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Stressed Advertisers Blow the Whistle on Sports Sponsorship Deals

Wall Street Journal, December 11, 2008

By MOLLY NEAL

After the housing bubble, the credit bubble and the commodities bubble, could the sports bubble be the next to burst?

Global sports sponsorship doubled in the past 10 years to about $30 billion annually, according to data from sponsorship agency IEG, enabling stars such as David Beckham, Tiger Woods and hundreds of lesser-known sports personalities to become fabulously wealthy. But now this well of corporate money is drying up.

General Motors has parted company with Tiger Woods, Honda has walked away from Formula 1, and in U.K. soccer, so-so Premiership sides such as West Bromwich Albion and West Ham United have been left without shirt sponsors.

This year, European soccer-shirt sponsorship fell for the first time, according to sports-research consultancy Sport & Markt.

Even in the good times, the benefits of sports sponsorship are tough to quantify.

Take AIG, which is paying £56.5 million ($83.3 million) over four years to slap its logo on Manchester United soccer shirts.

Sure, its brand is exposed to a global audience, as Premiership soccer is broadcast to 200 countries. But the benefit on AIG's bottom line is impossible to measure.

Some shirt sponsors claim the accompanying free tickets can be used as an incentive to staff or an inducement to customers and suppliers. These incentives are harder to justify in a downturn, when jobs and contracts are more scarce.

Besides, the headline cost of a contract is just the tip of the iceberg. Most corporate sponsors spend about three times as much promoting the sponsorship as they do on the deal itself.

Existing sponsorship deals are mostly safe. But for teams looking to renew contracts, the future looks bleak.

Sponsors are wary of entering new four- or five-year commitments. Those that do will likely pay less. Since even the best-funded teams operate on tight profit margins as they pour revenue into players' wages, there are sure to be casualties.

The risk is that a collapse in sponsorship could trigger a vicious spiral.

That could be exacerbated if broadcasters, which also rely heavily on advertising, stop bidding so aggressively for TV rights.

And, of course, owners are also feeling the squeeze -- whether billionaires with fortunes dented by the financial crisis or troubled media groups such as Tribune, owner of the Chicago Cubs.

Teams that are unable to offer the high salaries won't attract the best players, and without the best players, they won't win, and if they don't win, they won't attract sponsors. Winning at all costs takes on a new meaning.