Pressing on | stanton-company.com

Pressing on

With the world’s economy in a tailspin and a year to go before the Winter Games, Olympic stakeholders are bracing for Vancouver 2010.

It wasn’t supposed to be that way. Just six months ago, at the height of the Beijing Games, stakeholders were eyeing the Vancouver Olympics with unabashed enthusiasm. A North American Olympics in a winter wonderland with a passion for sports looked like the perfect recipe to extend the momentum and interest generated by the Beijing Games.

But that enthusiasm has faded as quickly as the value of stock portfolios in the past year.

The diminished optimism for the Vancouver Olympics is visible in all facets of the business around the Games. The indicators include cuts to the Vancouver 2010 budget, concerns among local restaurant owners about rental prices, a shrinking sponsorship roster at theU.S. Olympic Committee, and worries among agents that their clients will find fewer endorsements.

“There’s a lot of uncertainty and a lot we won’t know at minimum for at least two quarters,” said USOC Chief Executive Jim Scherr. “Some things are within the movement control. Some things are out of our control.”

“We aren’t immune to the economic downturn,” said Dave Cobb, Vancouver 2010 executive vice president of marketing. “We still have millions of dollars to raise and we’re a little more cautious than we were a few months ago, but we’re optimistic.”

The challenge ahead

The fundamentals for the Vancouver Games remain strong. The organizing committee, VANOC, has secured all but $2.4 million of the $680 million it targeted for sponsorship revenue, it has completed $464 million in construction for its venues, and it has finalized plans to spend $1.04 billion in the local economy to buy services for the Games.

“One of our objectives was to do everything as early as we can,” Cobb said. “We wanted to limit the risk of getting behind schedule and the financial risk that would cause.”

Still, Cobb acknowledged that the downturn in the economy has forced VANOC to make some hard choices. A recent budget review led it to make a series of changes, including scaling back Olympic medal ceremonies in Whistler (projected to cost $4 million) and reducing the number of employees it plans to hire this year by 100 people, an 8.3 percent decrease.

Other challenges also have emerged since the recession set in last year. Cost increases for Vancouver’s athlete village, which is projected to cost $820 million, required the city to take over the project after a hedge-fund lender cut off payments for it. The city will borrow $375 million to cover the project, a move that caused Moody’s Investor Service to downgrade the city’s credit rating from AAA to AAA-.

VANOC also saw one of its partners, Nortel Networks, file for bankruptcy. Much of Nortel’s commitment has already been delivered, Cobb said, but he added that the filing underscores the challenge facing sponsors and the organizing committee in this economy.

The International Olympic Committee is committed to giving Vancouver $160 million from its sponsorship program but is currently short $21 million. The ability to make up for such shortfalls in the budget with last-minute sponsorships is more challenging for the IOC and an organizing committee during a recession, so as a cautionary measure, VANOC set aside $21 million in contingency money.

“There are still industries doing quite well, so last-minute deals can still happen,” said Rob Prazmark, CEO of 21 Marketing. “There just might be fewer of them.” The longtime Olympic sponsorship salesman compared the challenge facing Vancouver to the one that faced Barcelona in 1992 and Salt Lake City in 2001.

Local expectations

The impact of the recession won’t be limited to the organizing committee but will extend across Vancouver’s local economy. An economic impact study by InterVistas Consulting originally projected a maximum benefit of $3.3 billion from the Olympics, but the recession means benefits to Vancouver’s economy likely will fall on the low end of the firm’s projections, to $1.6 billion.

Vancouver hotels and restaurants still expect the Olympics to stimulate the local economy at a time when the rest of the travel and hospitality industry worldwide is reeling. Stephen Darling, general manager of the Shangri-La Hotel in Vancouver, has allocated 80 percent of his hotel to VANOC and already has a waiting list of 50 names for rooms. He’s adding four to 10 names a week and expects the hotel to have no vacancies from mid-January to March 2010.

Geoffrey Howes, who manages three Vancouver restaurants, said the recession has forced area restaurants to be more conservative in the prices they quote sponsors looking to reserve a restaurant for an evening. That has forced restaurants to dial back their expectations for the amount of revenue the Olympics might generate.

“The sponsors are there and committed, but they’re looking for reasonable value,” Howes said. “The challenge is not to be too greedy.”

Sponsors are expected to curtail activation spending in Vancouver, as well. Many sponsors spent lavishly on their activations in Beijing because of the size and potential of China ’s emerging market. That will be dialed back in Vancouver, agency and Vancouver executives said, and many activation plans are still in the works.

USOC, athletes feel pinch

The USOC and U.S. national governing bodies have suffered from cutbacks in sponsorship spending, as well. Over the last two years, the USOC has lost a series of sponsors including General Motors, Home Depot and Kellogg’s. It has yet to add any new partners ahead of the Vancouver Games.

Despite those challenges, the USOC has increased its financial assistance to NGBs from $8.9 million in 2004-05 to $13.3 million in 2008-09. The 49 percent increase comes at a critical time for NGBs, which also have struggled in the economic downturn. The U.S. Ski and Snowboard Association cut pay for all staff by 10 percent, and USA Luge has lost more than $1 million in sponsorship revenue since 2007. Other NGBs have struggled to land new sponsors a year out from a North American Games that many expected would be a boon to their bottom line.

Turnkey Sports Poll

The following are results of the Turnkey Sports Poll taken in January. The survey covered more than 1,100 senior-level sports industry executives spanning professional and college sports.

Which Winter Olympics sports athletes are the most marketable?

Figure skating

47.69%

Snowboarding

24.62%

Downhill skiing

12.82%

Ice hockey

8.72%

Speed skating

2.56%

Short-track speed skating

0.51%

Other

0.00%

No response/Not sure

3.08%

Source: Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. Turnkey Intelligence specializes in research, measurement and lead generation for brands and properties. Visit www.turnkeyse.com.

“As companies re-evaluate their budget, their Olympic passion has not waned but their budgets have been scaled back,” said Michael Neuman, president of Amplify, a sports marketing agency that represents U.S. Speedskating. “That’s made it tough to sign new deals.”

Athletes are facing similar challenges. Agents expect the economy to make it more difficult for Olympians to secure endorsements and say budget delays have meant endorsements are being signed later than usual. Some, like CAA’s Lowell Taub, who represents skiers Julia Mancuso and Bode Miller, have been working to maintain relationships with potential sponsors rather than pitching them clients right now.

“Deals will still get done, but you have to be sensitive to the marketplace,” Taub said. “What used to be a presentation about what an athlete cost has turned into a conversation about what a sponsor needs and what their budget is so that you can figure out a partnership.”

Amy Stanton, who represents snowboarder Gretchen Bleiler, added, “The pool of money may be smaller but there will still be opportunities. The reality is people are making cuts where they can and athletes will be affected.”

Too close to call?

While the economy has dampened some of the optimism for Vancouver, it hasn’t extinguished it. VANOC has sold more than $300 million in tickets already, surpassing a high mark set by Beijing organizers. Numbers like that have longtime Olympic insiders like Michael Payne, who ran the IOC’s marketing program for more than a decade, insisting that it will be a phenomenal event that surpasses the 2006 Torino Games.

“You look at the fundamentals (of Vancouver) and this is a country that cares about winter and has a natural association with winter, not to mention it is a dynamic, attractive host city near an intimate mountain setting,” Payne said. “When you see the end result of Vancouver, they will have equaled or raised the bar on any previous Olympic Games.”

But many are taking a wait-and-see approach, withholding predictions about the potential for the Games and monitoring the evolution of the recession.

“By the time we hit three months before the Olympics and you have to make go and no-go decisions about hospitality and activation, will there be a light at the end of the tunnel?” said Chris Welton, CEO of sports marketing agency Helios Partners. “If there is, we’ll be fine. If not, people will retrench and it will be a somber Olympics.”

Posted on: February 16, 2009