March 9, 2009

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Sitting the Bench

The 2008 end-of-year fiscal reports show it: Americans reconsidered their spe...Read More

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Sitting the Bench

Corporate Sponsors Take a Time Out

Hilary Ingoldsby Whitesides

March 9, 2009

The 2008 end-of-year fiscal reports show it: Americans reconsidered their spending habits, made budgets, reviewed their necessities and scaled down their leisure activities, including sports and entertainment events. Now, arenas and theatres are considering new ways to fill the empty seats with the reality that corporate sponsors may not do it for them. Retail stores are closing their doors, airlines are grounding flights and automakers have stalling operations. With major companies in distress, whose logos will grace the walls of stadiums and fill the program books? How will organizations dependent on sponsorships survive, even thrive? And, how will companies brand their name? Walking Off the Playing Field Many major companies are crunching the numbers, pinching pennies and pulling their corporate sponsorships as a measure to avoid bankruptcy. Economic big hitters like General Motors (GM) and Whirlpool have not only laid off thousands of employees nation-wide, but also pulled out of major sponsorship deals. GM recently announced that the company plans to cut its marketing and promotions budget by 20 percent—a cut that led them to end a sponsorship deal with the New York Yankees and sent the baseball team looking elsewhere for an auto sponsor. GM also concluded contracts with the Pittsburg Pirates and Tiger Woods. In September of 2008, the automaker announced it would not be advertising during the 2009 Superbowl and also turned down deals for television ads during the Emmy Awards and Academy Awards. Whirlpool, which laid off a reported 5,000 employees nation-wide, pulled out of a sponsorship deal with the Women’s Professional Soccer League (WPS), leaving the league to look for a new last minute sponsor. WPS was fortunate to strike a multi-year partnership deal with the athletic brand Puma. Hitting Close to Home Utah sports teams also rely heavily on sponsor dollars, but also use ticket revenue. The two sources of profit are closely tied together, but ticket revenue isn’t the big money maker fans think it is, says Paul Christensen, Utah Flash vice president of sponsorship. While ticket revenue may not bring in as much money as big sponsorship deals, a company is more likely to become a team sponsor if ticket sales are high. That’s because it raises company exposure. So, Christensen says, the Flash focuses on attendance so sponsors get more exposure for their money. “People don’t realize it, but even teams like the Jazz have to work really hard to keep the fans happy,” Christensen says. “And smaller teams like us have to work even harder. If the community doesn’t support us, we can’t keep doing it. We do a lot of things to get people to come to our games and see how fun they are.” The Flash, like other sports teams, offers exclusive sponsorships within different industries, such as only one sponsor from the medical field, auto industry, real estate, fitness, retail and so on. This year, the basketball team lost a real estate firm, and although new companies came on board, Christensen feels it will be almost impossible to replace the real estate firm anytime soon due, obviously, to the hurting real estate market. Christensen also says that companies in the struggling auto industry are reluctant to sign sponsorship contracts. “You would sooner get blood from a turnip than get money from a car dealership and normally they were big sponsors,” Christensen says. According to Christensen, some existing sponsors renewed their contracts this year, but at a significantly reduced rate. Andrew Wells, general manager of the Orem Owlz, agrees that fewer companies are able to renew or increase their sponsorship and says that the Owlz have to be creative to solve the problem. “We read the paper and we are very aware that we have to be delicate and understanding to the market,” Wells says. “We have been trying to reduce pricing and help people and target companies that maybe don’t have money for sponsorship or advertising, but want to reward employees in an affordable way.” The Flash and the Owlz have a number of different sponsorship packages; companies can choose from game tickets, signage and other types of recognition, or a mix of the two depending on their marketing needs. Wells and Christensen believe that such diversity, and affordable prices, continues to draw new companies to sponsorship. However, when sponsorship dollars run dry and ticket sales drop, sports organizations have only two options: fall back on their ownership group or shut down. The Utah Blaze fell prey to the latter of the two this season when the Arena Football League announced it would suspend the 2009 season until it revamped its economic model. Home Turf Advantages Like sports franchises, other event holders rely heavily on corporate sponsorships. The Sundance Film Festival received extra attention in December when erroneous reports said the festival would seek state funding to subsidize a loss in sponsorship funds and growing costs to run the festival. According to Jill Miller, managing director of the Sundance Institute, the institute did make a presentation to the Governor’s Office of Economic Development (GOED), but did not ask for state funding. Instead, the institute outlined its economic impact on the state, its goals and the struggles to maintain a successful event—including less security due to shorter-term sponsorship contracts. The presentation to the state was the first of its kind for the institute. “We thought it was a good time to come before the board and tell them where we are and how important we are to the state. We know what the board’s goals are and our goals are in line with those goals,” Miller says. “We just wanted to say ‘let’s keep working together.’” Miller did, however, share some of the struggles the festival faces, which include growing costs for venue rentals and lodging. The film institute lodges press, employees and filmmakers and, as a non-profit organization, all revenue from the festival is reinvested into the institute and artistic programs. Another challenge is what Miller calls “ambush marketing,” which is when a company pays to rent an advertising space in Park City during the festival without being a sponsor. “They ride on the tails of the festival and rent venues on Main Street to promote their product,” Miller says. “Suddenly the cost of renting a venue on Main Street increases and we, as a non-profit, can’t pay those rates.” Despite the struggles, sponsorship for the festival this year was comparable to prior years. New sponsors included Got Milk?, Honda, Brita and Timberland. Returning sponsors included Entertainment Weekly, Microsoft, HP and many others. Sponsorship discounts were not given, but benefits for sponsors were customized, offering more tickets or more logos depending on the company’s needs. Emily Laskin, the institute’s director of development, says the institute is extremely pleased with the quality of its sponsors this year and that the organization didn’t make any sacrifices or decisions it wouldn’t have in a more robust economy. “If there was a change this year, it would’ve been that all of the sponsors were more rigorous in looking into the response they would get and making sure it would be a good return for their investment,” Laskin says. “All we saw was that folks were taking a little bit longer to look at this year’s contract.” Miller agrees and says that although it took longer to secure sponsors this year, and many only signed one-year contracts instead of three-year commitments, the festival was thrilled with its sponsors. GOED is also pleased with the continued success of the festival and what it means for the entire state. “The Sundance Film Festival is an amazingly successful program for the state of Utah,” Jason Perry, executive director for GOED, says. Outdoor product expo Outdoor Retailer is another big money-maker for the state. With summer and winter expos that bring in hundreds of retail companies from around the world, Outdoor Retailer is the biggest expo of its kind and calls Salt Lake City home. “We love Salt Lake City,” Kenji Haroutunian, Outdoor Retailer’s show director says. “There isn’t a better city for natural resources and recreation.” According to Haroutunian, the outdoor industry is expected to weather the economic storm better than other sport industries. That’s because many people choose to stay close to home and go camping or hiking instead of spend more money to travel. However, even outdoor outfitters can’t escape their link to the bigger business world and have also been negatively affected by the crumbling economy. Haroutunian estimates that sponsorship for this year’s expo is down by about 10 percent. However, around 200 new companies will display their products at the expo this year and big names like Timberland, Northface and Columbia are still involved. A bigger worry, Haroutunian feels, is the current credit freeze which could eventually hurt local outdoor outfitters that purchase products on credit to prepare for their big selling season. Team Players While Utah’s economy is stronger than most, state corporations and organizations are clearly not immune to sponsorship struggles. “The current economic climate is making companies think very hard about sponsorships and making sure it’s in line with their missions,” Perry says. “Many events aren’t suffering, but it is a very difficult time to be asking for money.” The good news is that while some major corporations are drowning in economic turmoil and unable to sponsor events, many businesses are starting, expanding or relocating in Utah. GOED and the Economic Development Corporation of Utah (EDCUtah) are focused on recruiting and retaining businesses for the state. Jeff Edwards, president and CEO of EDCUtah, says that big projects continue to arrive in Utah, including a $600 million Procter and Gamble distribution center in Box Elder County. Other big projects in 2008 included ATI metal fabricating and refinery in Tooele and the Duncan Aviation aircraft maintenance shop in Provo. Approximately 5,300 jobs were created in Utah last year. While EDCUtah doesn’t have funds for troubled companies or events, the organization can help businesses make connections with other businesses or financing institutions. GOED is also instrumental in enticing new companies to come to the state, but Perry says despite the troubled economy, GOED hasn’t had to increase incentives to motivate them. He reports that Utah has made major announcements for new or expanded businesses in the state every month for the last 28 months. Calling the nation’s economy “uncertain,” Perry says Utah has premier recruitment resources to bring business to the state and boost the local economy. “Our primary mission is to recruit companies and help expand companies, and we have significant resources to do so,” Perry says. According to Edwards, Utah is in the top five states in the country with the lowest business operating costs. He says the state can help new or expanding businesses with tax incentives and help with workforce, water, gas and commercial locations. Event hosts and businesses can also ask the legislature directly for additional funding. An Economic Home Run Keeping sports teams, special events and other organizations that depend heavily on sponsors afloat isn’t only important to Utah’s society and culture, but vital to the state’s economy as well. Over the past five years, the Sundance Film Festival has generated $268 million in economic activity for the state—bringing in $63 million last year alone. “We are doing a lot for the state and it’s a great fit,” Miller says. “A big part of why we are successful is that it’s [the festival] is done in Utah.” Calling the festival a “major economic driver,” Miller says it’s important for the institute to have more dialogue with the state to help everyone better understand the challenges. Although it is yet to be determined if and how the state could help the festival, GOED and the Film Institute agree that the festival’s continued success in Utah benefits everyone. “There is a huge tourism component to the film festival,” Perry says. “It is in our interest to help them because the international exposure is phenomenal. Also, surveys show that Sundance participants come back.” Outdoor Retailer, according to Haroutunian, brings 35,000 people to Utah every year and generates an estimated $34 million in economic activity with increased use of restaurants, recreation and lodging. In 2003, the outdoor outfitter show was close to leaving Salt Lake City because it had outgrown local facilities. When local businesses heard about the potential loss, many downtown businesses rallied with the state government to expand and improve the Salt Palace to better host the event. “It was important to the businesses and to the state, and they came together and found a way for us to stay,” Haroutunian says. Even minor league teams like the Utah Flash and Orem Owlz have a greater impact on the local economy than one would think. “We feel like we are certainly an asset. We want to provide fun, affordable entertainment and as we do that, we employ more people, sell more products and help promote more sponsors,” Wells says. Perry hopes businesses will continue to support each other in whatever way they can to ensure a positive synergy among local business and more success for everyone involved. “There are events you could sponsor and events you should sponsor,” Perry says. “There are events, like Sundance, that have a very clear response on investment. It still makes good sense to advertise and have your name out there.”
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