Dec 10, 2009 at 07:29 PM
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Is The Sponsorship Marketplace Corrupted?

The sports marketing industry has been ripped pretty good this year from lawmakers to late night talk shows, but few go so far as to call it the "the last sanctioned bases of corporate corruption." In what we can assume, will be a pretty controversial piece, zoo and acquarium industry veteran Rudy Socha ripped the sports industry in a recent post for everything from pumping demographics to buying off agencies with VIP treatment. Let me just first say, I personally feel there are some pretty misguided and outdated generalizations in this piece that at one time may have had some truth, but in today's environment are scattered if existent at all. The argument that women do not hold a significant presence in the viewing demographics of most major sports seems largely outdated. Independent studies have shown that many of the major sports leagues are pushing 30-40% female viewership. The idea that brand marketers can naively be led by agencies lured by VIP treatment seems like something of a possibility in a Mad Men episode, but the current spending climate? Nevertheless, we're all for a healthy debate so we have reposted the piece, in full, below with permission from the author. For whatever reason, do you feel there are biases within the sponsorship marketplace towards sports? Feel free to leave comments.

Are Advertising and Sports Sponsorship the Last Sanctioned Bases of Corporate Corruption?

by Rudy Socha

Can you imagine the repercussion if your corporate procurement department was receiving season tickets to sporting events or invitations to celebrity parties in return for multi-million dollar contracts? How are your company’s marketing department and advertising department getting away with procurement contract behavior that has been banned in most companies for over 30 years?

The first and most important reason they get away with this is because it’s sanctioned and all of the senior executives are receiving a small slice of the freebee graft. In most cases, it is the company’s CEO who wants those free (company paid) loge seats or to be seen at that celebrity party. To pacify any possible opposition in his company, the CEO usually shares the loge and party invitations with members of the company’s board of directors and senior executives.

Unless the sponsorship buyers represent a beer company, male clothing lines, or another product with a heavy male demographic, corporate executives need to have some justification for spending millions to become VIPs in the sports marketplace. The sports industry tries to assist with justifying the sponsorship and ad buys by pumping up the female audience demographics using all means possible. The only advertising parameter that matters is if the sports sponsorship happens to be where women are attending or watching while on a “date” with their boyfriend or husband, or if this is a venue where they would spend their time with their girlfriends and children? There are always a very small percentage of women in any sports venue who are athlete groupies and attend sporting events with other like minded women. There are also a small percentage of mothers taking children and women who are true sports fans spending their entertainment dollars in this venue. However, their combined percentage is small and in no way justifies the high ticket sponsorship buys in this market for most consumer companies. The majority of women in attendance at most sporting events are on a sport’s date.

I have spent the past couple of months examining why some credit card companies are spending millions of dollars to buy sports sponsorships, and then follow up by spending tens of millions more for the advertising to support their sponsorship purchase. I am the CEO in a media company focused on the zoo and aquarium industry. Animal attractions receive over 300 million visitors a year. Women are the primary demographic in this industry and yet few national brands are spending their advertising and sponsorship dollars here.

The reason I have chosen to review the credit card industry’s buys is because spending demographics show women to be primary users of credit cards. Knowing this, the credit card companies do not spend the majority of their ad or sponsorship dollars in women dominated venues. It does not matter which study you use, women always rank above 60% in credit card usage. What I have found is that many companies with brands that should be spending at least half their sponsorship and advertising dollars in women dominated venues have been corrupted by sporting event executive freebees and celebrity parties.

In almost every case the sponsorship purchase by itself will not work, companies also have to buy expensive ad space to inform the market about the sponsorship purchase they made. That is why you see so many Visa ads during the Olympics. The sponsorship to be the exclusive credit card accepted at the Olympics is a big loser. The sole credit card sponsorship procurement cost exceeds increased net revenue to Visa. Besides, very few people would know that Visa had the arrangement since most people will not attend any of the events and many of the tickets for each event are not even sold. For each event, a large number of the tickets are complimentary to governments, sponsors, Olympic officials, etc.

Corporations try to muddy the waters when they release statements to justify their sports sponsorship purchases. The most blatant and recent case was Ken Lewis, CEO, Bank of America. Ken stated "In general terms, for every dollar we spend on sports marketing, we get $10 in revenue and $3 in earnings. This is not wasted money."

What are the facts? The first is every consumer who spent the $10.00 for every $1.00 BOA spent on sports sponsorships already had a BOA credit card prior to making their purchase. The real question is how many consumers would have made their purchase using their BOA card without the sponsorship and advertising dollars spent in this market. Good chance it would be in the 8 – 9 dollar range. The real benefit to BOA is only 1-2 new dollars being generated, and based on a 30% drop to the bottom line as stated by Ken, this results in a net loss for every dollar being spent in this market.

Yes, you have a large audience in sports but it comes with the burden of overpricing and brand dilution. Every pro sports venue is crowded with over 100 major brands buying various levels of sponsorships. What you have is a large audience shared with an enormous number of brands and many of them are irrelevant to the core audience resulting in all the brands being tuned out and the sporting event being tuned in. The one big exception in the sports world is the Super Bowl which has become the Super Bowl of advertising competition.

On the advertising front, corruption happens with celebrity parties put on by advertising agencies and venues selling ad space. The most blatant example was Visa’s Go campaign ad featuring "take your daughter to visit an aquarium on a Tuesday". They purchased the most expensive ad space and highest rated TV shows on air at the time (Apprentice and American Idol) even through the demographics did not match aquarium visitors.

To compound this waste of corporate assets on an audience that had no interest in the aquarium ad being shown was running a companion commercial “night out that includes dinner and entertainment”. It featured a couple in a pizza parlor with the chef tossing the pizza dough in the air. It was a great commercial, however the initial buy did not include food show program purchases or sponsorship tie-ins with any pizza chains. I guess all of the sponsorship dollars were tied up in the Olympics and they could not afford to make buys in venues matching either ad buys or demographics.

Why were these high dollar purchases made to target the wrong demographics? The only surmisable reason is that purchases in the highest rated and most expensive shows included Visa invitations to Simon Cowell and Donald Trump attended events. There was no executive glitz and glamour to be offered with food show buys or pizza chain promotions.

The best example of advertising corruption via celebrity parties is Maxim. How many brands would buy a year’s worth of full page ads in Maxim magazine if those purchases did not include an invitation to Maxim’s annual star studded, model filled, Super Bowl Party?

Anyone with a basic understanding of business finance knows that for every dollar spent in procurement, you need to generate at least five dollars in sales to replace that spent dollar.

How many more years will pass before the advertising and marketing departments abide by the same internal rules as corporate purchasing? When will the primary demographics of advertising buys actually match the demographics of the brands making the purchase?

Many companies make token buys and donations to local community animal shelters, arts, zoos, food banks, charity events, etc. in an attempt to pacify critics. These are generally women dominated venues and used to portray the company as a good corporate citizen. It’s all window dressing and represents a very small percentage of their advertising and sponsorship dollars. This small percentage of advertising and sponsorship expenditures in no way matches their customer demographics.

The latest fad for credit card companies such as Mastercard and Visa is to project a positive corporate image by making token contributions to non-profits focused on micro-loans to entrepreneurs in third world countries.

Women dominated venues will never be able to compete with sports sponsorship freebies and the celebrity parties thrown by over priced TV shows.

If you own stock in a credit card or any other women driven consumer company ask for real numbers on advertising and sponsorship dollars spent in women dominated venues. Ask if executives are receiving free loges or seats to events in exchange for making a sport’s advertising or marketing buy? Don’t accept the stock bogus answer of needing the venue to entertain, especially if they are a consumer driven company. I can guarantee you it is not the general consumer being entertained by executives at sporting events. Your senior executives and board members make enough money to pay their own way to the events.

As a stock holder, in addition to eliminating corruption from the company you hold stock in, you will help increase the company’s profits and market share.

Rudy Socha is CEO of Zoo and Aquarium Visitor. Zoo and Aquarium Visitor is an online media company focused on the 300 million people who visit animal attractions every year.