When in Business, hope you’re a good sport

The Olympics, the world’s grandest and most significant sporting event, failed to generate profit until 1984.

The Los Angeles Olympic Games in 1984 were the first modern Olympics to be profitable, thanks to commercial sponsorship and financing. Some of the profits were used to support youth sports and coach development, which benefited grassroots and the sport at an elite level. The Tokyo Olympics of 2020 generated a revenue of about 5.2B US Dollars.

And as of 2022, who doesn’t love sports? Sporting events attract a lot of eyeballs, opening tons of opportunities to market products. Brands can leverage these events by getting the brand name, logo, and mission in fans when they are most engaged in sports.

For example,

Nike, the most prominent sports brand, exploits the attention economy by burning billions of dollars in sponsoring various events yearly. It has partnered with sports celebrities like Cristiano Ronaldo, Ronaldinho, Zlatan Ibrahimović, Tiger Woods, LeBron James, and Neymar.

The case of Michael Jordan

The story goes that Michael Jordan was fined $5,000 by the NBA every time he wore the shoes during their debut in 1984 because their colours broke the league’s uniform rules. The nation had to listen to a story about a rookie who defied the NBA. Nike was more than willing to pay the $5000 fine.

Ironically, an advertising campaign would have been more expensive than the fine.

As David Falk, Jordan’s manager said: “By the end of year four, Nike hoped to make $3 million in sales. But by the end of year one, they’d made $126 million”.

The Jordan Brand crossed $5 billion in annual revenue before June 2022.

How do sporting events get sponsorship?

An event in its infant stage needs to approach companies for sponsorship. In contrast, the opposite is true for an established event with a huge fan base. Companies compete to get themselves associated with the event. For example,

Lets take a look at IPL:

It’s visible over the years how companies are paying hundreds of crores just for sponsoring the title of IPL.

Regarding the Indian Economy, IPL has a great hand in contributing to the GDP rate of India. Broadcasting, Tourism, Advertisements, etc., contribute significantly to IPL’s income.

In 2022, IPL reached up to 229 million users’ viewership. It is estimated to increase more in the upcoming years. The viewers of IPL are not just limited to Indian citizens but to the whole world. Advertising on such a big scale enables brands to reach their targeted audience with a single move, making IPL more suitable as part of the marketing strategy.

Types of sponsorships in sports

1. Individuals

Brands pay athletes for training and travel costs to display a logo, wear a particular brand or endorse products.

2. Teams

Sponsor pays hefty amounts to a team or club for wearing their kits, displaying banners, or carrying the company name. In some cases, the stadiums are also named after the company.

3. Sports

Sponsors can rename competitions (say VIVO PKL ) and advertise their company through the competition.

4. Events

Brands fund the running of the event, provide free products to participants, and the organisers allow the use of their logo on products.

The Case of Red Bull

Red Bull is renowned for spending millions of dollars on sports and collaborations with athletes. Red Bull invests in a wide range of sports, from football and Formula One to extreme sports.

Red Bull now owns three football teams- RB Leipzig, Red Bull Salzburg, and New York Red Bulls and has produced world-class footballers like Sadio Mane.

The company also owns two Formula One teams- Red Bull and Toro Rosso.

Sports superstars such as Neymar Jr also work closely with the brand.

Let’s take a look at Red Bull Stratos.

Red Bull Stratos was a skydiving project with Felix Baumgartner. The Austrian jumped from a height of 128,000ft, breaking world records and providing valuable scientific and medical data for future pioneers. Red Bull reportedly spent $30 million on the project.

It also turned out to be a brilliant marketing event as it garnered 47 million views on YouTube and was widely broadcasted by the media.

Conclusion

Sports and sponsorships have a symbiotic association helping each other grow. Sports get funds from sponsors to augment their sports, giving companies an enormous potential consumer base — a perfect win-win scenario.

A blog by Chudi Dhruv and Pranav Kapparad