That is a quote from a report in this week’s SportsBusiness Journal on the backlash against the TARP assisted financial services sector’s sponsorship of professional sports. This past week saw a media and political outcry over Northern Trust’s sponsorship of a PGA tournament in Los Angeles and BofA walking away from a nearly concluded sponsorship of the new Yankee Stadium. Corporate sponsorships have been an important contributor to the record revenues generated in recent years by professional sports. Stadium naming rights, luxury suites, premium seats, signage, TV advertising, tournament sponsorships etc., are all under duress in a climate where corporations fear being perceived as irresponsible and ostentatious.
In January, IEG Sponsorship Report predicted that sports sponsorship growth in 09 will be less than 2%, compared to growth of 14.7% in 08. According to IEG, “…sports will account for 68 percent of the $17 billion North American sponsorship market.” Weekly Standard contributor Jonathan V Last wrote in the WSJ.
In recent years, teams have also become reliant on revenue from corporate clients, in the form of naming rights and luxury-box purchases. Nationwide, corporations spend roughly $10 billion a year on sports sponsorships. Those should be the first expenditures ditched by any company looking to save money.
The February 09 Metropolitan Corporate Counsel published an article by Jordan S. Solomon which discussed the potential impacts of diminished corporate sports sponsorships and the difficulties in justifying their existence in recessionary times.
2008 will be remembered (not too fondly) as the year the housing bubble and the credit bubble burst. One casualty of these bubbles bursting and the resulting global recession has been a decline in corporate sports sponsorships. As a result, the sports bubble may be the next to burst, adversely affecting the sports stars and teams we root for.
Corporate sports sponsorships are declining rapidly, particularly in industries hardest hit by the credit crisis, such as the automobile and financial services industries. According to data from the sponsorship agency IEG, global sports sponsorships doubled in the past ten years to about $30 billion annually. These dollars have caused stars such as Tiger Woods, David Beckham, and even lesser known sports personalities to become rich and famous. This massive spending has also enabled sports teams and leagues to realize tremendous profits, as well as fuel the creation, development and expansion of new sports leagues and teams. Due to declining sports sponsorships, many of these new leagues and teams will not survive.
Some of the biggest players in the sports sponsorship industry, such as General Motors, Honda, Wachovia and Merrill Lynch, have suffered severe financial losses from the economic downturn, and in some cases are no longer in business. In these situations, these companies are under huge pressure to cut costs, and marketing budgets (in particular sports sponsorships) are often the first to be cut. These sponsorships are viewed as excessive when a company is losing billions of dollars, laying off employees and asking for a government bailout.
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One of the factors in the decline in sports sponsorships is that the benefits of such sponsorships are difficult to quantify for the sponsor, even in good financial times. When times are good, sports sponsorship is an opportunity for building a reputation (i.e., brand), as well as generating high-level corporate entertainment, such as a sponsor’s hospitality tent at a golf tournament. A company’s name and logo displayed on signage at sports arenas, on uniforms and during TV broadcasts provides tremendous exposure of the company’s brand. Free tickets and other access to sports teams and players that often accompany a sponsorship can be used as an incentive to employees or as an inducement to clients, governmental officials and suppliers. However, the benefit to a company’s bottom line is difficult to measure, and these incentives are even harder to justify during a recession when the company is cutting jobs and losing business.