"You'll never walk alone" -- in adidas boots, at any rate

"You'll neeeee-veeer waaalk alone": the Anfield anthem

The news has broken today that British Premier League soccer team has been ditched by sponsors adidas in consequence of the club's recent run of poor results. Liverpool had been negotiating with adidas for a renewal of its lucrative kit sponsorship agreement, which has run from 2006, but the sports equipment supplier's chief executive Herbert Hainer said that the club had "overvalued their sponsorship worth", given their poor results on the pitch.

A new six-year sponsorship agreement has been struck with a US business which has very little profile in the UK, Warrier, the sum in question being said to be in the region of £150 million. Warrior is owned by New Balance.

This blogger can see why adidas is reluctant to pay to back a loser, though the supply of teams that are generally winners is very small -- a pool that is considerably smaller than the number of potential sponsors.  What will be interesting to discover is the overall impact on adidas of the adverse publicity surrounding the termination of its relationship with Liverpool.  The club's supporters are famed for their fervent passion, their extraordinary loyalty and their long memories, and they may not appreciate their team being spoken of in such irreverent terms.

How Much Is a Sports Sponsorship Really Worth?

The trick in being the sponsor of an event is finding one whose benefits are so overwhelming that the sponsor enjoys oversized benefits in being associated with it. On that basis, surely the sponsorship of the recent Chicago Marathon by the Bank of America would seem to fit this bill perfectly. After all, according to the media packet provided by the Bank of America, 45,000 runners were to take part in the race, with more than one million spectators lining 26 miles of Chicago streets as the runners pass through 29 neighbourhoods (nowhere else in the U.S. is the notion of discrete urban neighbourhoods more hallowed than in Chicago).

As a result, it is claimed, the Marathon will bring $171 million dollars redounding directly to the benefit of the city, with additional ripple effects further enlarging the supposed benefits of the event to the area. The problem is that this assessment may be wide of the mark. An article that appeared on the webez91.5 website ("Chicago marathon--bonanza or blip") here strenuously attempts to dispel these claimed benefits.

So how does one get to the amount of $171 million dollars being added to the coffers of Chicago and its environs? Follow the mathematics with me:

1. Of the 47,000 runners, 7,000 out from abroad, with another 19,000 runners from outside the Chicago area. That adds up to 26,000 runners in need of a hotel room, plus 4,000 additional rooms occupied by locals, with the result that 30,000 runners at an average price of $200 per room. That means $6 million in lodging revenues a night.

2. Direct spending--paraphernalia purchased by the runners and increased restaurant sales are expected to amount to $40 million.

3. Secondary effects, which the sponsors call "a trail of economic activity", adds another $100 million.

Add these amounts together and voila -- we reach the $171 million dollar amount. Such a sum would certainly bring tears of joy to new mayor of Chicago, Rahm Emanuel.

But all of this jock-driven ardour has been dampened by the revisionist estimates offered by University of Chicago professor Allen Sanderson, who studies the economic impact of sports (and who is a three-time runner of marathons). In his view, the true number is closer to $25 million, at most. It's all because of what Sanderson calls "leakage" effects. Here are a few examples:

1. Say a souvenir cap is sold for $20. Most of the value in that cap was captured by the manufacturer, most likely not located in Chicago and probably located in the Far East. The direct value of the cap to Chicago is the mark-up, which amounts to several dollars.

2. Say a visitor pays $200 a night (or more) for a hotel room. Most hotels are headquartered outside of Chicago, which means that a certain portion of that amount is likely forwarded to the headquarters.

3. There is a bit of a set-off effect with respect to the spectators themselves. Assuming that most of them are from the Chicago area, some or even many of them simply exchange expending monies at another local site in favour of the Marathon event. The net gain, therefore, may be minimal.

Should any of these revisionist calculations influence the decision of a sponsor, such as Bank of America, to serve as a sponsor for the event? My instincts tell me that the bank might be less interested, or simply not interested at all, to be connected with the Marathon if the much modest sum of $25 million more accurately reflects the contribution of the event to the local economy. Additionally, the cost to the bank of the sponsorship might be less if a lower valuation is given, negatively impacting on the sponsorship revenues of the City of Chicago for the event. In such a case, while it is not a lose-lose situation, it is certainly a greatly diminished version of the lofty figures being thrown about in the media.

When Finger Licking Good Meets the Urban Pothole

An oft-stated observation made in connection with the economic crisis is that companies, when confronted with cuts in R&D, marketing, and advertising, have chosen first to cut their advertising budget as a means to bring expenses more in line with projected income. I would tend to believe that the reason for this lies less in the fact that advertising is less significant to the economic well-being of the company than is R&D or marketing, but rather that advertising is more akin to a current expense. As such, the absolute amount expended in a given short-term period can be calibrated to the general level of economic activity that is taking place, more or less, at the moment.

That said, the economic exigencies of the moment do seem to generate create ways to seek maximum advertising bang for the corporate buck. A real curiosity in this direction was noted in a short item that appeared in the April 20th issue of Business Week. Entitled "A Chicken in Every Pot(hole)", the item described how the corporate parent of Kentucky Fried Chicken, Yum!, expended $3,000 to fund the repair of 350 potholes in Louisville, Kentucky (if my memory serves me, Louisville is the corporate headquarters of Yum!). On each pothole, there appeared a message--"Re-furbished by KFC." Keeping with the low cost nature of this advertising campaign, the chalk-based advertising fades within a month or so. The item went on to note that the campaign has been extended to other towns, including Warren, Ohio and Chattanooga, Tennessee (for all of you non-Americans, an atlas might be in order to locate these two smallish towns, both of which are interestingly located in states that are contiguous with Kentucky).

Said the KFC spokesperson: "We thought we could refresh the streets and try a new form of advertising." Retorting with a degree of skepticism, brand consultant Laura Ries queried as follows: "What does deep-fried chicken have to do with potholes." Unfortunately, the Business Week item fails to consider the question further, and one can ask whether the item was brought simply as a short curiosity intended merely to entertain the reader rather than to consider how companies can successfully advertise despite the challenging economic times.

Okay, even if Business Week declined to engage in a serious consideration of the underlying issue involved, I feel compelled, if for no other reason that professional and intellectual curiosity, to offer several comments.

First, while the pothole cum civic message is characterized as advertising in the news item, it seems to me that it is more of a hybrid of sponsorship and advertising. By this mean I mean that the use of the KFC mark is connected with an activity which Yum! presumably wants to be connected, rather than merely an ad directed towards creating custom at the nearest KFC eatery. The comment by Laura Ries not to the contrary, it would appear that Yum! finds the connection between the KFC mark and good citizenry to be an attractive combination.

A SPONSORSHIP OPPORTUNITY IN THE MAKING

Second, the economic downturn does not mean that all forms of sponsorship have been put on hold. True, the trend has been to cut sponsorship of events at the mega level (especially in sports). Here, to the contrary, a modest amount of advertising expense was committed to funding a specific type of short-term sponsorship with presumed benefit to the overall perception of the brand.

Third, the ad/sponsorship campaign (if it can be called that) is local in character. Louisville is a mid-sized town best known for the Kentucky Derby; Warren and Chattanooga are even smaller. Perhaps the message of good corporate citizenry is more easily delivered in these secondary or tertiary urban settings. (Don't get me wrong, I was born and raised in another such town only 30 miles from Warren and there is a lot going for this kind of environment).

Thus, precisely because a major brand might choose to forgo a nationwide sponsorship campaign invites local experimentation. I suspect that there are large urban centers in the U.S. that would have been delighted to have had their potholes repaired. Assuming that this is impracticable from a budget point of view as a form of sponsorship, one wonders what a large company might to in very large urban center to achieve the same effect as the KFC-sponsored pothole covers in Kentucky, Ohio and Tennessee.

THE NEWEST LAB FOR ADVERTISING EXPERIMENTATION?

Renting shirt-space -- the reality of sponsorship

In "Does Baggies shirt saga signify Premiership slowdown?", BBC business reporter Simon Atkinson discusses the economics of shirt sponsorship -- the now well-established routine by which a sports team (in this case, an English Premier League football team) sells space on its team-members' shirts to a brand-owner who wishes to secure wider coverage and brand-familiarity among the consuming public.

Right: happier days -- when the Baggies rented shirt-space to T-Mobile

Since Premier League teams are watched by large crowds at live matches and by vast international audiences when games are televised, and their supporters advertise the same brand when they purchase replica shirts, the degree of public awareness of a brand can be greatly enhanced -- though sponsorship has its drawbacks too. One is that the sponsor's brand may be associated with an unsuccessful or unsportsmanlike team; another is that the sponsor's brand is damned by consumer enmity - a logo appearing on a Manchester United or Real Madrid shirt, for example, will not endear the brand to supporters of Manchester City or Barcelona respectively.

The article reviewed here cites the position of the West Bromwich Albion (WBA, "the Baggies") football team, which has returned to the Premier League following its relegation two seasons ago. WBA unusually has failed to obtain a shirt sponsor. The side's failure might be put down to the continuing effect of the credit crunch, or possibly because the team's relatively lowly status does not chime in with the aspirations of prospective sponsors -- or quite possibly because there is a gulf in expectations, which is yet to be bridged, between the Baggies' valuation of its shirt-space rental and what prospective sponsors are willing to pay.

For sports teams the sponsorship deal can be crucial. Deals are usually for a period of years, to enable the team to make long-term plans in terms of capital expenditure on facilities, acquisition of new players and so on -- this inevitably means that the money is budgeted for (if not actually spent) before it is received. And since the sums are so large, even big-brand corporate sponsors will finance them through bank loans rather than out of their own pockets.

Metro Naming Rights in Dubai

This being an Olympic Year, the thoughts of IP attorneys turn to the ever-increasing presence of corporate and product sponsorships that will accompany the various athletic competitions: swimming with "Coke" (or whatever software drink purveyor has purchased sponsorship rights), or following the last leg of the 400 meter sprint relay with "Nokia" (or whatever company name adorns the athletic stadium).

With all the anticipated razzmatazz over Olympic sponsors, a full-page ad in the April 26 issue of The Economist caught my eye. Entitled "Dubai Metro Naming Rights", it is an ad on behalf of the Dubai RTA (I assume that means "Rapid Transit Authority") for companies to place their brand on a Dubai metro station, or on one of the two lines of the Dubai Metro network.

None other than IMG is the marketing agent for the name rights program. In case you're wondering, IMG is a world giant in sports and entertainment sponsoring and marketing. For grey-hairs like me, IMG will ever be identified with its promotion of Arnold Palmer, which turned golf into a marketing bonanza and set the table for the phenomenon that we call Tiger Woods.

It is not clear to me how this program will work. Will it mean that instead of calling the station the Dubai equivalent to "Oxford Circus", it will be referred to as the "XYZ" brand station? On the one hand, that seems like a great way to get reinforcing exposure to your brand. On the other hand, calling the station only by the corporate name may confuse the passenger, who will no longer be able to link the name of the station with some kind of geographic or other connection to the site. Or maybe there will be dual names for the station.

In any event, this metro name rights program is an interesting idea. While your brand will not enjoy the intense exposure of hundreds of millions of Olympic-viewing spectators, the games are over in two weeks and, with them, the immediate connection between your brand and the athletic competition. You, on the other hand, will have your name and brand associated on a permanent basis with a site that presumably caters to a large number of passengers and passers-by on a 24/7 basis.

An analogy is the use of sign rights on buildings. It reminds me of that one-time icon of New York City, the Pan Am Building. However, the name recognition that derived from the sign rights apparently did little to save the airline from ultimate business failure, and the building has been called the MetLife Building since the 1980s. In our own day, we need look no further than Chicago, where we find the Sears Tower (the verdict is still out on the ultimate future of Sears) or the John Hancock Building (but I wonder how many non-Americans know that this is the name of an insurance company).

I will be intrigued to see what companies ultimately choose to participate in this program. Will the names that ultimately appear on the Dubai metro reflect local/regional brands (à la John Hancock) or international brands (à la Pan AM), or some combination of the two? For those of you who are interested, you can check out the RTA website , or inquire directly here.