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

Sponsorship as organisational change-driver

For Redmandarin, a full 90% of client briefs relate to deepening brand engagement. This might be expressed as re-positioning  shift of audience focus, reappraisal, building NPS or advocacy, but, ultimately, it comes down to people feeling warmer about the brand.

But there’s another objective which surfaces much more rarely – organisational change.

And sponsorship’s potential is enormous.

We came across some great examples in our research for Working the Olympics.

Visa and Samsung are the textbook studies for Olympic brand transformation, but a less well known example, is AMP, in Sydney 2000. AMP is an Australia-based financial services company, formerly the Australian Mutual Provident Society, which was a non-profit life insurance company. In 1998, it was demutualised and listed on both the Australian and New Zealand stock exchanges.

American CEO George Trumbull had been employed to manage the listing and drive it hard. In his words: ‘I took Olympic partnership to be a deliberate, all-encompassing transformation tool that would reduce the time I would need … from 10 years down to 5.’ And he used the Sydney Games very successfully to drive the internal cultural transformation from an older style, older world business to a very contemporary, sharp, highly-focused, customer-centric model.

VW China, similarly, used Beijing 2008 to drive dramatic internal culture change. VW China began as a joint venture with the Chinese government, which saw its market share drop from 50% to 15% as it emerged from the aegis of government protection into a new commercial landscape – with the liberalisation of the Chinese market.

So VW China used the Olympics as a tool to rally the organisation, 40,000 people, to a new level of competitiveness – in what they actually called the Olympic restructure programme, embedding Olympic terms, thinking and targets across the entire business to increase responsiveness, flexibility, customer-centricity and raise performance levels. Again, with great success.

Redmandarin’s main experiences of sponsorship as a lever for OD were with UBS, and Philips Electronics. UBS explicitly used their sponsorship of Ernesto Bertarelli’s entry into the 2003 America’s Cup, Team Alinghi, to cement their global brand. Their sponsorship, which ended in the victory of Team Alinghi, was notably successful in leveraging relationship-building opportunities across the various divisions – and grouping employees around a single, global objective.

We helped Philips use the FIFA World Cup to accelerate their ‘one Philips’ philosophy as an operational reality across their  (then) five business divisions, even bartering rights with Toshiba to ensure every Philips division had skin in the game (semiconductors, actually).

Tail and dog? It feels almost hubristic to suggest sponsorship could be considered as organisational change-driver… why can’t it just stay in its box?

David Aaker, when we interviewed him in 2009 for our first publication, Defining Sponsorship, correctly identified one benefit of sponsorship as ‘spanning organisational silos’ and this particular dimension of sponsorship certainly supports organisational change – but David’s point (which was not specifically addressing questions of OD) overlooks some powerful intrinsics of sponsorship.

What enables sponsorship to reach target audiences so well is its ability to sidestep emotional resistance – conscious and unconscious . It’s a psychological truth that people, we I should say, don’t like to feel unseen, unheard, or unvalued, which, I remember one of my teachers once telling me, is the single greatest cause of anger on the planet. When we’re objectified (be it as consumers, voters, readers, shoppers, subjects or employees), we resist: in fact, we’re endlessly creative in our resistance. We look for ways to subvert systems and ‘policies’. We switch off and zone out. We kick. Or play dead.

But sponsorship has the ability to sidle up to people gently, engage them in conversation, and creative an affective relationship – without provoking resistance. From that perspective, it’s the ultimate route to reach the hard-to-reach – and that can include employees.

Much of current attention on resistance to organisational change focusses on affective, that is, emotional processes, recognising that we as human beings have the tendency to populate areas of unknowing with the products of our own imagination: ignorance is fear, in other words. And what sponsorship can do is engage with and validate employees’ emotions through a clear demonstration of corporate empathy: we understand you. Instead of asking employees to adopt corporate values, it makes the clear statement: we share yours.

What Alinghi, interestingly, had in common with the Olympics was a clear sense of shared and public purpose – and adventure: for Alinghi, the sense of purpose was almost crusading – to bring the America’s Cup to Switzerland. For those who have lived it, this feels very reminiscent of start-up energy, a time of ambition, when everything is possible, regardless of the odds, with a unifying, motivational sense of organisational purpose that can be buried beneath layers of operational procedure.

David Aaker was entirely right of course to highlight  sponsorship’s ability to span silos, cross-functions and create fresh conversations.  And when these conversations are around, for example, the sort of innovation required to grapple with an out-of-corporate-body experience – such as the Olympics, it’s easy to see how this can be used to support change.

Relationships, both internal and external, become fixed, just like neural pathways – with the danger that one’s universe becomes very limited. Organisationally, businesses naturally like to operationalise – to harness extensive workforces. But the danger is that your relationships, your business model and your thinking become fixed – and your systems become as much of a limitation as a support.

Intelligently crafted, sponsorship offers an opportunity to reconfigure your system.

Global – Local Sponsorship Portfolios

As interest ramps up at the peak of the 4-year Olympic cycle, as well as the UEFA European championships year, there’s going to be a lot said and written about major global platforms; and with our new Olympic publication we’ll probably be as responsible as anyone. With all that going on, I’m keen to maintain a balance and address some of the broader issues facing sponsors beyond the major global flagship properties, and for that matter beyond sport. Continue reading