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

McDonalds and the IOC: fake news from the FT?

McDonald’s departure from the IOC TOP programme has provoked much commentary. Of course, big sponsorship news always attracts its fair share of clichéd reflection and the departure of McDonald’s from TOP is very big news in the sponsorship industry. But it’s been particularly interesting to observe, especially in the context of fake news.

The worst culprit, surprisingly, is the Financial Times, in their 16 June article ‘McDonald’s ends Olympic Games sponsorship 3 years early’.

According to Leisure Correspondent Murad Ahmed, ‘McDonald’s has ended its decades-long sponsorship of the Olympic Games, becoming the latest US company to pull support and marking the latest financial blow to the body that runs the world’s biggest sporting event’.

He refers to Budweiser, Citi, Hilton and AT&T, all of whom indeed terminated relationships in recent years – with the United States Olympic Committee, of course, not the IOC. In fact, the last USA TOPs to withdraw were actually KodakJohn Hancock (after fairly respectable terms of 22 and 16 years, respectively) and Johnson & Johnson (after four years) in 2008. P&G has since more than occupied the temporary space created by J&J of course. The IOC’s TOP programme is in rude good health.

The article continues: ‘In response, the IOC has looked elsewhere for major sponsorship deals, particularly Asia’, citing the case of Alibaba – but ignores the advent of GE, P&G and Dow to the TOP programme since 2000. And today, 21 June 2017, Santa Clara based Intel is being announced as TOP number 13.

The article’s real destination, however, appears in paragraph six: ‘the departure of another big-name sponsor comes at a difficult time for the IOC, which is struggling to convince cities to take on the multibillion-dollar costs of staging.’

The FT’s article looks as though it was largely subbed down from Reuters. In which case, we’re potentially in classic fake news territory here. Were the facts deliberately misrepresented in order to feed the popular media narrative about the challenge the IOC faces in attracting bid cities?

Reuters, who looks to have led the story, provided far more insightful commentary. They looked beyond the cliché into McDonald’s current business position, citing McDonald’s CMO Silvia Lagnado and their investment in improving food quality, restaurant service and online ordering to refresh and revive McDonald’s. Their very publicly stated change of focus, in other words.

(Bizarrely, the FT article – and not Reuters’ feed – was picked up and replayed virtually verbatim by Sports Business Daily, who, of all people, should know better.)

To our certain knowledge, McDonald’s IOC relationship has been under repeated review since 2010 – definitely since before London 2012, and possibly longer. The reasons are fairly obvious, but worth exploring, because of the light it shines on sponsorship – and McDonald’s as a sponsor.

The issue of obesity is certainly high on the list of reasons. Media and public concern about obesity have shone a bright spotlight on McDonald’s, making corporate comms and public affairs a higher order need in many markets than pro-active sales promotion.

And sales promotion is one area where the Olympics historically do not perform for McDonald’s. The simple question is: what Olympic sales promotion is more cost-effective than a tie-up with Universal & Dreamworks, for example? Without an answer to that question, Olympic Partnership struggles to address the very real needs of the 80% of restaurants globally which are franchised.

Images of Olympians queueing for burgers in Rio must have been very gratifying for McDonald’s. In many ways, it offered an ideal positioning for McDonald’s – as a dietary treat, not a staple. But as a public affairs ‘defender’, it’s a blip and doesn’t work nearly as well as, for example, McDonald’s collaboration with the Association of French Regions to create 2,000 new jobs for young people in France. Or McDonald’s grassroots sport investments.

For some categories and brands, the IOC offers the most powerful sponsorship opportunity in the world. Like any sponsorship property, of course, it has its limitations. The Tokyo 2020 line-up appears to be dealing with its ageing audience profile and the IOC clearly recognises that its bidding process has become a victim of its own success. Harder to deal with is the intrinsic challenge facing all IOC Partners of maintaining relevance during the three fallow years between Summer Games. Yes, the Winter Games exist but they’re far from global in terms of reach or relevance. It works better for some categories than others.

But, according to various sources, including Kantar Media and Statista, McDonald’s has been spending between US$600 million and US$1 billion annually on advertising in the USA alone. Which puts the IOC’s rights fees into perspective, even if the IOC are seeking to double the rights fee for TOP to US$200 million. The most likely explanation is in fact not cost-saving, but simply that the IOC Partnership was no longer relevant for McDonald’s.

Steve Easterbrook was appointed global CEO in 2015, tasked with repeating his turnaround of McDonald’s GB – the mammoth task of bringing McDonald’s sustainability and service into the 21st century. Three months later, and two new global comms functions were occupied: the position of Global CMO was taken by Silvia Lagnado, with responsibility for the global brand, menu and consumer insights); and former White House Press Secretary Robert Gibbs was appointed Global Chief Communications Officer. ‘Returning excitement to our business proposition’ was how Easterbrook described the challenge to Fortune magazine.

Sponsorship excels at creating an exciting platform for some businesses, and some entire categories (banking for example). But as Apple always reminds us, the optimum creative platform is a product that is relevant, timely, alive and valued. Sponsorship is no substitute for product development. And when your sponsorship is the most interesting thing about your business, frankly, it’s time to hire your own Easterbrook.

As for the FT, it’s worrying. On this one, Potato Business did a much better job.

The Olympic Baby

We were a little surprised when we saw the IOC was planning on reforming its Rule 40.

Rule 40 currently imposes commercial purdah on Olympians for nearly a month around the Games, preventing any use of name or likeness in association with non-Games partners. Penalties for contravention include disqualification and stripping of medals (although the reality is closer to a rapped knuckle for the superstar breaches that are the legends of ambush: Johnson, Christie, Phelps)

There’s a popular case for change. Dozens of athletes launched a Twitter campaign – #WeDemandChange2012 – during the London Games, to urge an end to the rule. Rule 40 limits the commercial potential of athletes at the greatest moments in their season or even their careers. Only the very top athletes, sponsored by official Games partners, would make real money in Olympic years.

But a change is still surprising. Not only because the IOC is a conservative beast…but because this reform is potentially … radical.

The premise is to allow pre-existing marketing campaigns based on Olympians to continue, providing they are ‘generic’ ie non Olympic. But as we saw clearly in the controversies about Scotiabank’s 2010 and Honda’s 2012 campaigns, it can be extremely difficult to differentiate between ‘generic’ and Olympic marketing. The strict IP of the IOC and Games are well-protected: the marques and designations. But … mood, colours, words even.: Champion, heroic, pride… The Olympic brand is way too big to be reduced to a few protected terms.

So it’s difficult to see how ambush marketing would not be encouraged by this move. And while simple cease and desist letters are effective in blocking flagrant breaches of Olympic legislation, rights protection teams would struggle to cope with multiple negotiations of the protracted sort required by the more subtle approach of a Honda or Scotiabank.

Although LOCOG successfully restricted the ability of non Partners to use outdoor or field marketing in ambush, Games-time clutter across multiple channels is also a real risk, with the threat of Atlanta-style backlash against excessive commercialism.

But it will be the NOCs around the world who are most likely to suffer, with the dilution of their main asset. Brands will have the option to steer clear of bulky rights packages and head, instead, straight to the athletes.

And the potential is for so many brands to develop ‘non-Olympic’ campaigns that official sponsors will have to reassess the value of official Olympic turf. Or for undesirable or controversial brands to tarnish the halo of the Rings. How much did Bodog offer Tiger? Any ISFs who already accept gambling partners will be hard-pushed to take a stand when the same brands turn to athletes…

The change surely has the potential to shift the entire Olympic sponsorship landscape. Sponsors in the Olympic family will be faced with the need to develop stronger, more differentiated sponsorship propositions. The marketing landscape would be shaken up, there’s no question about that.

An apocalyptic picture. Life rarely pans out exactly as predicted, but here at Redmandarin, we’re left asking ourselves: which is the baby and which is the bathwater?

Red Thread

The Paralympics come of age

The IOC’s signature on the landmark agreement with the IPC in Sydney 2001, linking the hosting of the Paralympic Games and the Olympics, was both hugely generous and characteristically far-sighted.

In exchange for abnegating their sponsorship rights and accepting a flat capped contribution from each Games, the IPC gained the guarantee of association with the world’s most powerful sports brand. Back in 2000, the agreement looked particularly generous. From the perspective of 2012, it looks particularly far-sighted.

In the mind of Xavier Gonzalez, CEO of the IPC, Beijing marked the coming of age of the Paralympian: ‘It was really in Beijing, to my mind, that Paralympians started to be proud to be Paralympians, and didn’t need to say ‘I’m an Olympian’’. And Sochi perhaps marks the coming of age of the IPC as a force for social change: ‘The changes in legislation to make Sochi as accessible as possible will create a template for the rest of Russia. Not that this is unique to Sochi. The Paralympic Games aren’t an end in themselves – they’re the beginning of the opportunity.’

But could London 2012 mark its coming of age commercially?  London 2012, with the obvious good graces of LOCOG, has seen a number of interesting developments.

The separation of broadcasting rights between BBC and C4 gave the Paralympics a broadcast partner who would be determined to keen to tell their story as powerfully as possible. More importantly, it created a commercial platform for the Paralympic Games which was not open to the Olympics in the UK, supporting the recruitment of Paralympic partners.

From a partnership perspective, the London Paralympic Games also offers powerful precedents for successor OCOGs. While Coke’s continued success in blocking the supermarket category cost LOCOG nearly £40 million, it opened a loophole of happiness which other OCOGs will be keen to copy. As Igor Stolyarov, himself an ex-Coker comments ‘London did brilliantly by acquiring Sainsbury’s as a Paralympic sponsor, a very smart move. The Sainsbury’s deal creates a real precedent.’

The agreement between the IOC and the IPC, extended this May until 2020 effectively incentivises the OCOG to be as commercially creative as possible around the Paralympics – as any funds raised for the Paralympics go directly to the OCOG, not the IPC. On this basis, we would expect future OCOGs to be attentive to the nimble contractual footwork of London 2012 – and use the Paralympic Games as a route to dodge Coke’s TOP firepower.

Sainsbury’s clever procurement clearly saved them roughly the same amount, enabling them to invest seriously in their Active Kids programme. Active Kids has been phenomenally successful, gives Sainsbury’s the right to claim to be the dominant brand playing in school sport – having channelled the equivalent of £115 million of sports equipment into schools since 2005. But like any 7 year old affinity programme, it needs constant reinvention to regain front of mind with consumers, and this was one of the strongest drivers for a 2012 partnership back in 2007, when Sainsbury’s was a Redmandarin client.

Sainsbury’s of course aren’t disclosing their activation budget, but with a platform which includes an ambition to introduce one million schoolchildren to Paralympic sport, David Beckham on film, a respectable C4 partnership – and a £10 million commitment to the UK School Games for the next four years, they’re not saving the change – and demonstrating a commitment to community which is both broader and deeper than any other London 2012 partner.

Weighting sponsorship investment towards activation, not rights is a sensible but still unusual position. In this case, Sainsbury’s judged – correctly in our opinion – that most people wouldn’t differentiate between association with the Olympic and Paralympic Games; and if they did, the differentiation would be positive. Sainsbury’s partnership campaign, which surely deserves any sponsorship award it’s entered for, will be a case study for the textbooks.

Curiously, Wolff Olins must also take some credit. The differences between the logos for the Olympic and Paralympic Games are minimal. The colourways obviously diverge, but no more than many Tier 1 Partners who pay for that very privilege. For anyone not versed in Olympic iconography and the ranking implications of a full colour Partner logo – Sainsbury’s is just another sponsor.

Anecdotally, the Paralympics isn’t working so well in London so far as client hospitality is concerned. Although spectators at the Beijing Games were effusive and enthusiastic, there is clearly a lingering perception that the Paralympic Games lack Olympic magic for business clients. Conversely, with respect to employee engagement, engagement with the Paralympics appears to be hugely powerful. In this instance, employee engagement is probably a more reliable indicator of consumer opinion: Sainsbury’s clearly think so.

The IPC’s active role echoes that of the IOC: to oversee the organisation of the Paralympic Games (as well as serving as the International Federation for nine sports). Its symbolic role however is arguably broader than that of the IOC – to represent the rights of athletes with disabilities, and by extension, all people with disabilities. The enormous relevance of the Paralympic metaphor lies of course in the struggle we each share to overcome our limitations. For Allianz, the power of this metaphor, and their ability to integrate it into messaging, more than compensates for having to take a back seat at the Games. In the words of Joseph Gross: ‘I am 100% convinced the IPC has a very positive future. I don’t expect it to be a fast-burner, but each Games, Beijing, London, Sochi, Rio, is going to advance the profile and the impact of the IPC. Managed well, I believe its relevance extends far beyond the disability community. It connects hugely with social values.’

In ‘Working the Olympics’, Xavier likened the IPC to the IOC’s younger brother: ‘You have one son who is already established, and you have the little one who is growing and wants to do things’. We’re led to understand that, with the encouragement of LOCOG, TOP partners will for the first time (unbelievably) maintain their presence throughout the Paralympics. Redmandarin believes the Paralympics are coming of age.

NB We’re assuming Coca-Cola will do some buddying up to the IPC and consider its relationship with the Paralympic Games going forward.

Red Thread

sponsorship zen

It tickles us at Redmandarin that the IOC now has 11 TOP partners.

Brands and rights-holders often perpetuate a false correlation between sponsor numbers and clutter, and talk about sponsor clutter as though it’s an issue – and yet the IOC’s elegant solution is simply zen: de-clutter. Certainly, there is a limit to the number of partners that any property will sustain, but the limit itself depends on a number of factors, of which sponsor numbers is but one. What’s ironic is that a principled decision by the IOC to eschew easy commercialisation now looks like the more effective commercial strategy in the long run. Continue reading

the right rights: The hidden value of Dow’s Olympic partnership

In July, Dow Chemical Co., the world’s second-largest chemical maker, agreed to become a worldwide sponsor of the Olympics through 2020 to gain construction sales in host cities and boost brand awareness in emerging markets.

The deal requires Olympic hosts to give Dow products preference as long as they meet a project’s technical requirements and are price competitive in the region

CEO Andrew Liveris said at an IOC event in New York that Dow’s board approved the sponsorship after Heinz Haller, an executive vice president, pitched it as a $1 billion sales opportunity through to 2020. Earnings before interest, taxes, depreciation and amortization may reach $180 million which makes the average $72-90m rights fee a good investment without even considering the value the sponsorship brings Dow outside of the Host Cities market.

When it comes to Olympic sponsorship, supply rights are often overlooked by the wider world. For b2b sponsors, the Dow/IOC partnership may just prove a well-thumbed case-study.