporate name or brand to teams or events were amply illustrated, across the British Isles, in the closing months of 2007:

• Rugby Union's World Cup, hosted by France and televised by ITV across six weeks of autumn action, turned out to be a boon for the sponsors of England and South Africa, both making the Final in place of the anticipated clash between the hosts and/or the Antipodean giants. England's sponsors, including O2, did well out of coverage considering that South Africa had thrashed England 36-0 earlier in the tournament.
• England's football team took over the flag-flying duty in November, but if the rugby team had stunned its supporters by reaching a Final, the English football fans had a shock to come as their team narrowly failed to qualify for Euro 2008, the national championships.
• Scotland and Northern Ireland were nearly given the chance to gloat over English failure but they, too, fell at the final hurdle for qualifying for Euro 2008. Neither did Scotland, Ireland or Wales cover themselves with glory in the Rugby World Cup.

England's Euro 2008 failure was broadcast as a matter of concern for sponsors like Umbro, the team's kit supplier. (Ironically, Umbro was the subject of a takeover bid by Nike - an even more lavish global "soccer" sponsor - at the time of England's untimely exit.) But the old PR idea that "any news is good news" does carry some weight in sponsorship. Nationwide, the building society with the biggest sponsorship commitment to British football, has a far-reaching programme that covers all four 'home nations' at amateur, women's and junior level, not just the famous senior men's team.

Smaller companies than Nationwide or Nike can identify, through sponsorship, with plucky under-dogs rather than predictable champions. There are endless opportunities for sports sponsorship at grass-roots level, including public/private "matched" funding through the Sportsmatch scheme.

Another tactic for sponsors is to spread the risk across more than one sport. Vodafone has been prominent in this respect for more than a decade, paying handsomely to attach its name to the England cricket team, Manchester United, the UEFA Champions League and horse racing (including the Vodafone Derby). In motor racing, the second biggest sponsored sport after football (mainly attributable to Formula One races), Vodafone's sponsorship of the McLaren Mercedes team came up trumps in 2007 when the young English driver, Lewis Hamilton, broke through as a major new star of Formula One.

Putting all the "deals" together, sports sponsorship is worth at least £1 billion a year in the UK and the forthcoming London Olympics (2012), Glasgow Commonwealth Games (2014) and, possibly, the FIFA World Cup in 2018, will guarantee record spending over a long period. The organisers of the London event have already targeted £625m worth of sponsorship income.

For arts and culture, the burgeoning growth of sports sponsorship is worrying in that the sector has been struggling to regain the heights of the Millennium celebrations. Arts & Business, the official forum for the arts and their sponsors, has recorded static figures from businesses although the arts, more so than sports, are also supported by non-commercial donations from individuals and trusts.

To offset the overwhelming appeal of the Olympics to sponsors, the DCMS (Department for Culture, Media and Sport) is planning a Cultural Olympiad - "a four-year celebration of the UK’s cultural life that will be a perfect curtain-raiser to the Games in 2012" - which will embrace everything from a World Cultural Festival, the International Shakespeare Festival and the 5-rings Exhibition down to grass-roots community arts.

References:

Photo: woodym555 (Wikipedia)

http://www.aandb.org.uk/

http://www.culture.gov.uk/

Health clubs - how healthy a market?

The health club business would make a good choice for a business-degree thesis on how markets are born, grow and reach maturity. There have been three phases so far:

PHASE ONE: In the beginning was the sweaty urban gym, transformed in the 1990s into a new leisure destination: a hybrid of the local leisure centres and the best of the pumping-iron gyms. City money flooded in as company after company floated on the Stock Exchange, an entirely natural phenomenon because sharply dressed dealers and analysts were among the most to cough up for a subscription to an exclusive health club. (Like so many leisure sectors, private equity has since stepped in at most of the major club companies.)

PHASE TWO: Market maturity came quickly, and by the early 2000s there were plenty of clubs (5,000+, according to the Fitness Industry Association) serving all the UK's cities and large towns. Most were standalone, but hotel clubs and semi-private gyms within leisure centres added to the wide choice. Several UK companies, fearing saturation, started to expand abroad, into Europe, Australia or South Africa.

PHASE THREE: Saturation, consolidation and differentiation are the ugly but inevitable words to describe this market (2005-2008) as it reaches middle age:

Saturation: by 2006, there were too many names competing for the same customers.

Consolidation: late 2006 and early 2007 saw Virgin taking over Holmes Place, Bannatyne buying up the standalone LivingWell clubs and the merger of market leader David Lloyd Leisure with Next Generation. At mid-2007, with the possibility of more mergers still on the cards, the largest companies - all of which have at some point bought up a competitor - were David Lloyd, Fitness First, Virgin Active, LA Fitness, Esporta, Bannatyne and Cannons. They operate some 600 clubs across the UK with just over 2 millon members.

Differentiation: brands can be similar to each other in a growth phase, but now they need to start differentiating themselves. For adults or families (or women only)? Budget or premium? For sports or exercise? "Wellness" or traditional fitness and weight loss?

So, is the market heading for a Phase Four (decline) from the current plateau of Phase Three? Probably not. The enlarged (consolidated) club companies are still full of ideas to attract new customers, recent examples including Family Yoga at LA Fitness, a BUPA health check at Fitness First, evening classes at Esporta or open-air aerobics classes at Virgin Active.

And there is no immediate sign of the prices that clubs can charge falling off, which would be the first sign of market decline. Already, there is a wide choice of price brackets: eight different types of membership by price at Fitness First, for instance.

Underpinning the club market are some solidly favourable trends: the movement away from complicated, time-consuming team sports and towards simple fitness pursuits; the public-private initiatives at fighting obesity; and the way that larger clubs are filling a demand as family-friendly venues for healthy, safe activities under one roof.

Football's rich clubs by Deloitte

Got €500m to spare? Here's how your team might look made up of the most expensive players from Europe's 13 richest clubs:

FORWARDS: Ronaldinho (Barcelona) Henry (Barcelona) Ronaldo (Man Utd) MIDFIELD: Kaka (Milan), Vieira (Inter), Juninho (Lyon), Gerrard (Liverpool) DEFENCE: Lahm (Bayern Munich), Terry (Chelsea), Cannavaro (Real Madrid) Alves (Seville) GOALKEEPER: Buffon (Juventus) SUBS: De Rossi (Roma), Owen (Newcastle)

The fascinating Football Money League, an annual report from Deloitte published since 2006, reveals that the two Spanish giants currently top the European league table for "turnover from day-to-day football operations". Real Madrid retained top spot at the end of the 2005/06 season and Barcelona was up from fourth to second place. Their respective earnings were €292m and €259m.

The largest UK clubs on this scale of success are Manchester Utd, fourth with earnings of €242m in 2005/06, and Chelsea (sixth, €221m). Italy has four clubs in the top 20 although the UK is dominant in this respect with nine of the top 20.

But a glance at the bottom of Deloitte's top 20 reveals the gulf between the elite and the rest: West Ham, in 19th position, only earned €87m in 2005/06 and its status in the English Premiership, let alone in the Deloitte Top 20, is severely threatened by relegation in 2006/07. (The Hammers last game of the season is away to Manchester United, the likely champions this year.....)

The new three-year television rights deals (for 2007-2011) will boost English Premiership incomes from broadcasting by no less than 70%. The TV rights account for at least a third of most big clubs' income, with other media-related incomes (sponsorship, merchandising, licensing) contributing another third or more. This means that 'matchday' income can account for as little as 25% of club revenues (eg Real Madrid) although a bigger stadium can restore the balance in favour of matchday revenues, the traditional sign of a club's financial strength.

For Manchester Utd, matchday still brings in over 40% of its revenues and its Quadrant expansion of the Old Trafford ground has taken ground capacity up to 76,000. Chelsea will struggle to compete, despite the generosity of its owner, Roman Abramovich, as long as its capacity remains at 42,000. Across London, Arsenal's revenues have soared during 2006/07 thanks to the club's move from Highbury (capacity, 38,500) to the new 60,000-seater Emirates stadium.

Having retained the old Highbury site to build over 700 houses and flats, Arsenal FC has moved into property development, an interesting move considering the number of property developers (or builders) that have occupied board positions in football over the years. It is also an interesting model for other clubs with prime inner-city stadiums to consider. In the lower leagues, the pressure to sell up and quit the inner city is growing all the time as urban property values rise.

Source Notes: Football Money League is free after registration at www.deloitte.co.uk. Deloitte also publishes the Annual Review of Football Finance.

London Olympics - £3.3bn and counting. . .

London's initial euphoria over winning the right to host the 2012 Olympics has, inevitably, been toned down a bit as the serious planning gets under way. The estimated final cost is already up from £2.4bn to £3.3bn (+37% in two years, with five years to go) and the gloomy statistics for the Millennium Dome (now The Dome) are still fresh in the memory.

It's a sobering thought that the Scottish Parliament building was originally, in 1999, going to cost less than £40m. Five years on, 'Holyrood' finally opened after £430m had been spent, so figuring on a final cost for the London Olympics of at least £10bn might be advisable.


While we're waiting for the final bill - much of which will be paid by sponsors - we can already look forward to London being taken over by the Games (including the Paralympics). Some of the venues and sports to take place across the London region will be:


Olympic Park - the Lea Valley complex will contain the main Olympic Stadium for athletics, plus centres for cycling, water sports, hockey and indoor competitions such as fencing, handball, basketball, BMX.


ExCel - the existing exhibition centre at Royal Victoria Dock will be adapted into various arenas for watching boxing, table tennis, martial arts and weightlifting.


Greenwich - home to The Dome, which will host basketball and gymnastics (also the 2009 World Gymnastics Championships). Near the Dome will be the temporary Greenwich Arena (badminton, rhythmic gymnastics). Equestrian and modern pentathlon will be held outdoors in Greenwich Park, close to the National Maritime Museum. Near Greenwich, the Royal Artillery Barracks, Woolwich, will have the shooting events.


Other London venues - if all goes according to plan, there will be: football at Wembley Stadium; cycling through Regent's Park and Hampstead Heath; tennis at Wimbledon; triathlon in Hyde Park; volleyball in Earls Court; archery at Lord's; and beach volleyball in Horse Guards Parade.


Outside London, there will be boat sports to watch at Eton, Broxbourne and Portland Harbour, but the real regional spread will involve the stadiums hosting football matches in Glasgow (Hampden), Cardiff (Millennium Stadium), Manchester (Old Trafford), Newcastle (St James's Park) and Birmingham (Villa Park).
http://www.london2012.org/en