Andrew Walsh: "A safe haven"

Founded in Cologne in 1986 by two students from the city's sports university, as a company focusing primarily on market research in the field of sports sponsorship, Sport+Markt has since grown into a multinational operation with 13 offices in seven countries and projects spanning the globe. Their expanded services still cover market research but also include consultancy, commercial auditing, multi-media compliance monitoring, and media and audience research and has helped draw in big-name clubs and clients, among them Bayern Munich, Liverpool, Barcelona, Coca-Cola, adidas, the Premier League, UEFA and FIFA.

FIFA World caught up in August with Sport+Markt board member and head of international affairs, Andrew Walsh, and asked his views on the current financial malaise. Without downplaying the potential effects of further losses on the international stock markets, Walsh is convinced that sports sponsors and rights-holders can look to the future with a fair amount of confidence - in some cases even benefiting indirectly from the downturns in other sectors.

FIFA World: It seems the recent downturn in the global economy has been felt in nearly all sectors of industry, so how bad is the situation when it comes to the business of sport and sports sponsorship?
Andrew Walsh:
Certainly some people are struggling, that much is unfortunately clear. But based on the research we have done since the economic crisis began, the outlook for the sports sector is quite positive. In general people are watching their pennies, going out less, spending less on the cinema and theatre. But sport seems to be something of a safe haven that people are retreating to, both in terms of attending sports events and participating in sport by going to the gym or whatever. In fact, according to our research approximately three out of five respondents that attended sports events in either Germany or the United Kingdom claimed that they did so in order to take their minds off their everyday concerns. On top of that you have an actual increase in the amount of sport being watched on television or followed on the internet - because of people choosing to stay home more.

But what about those investing in sport, particularly potential sponsors who might be suffering in their core businesses?
Again, sport is holding up surprisingly well, particularly if we focus on the top football packages and platforms, such as the competitions organised by FIFA, UEFA or the bigger national leagues and clubs. Sponsorship of teams or events tends by its very nature to take place over a longer period of time than a classical advertising campaign, which may only run for three to six months, so the effect of the crunch has been much more spread out and much less brutal than what we have seen in other sectors such as banking or indeed in classical advertising. Having said that, finance and banking are two of the sectors who have been highly involved in sports sponsorship in the past so there is still an element of "watch this space" ... Generally speaking, though, sports sponsorship is seen as providing very good value for money, so even those companies who are making cuts in spending elsewhere are trying hard not to cut back on their activities in this area. The recent story with Manchester United losing their jersey sponsors provides an excellent example of both sides of that coin. AIG had to cut their losses, and normally you'd be thinking "what are the club going to do now to replace that unbelievable amount of money?" But then United were able to turn around and come out with an even better deal. We saw a similar situation with the Premier League managing to replace Setanta with ESPN after the former went bankrupt in the UK. Although individual companies will suffer and potentially go under in the crisis, the demand for the premium packages and platforms remains strong and can even be expected to continue growing, though perhaps not as rapidly as before.

Even if companies are still investing in sports sponsorship, has the downturn led to any changes in how they invest?
There have certainly been big changes, although I think this was partly a process that was happening anyway. When money gets tight, that obviously focuses the mind a bit and helps to accelerate change. In the past we would have marketing directors coming to us from big firms, saying that they had invested in a particular event or club because their chairman, or the chairman's wife or his daughter was a fan, and they would be asking us what they could do with the situation. Nowadays, thankfully, sponsors are much clearer about what they want to get out of a project, and they are doing their analyses before they agree to the deals - which is obviously the way that it should be. Companies now want to feel they are really getting "ownership" of the sponsorship activities they are involved in, and a feeling that the product is truly tailored to their needs. If you look at Emirates as an example, their business is all about linking up destinations and focusing particularly on hubs such as London, Hamburg and Dubai of course. So when they get the naming rights to Arsenal's stadium, people can always discuss whether the finances involved are high or not but ultimately they are establishing themselves as part of the London scenery and really identifying themselves strongly with the city. Similarly, you are seeing more and more telecom companies getting involved in sports sponsorship but expressing an interest in sponsoring a club's internet platform or some other aspect of the club that highlights their technological expertise, rather than perhaps just having a traditional advertising hoarding inside the stadium.

Presumably, clubs and rights-holders are also having to adapt and offer more attractive sponsorship options?
Absolutely. It's a needs-must situation because sponsors are becoming more demanding. When a rights-holder goes to a sponsor, he needs to have an open mind and ask what he can offer to fit in with the company's own marketing concept of their brand. But this is a good development, because the way you maximise revenue from a partner is by giving them what works for them. Related to that is the fact that more and more sponsors are spending significant amounts on monitoring the effectiveness of their campaigns. When you have key indicators you can measure to see if a sponsorship activity is working, then it is much easier to make corrections or fine-tunings. That way, when it comes to renegotiating a deal, hopefully everyone is sitting in a happy place and the rights-holder can ask for more revenue, because the sponsor can see that it's justified.

With a struggling economy, is there much concern among your clients about ambush marketing, as rival companies look to falsely associate themselves with events without paying for the privilege?
Well, ambush marketing has always been going on and probably always will do but firms are increasingly wising up to the fact that in general, ambush marketing is far less effective than official sponsorship. Roughly speaking, we estimate that sponsors have to spend at least two to three times as much on promoting a sponsorship deal as they spent on actually securing that deal. So if you spend USD 10 million on sponsoring a competition, you need to put around USD 20-30 million more into your promotion of it, whether that's with TV ads, other media campaigns or point-of-sale promotions - so that a car company, for example, is visible at the stadium but then also reminds its potential customers of that connection when they enter their local car dealership. An ambush marketer does not have to fork out the original USD 10 million but they would probably have to spend around USD 50-70 million on their marketing activities to enjoy anything like the same effect, because they do not have that official association with the brand for them to "hook into". So deliberate ambush marketing can actually be more expensive than official sponsorship.

Have you noticed much of a change in the type of companies who are sponsoring sport now? Has the financial crisis brought many "new players" into the industry?
We have seen a surge of interest in recent years from certain sectors, such as telecoms, while some of the classical sponsor types such as tobacco and alcohol have found their way increasingly blocked. I think that travel and tourism is also on the up as the fight for the tourist dollar intensifies. Nevertheless, the most obvious change as a direct consequence of the economic downturn has probably been seen rather in where the key sponsors are now coming from, geographically. In the past, a lot of the big blue-chip firms that we saw in European football's top competitions were primarily from the United States or Japan, with the Korean firms also making an impact. But now that some of those are suffering due to their location in the classical finance centres, the door has opened much more to other regions such as China and India, other emerging markets and the Middle East. The landscape is changing, which also brings new challenges as European club owners and rights-holders have to learn how to deal with different corporate structures, cultures and expectations.

The sudden arrival of this "new money" in the game has also led to concerns in some cases over the reputability of the funds. Do you think the clubs and rights-holders are paying enough attention to the possible damage they could be doing in the long-term to their own brands?
Probably not, or at least not in all cases. I think everyone has the feeling right now that, financially, it's a real rat race and that helps some people turn a blind eye to the details of where the money is coming from. You take what you can to survive and worry about the consequences later, seems to be the approach. It doesn't help that in football, you tend also to have a very high turnover of staff, from the chairman and CEO downwards so there is not always much pressure or obligation to worry about the future. When it comes to particular types of sponsor, you also of course have the recent rise in interest among companies in the gambling industry. Football is obviously a very attractive platform for them but questions are obviously being asked as to whether the negative connotations are a price worth paying. It's up to the sport's governing bodies and even national governments to keep up the pressure on this issue and discuss where the lines need to be drawn. Nevertheless, it is important that the various sources of "new money" are not all lumped in together. In the case of companies in emerging markets, they may seem exotic to European customers and are perhaps not yet household names here. But most of them are perfectly honest companies who are just trying to launch themselves into the European market place, just as the big European brands have done and continue to do overseas. That is part of what makes the current economic climate not just challenging but also exciting, at least when it comes to top-level sports sponsorship.