Red Thread

FIFA and the unshocking story of the disappearing World Cup sponsors

Whenever large sponsorship sums are involved, there is so much nonsense talked.

Take the latest news : the absence of national sponsors for the FIFA World Cup in 2018. ForbesSports Business Daily, the New York Times, the Guardian and even the usually right-talking Mark Ritson are all jumping on the bandwagon of karmic judgment. (Top marks to WSJ.)

The collective projection is that FIFA’s history of appalling governance is finally catching up, sponsors are fearful of association and that a cash crisis is looming for Gianni Infantino unless he flees to ignorant sponsors in China. Let’s take a closer look.

The coverage is based on the fact that only one domestic business – Alfa Bank – has occupied any of the 20 slots available to local sponsors. Ergo, 19 slots stand vacant. But, if we look back across the last 20 years of FIFA WC sponsorship, FIFA has never managed to sell 20 national sponsorships, or even 10. The average is six or seven. Now, while FIFA might have shown unpardonable lack of self-awareness in the past, they could never be accused of not keeping their eye on the money – so it’s hard to believe FIFA naïve enough to budget revenue for 20 local sponsors, instead of a prudent five or six.

Besides, domestic sponsors just represent the icing on the cake in terms of FIFA Marketing Rights: the lack of six domestic partners (at US$8m each) equates to less than a percentage point in broadcast rights inflation.

Financially, it really isn’t doom and gloom for FIFA : according to their 2016 accounts, 76% of revenues for the 2015 -2018 cycle were already contracted. And, as FIFA is now adhering to the new International Financial Reporting Standards, and IFRS 15 in particular, its financial reporting is very clear.

The second part of the theory is that local Russian businesses have been deterred by FIFA’s corporate reputation. Seriously?

Two reality checks here. At least.

One: sponsors simply don’t walk away from a major platform such as FIFA WC because they disapprove of the ethics of a rights-holder. Sponsors may disapprove. They may exceptionally go public. But they don’t walk away. An ambassador yes, but not a rightholder. To believe that Emirates passed up another two cycles of sponsorship because of FIFA’s behaviour is just wishful thinking.

Two: there is no evidence that sponsors are negatively impacted by rightsholder reputation. For consumers, businesses are sponsoring the World Cup – which happens to be run by FIFA. Simple as.

It’s a very whimsical notion to imagine that Russian businesses are so brand-conscious that they are turning their backs on World Cup sponsorship because of a toxic FIFA brand. There are three altogether more innocuous and more likely explanations for a lack of local sponsors.

  • the practise of sponsorship is not so developed in Russia and businesses do not fully understand how to generate value. We’re currently working in 15 markets and each market views the value and the practice of sponsorship differently;
  • the political sponsorship which delivered such staggering corporate revenues for Sochi 2014 is not present for FIFA WC 2018;
  • sponsorship of Sochi 2014 did not make for a great case study for sponsorship impact in Russia.

What’s more material – from a sponsorship perspective – is FIFA’s inability to fill its full roster of World Cup Partners, the lower tier global partners. Rights fees for these are more opaque but estimates stand at an average contract value of US$65m.  In 2014, FIFA had 8, now it has 4. So their absence is more significant – because their revenue impact is far higher and because they’re a better barometer of corporate willingness to have FIFA as a bedfellow.

Patrick Nally, who famously helped set up FIFA’s first international marketing program four decades ago, put it bluntly: “Unless you are from China or somewhere like that, …. no corporation is going to consider it safe to get involved with FIFA.”

But quite often what we see in comments like that is nothing but a form of neo-colonialism. FIFA is far from alone in looking to China: many western football teams have welcomed Chinese investment, without attracting the scorn reserved for FIFA. And, as well capitalised, commercially bullish but almost unknown Chinese mega-brands increasingly look for a world stage, FIFA WC provides a platform with incomparable value.

It is fair to say that FIFA’s reputation could put off western businesses from contracting sponsorship, but, practically, that’s a lag in perception. At Redmandarin, we were openly critical of FIFA under the direction of Sepp Blatter. But so far as reputation is concerned, FIFA is now making all the right noises to be able to claim that poor governance is a thing of the past. Given the strength of the platform it offers, potential partners will be more than happy to believe in FIFA 2.0.

What is far more plausible as an explanation is that the dubious selection of Moscow and Qatar as hosts for the next two WCs substantially reduces the appeal – and to a lesser extent the value – of sponsorship until 2026.

As soon as South Africa was announced, or Rio, it was easy to imagine a colourful, warm and exuberant celebration of world football. The largest association with Russia, on the other hand, is suspected state sponsored violence at Euro 2016. Qatar doesn’t evoke a carnival of football, but heat, bribery and an event devoid of football spirit. And although the FIFA WC is a global property, potential commercial value within the host nation is a very real factor for sponsors. In Russia and Qatar, it’s difficult to see much upside.

FIFA still has a mountain to climb. There are weaknesses with its very sponsorship model which will continue to inhibit sponsorship by B2B businesses. It risks reducing itself to a mere promotional mechanism – albeit the largest on earth. But although FIFA has been guilty of reckless arrogance and appalling governance in the past, it is changing. But large organisations are slow to turn around. Media opinion can be even slower. It’s clear that many people want to see FIFA humbled. (FIFA, a demonstration of contrition would be welcome.)

By all means, let’s keep up the scrutiny on FIFA. But let’s also be clear that sponsorship, properly practised, imposes regular commercial disciplines. And simplifications about toxic brands are rarely helpful or instructive.

Red Thread

Alfred Kelly’s big decision

McDonald’s exit from the top echelon of Olympic sponsorship created a media opening for anti-IOC narrative.

But the sponsorship issue that McDonald’s exit raises is not about the travails of the IOC, it’s about whether or not the sponsorship of both the FIFA World Cup and the Olympic Games can be justified – at a combined annual cost of somewhere between $50 million and $100 million.

McDonald’s, Coca-Cola and Visa were in a highly exclusive subset of sponsors of both. And then there were two.

Steve Easterbrook, McDonald’s chief executive, clearly decided that the company’s energy and investment needed to be focused on its core product. But for Coca-Cola, with its heavy dependence on its main iconic brand and drink (increased by its recent move to a one-brand strategy), departure is simply unthinkable.

Nearly 90 years of Olympic heritage and over 40 with FIFA mean that both properties are completely institutionalised within the ecosystem of bottlers, distributors, major retail partners and brand teams.

Exit is often hard to countenance for any business, because it leaves such a huge gap. Like Brexit. For Coca-Cola it’s particularly unthinkable because of the huge impact it would have on every part of that system, and the immense challenges it would impose – in terms of global and national market budget management, brand and financial governance and operations across all parts of that system – to replace them.

But Visa’s business model and structure is entirely different. In 2016, it had over 54 per cent of global card transactions. The value of 2016 Visa transactions totalled US$8.2 trillion. It has approximately 3.1 billion Visa cards in use and accepted by 44 million merchants. Unlike Coca-Cola, it is not a luxury, a treat or a comfort, it’s integrated within the daily fabric of our lives.

Now the IOC and FIFA are both great for global brand-building, the World Cup in particular, with the global TV exposure it offers. But Visa’s challenge in most markets isn’t awareness, but relevance. And a major quadrennial appearance on the global stage doesn’t deliver.

So the question for Visa has to be: do we need both and what is the opportunity cost?

Beyond the World Cup’s TV exposure, both properties offer promotional and incentive opportunities to drive card spend and recruit merchants and member banks. They both generate revenue from official merchandise and refreshment sales. The World Cup offers an exclusive ticket pre-sales window to Visa card holders, while the IOC contract notoriously allows Visa to impose its exclusive use on all ticket sales. For the London 2012 Olympics, this will have generated between £5 million and £7 million in interchange fees.

More significantly, the structure of the IOC’s bid city criteria offers Visa a direct opportunity to influence the payment infrastructure around the games, and an opportunity to showcase innovation which the FIFA World Cup doesn’t. London 2012 was used to accelerate the uptake of contactless payment technology. Visa used Rio 2016 as a platform for wearables, in the form of ‘the Ring’, a ring worn on the finger that allowed Team Visa athletes to make purchases by tapping their rings at enabled payment terminal.

There are no comparable examples from Visa’s World Cup sponsorship – and its ambassador for both the Olympics and the World Cup since 2012 has been now-retired Olympian Usain Bolt. Of the two, FIFA sponsorship looks by far the most vulnerable.

Interestingly, Visa’s sponsorship portfolio has grown in recent years, in pursuit of diverse objectives. In May 2015 it signed a partnership with motor racing’s Formula E series and in January this year, it launched into eSports with sponsorship of Germany’s SKGaming, before expanding into surfing in May with The Boardmasters Festival, described on Visa’s site as ‘part of Visa’s evolving sponsorship strategy aimed at engaging the millennial audience’.

Despite the millennial characterisation, Visa’s evolving sponsorship strategy looks driven by closer targeting and more regular relevance – where $100 million of rights fees from the IOC or FIFA could usefully be deployed.

When FIFA dumped MasterCard for Visa in 2006, it was hard to imagine what MasterCard could do next – because there was no substitute. Despite the $90-million compensation FIFA was obliged to pay to MasterCard, it looked as though Visa had dealt a major body blow to its rival by occupying the category with both the IOC and FIFA. And indeed, MasterCard has not been able to reassert its global stature on the sponsorship stage.

MasterCard’s post-FIFA strategy has predictably been to use sponsorship assets to deliver loyalty benefits and drive usage. And, although this delivers far less reach – it offers enviably more frequent relevance.

Visa’s memory, on the other hand of replacing Amex as an IOC partner in the late ‘80s, will underscore the value that FIFA could hold for its challengers. Amex’s decision not to renew its IOC partnership unquestionably created a different trajectory for both Amex and Visa.

Fast forward to 2017: AliPay and PayPal are both growing aggressively. China’s UnionPay – larger than Visa already in cards issued and as of 2016 the largest provider by global transaction volume – still has a far smaller global network, which a FIFA partnership could build.

McDonalds decision to exit TOP was so momentous that only the CEO could ultimately confront it. Visa CEO Alfred F Kelly Jr will inevitably be faced with a similar challenge. Ironically, Alfred spent 23 years of his career at American Express, joining in 1987. As such, he will have personal memory of the notorious 1988 Calgary dogfight between both businesses that is now part of sponsorship ambush legend.

Despite the huge cost of FIFA sponsorship, and its relative inability to fulfil a useful marketing function for three years out of four, Mr Kelly will be a brave man indeed if he follows the sign marked exit.

Red Thread

the right rights: Beats by Dre – The Game before the Game

Aside from the annual advertising festival known as The Super Bowl; the FIFA World Cup is the next biggest demonstration of creative prowess combined with a fight for share of voice.

And so, as the tournament kicks off, we all get comfy in our critic’s armchairs, yellow pencils in hand, ready to judge the winners and losers in the battle for hearts, minds, eyes, and wallets.

This year, one brand stood up to be counted ahead of the others in an ambush campaign that kicked off in advance of the tournament. Beats by Dre launched their acclaimed ‘The Game before the Game‘ advert by agency RG/A on 5 June, and it has since been viewed over 23 million times on YouTube.

By entering into rights deals with individual players, Beats managed to use their allocated filming time and product endorsement to promote themselves around the key football event, without rights to the event itself. In the words of AdWeek ‘Beats by Dre just out Niked Nike’.

At just over 5 minutes, the advert was already crossing boundaries between advertising, a music video, and a short film, but by weaving together a compelling narrative with impressive cinematography and an engaging soundtrack, RG/A managed to deliver content with emotion, creative excellence, and product placement that didn’t shy away from saying – I’m an advert, this is what I’m selling.