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MP91008

MAPS SPONSORSHIP JULY 1998

Overview

Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

The UK sponsorship industry has been growing rapidly since its beginning in the mid 1960s. It originated with the sports sponsorship sector, and has since spread to many other concerns such as arts, media, charities, and education. The growth of the sponsorship industry is largely at the expense of other forms of advertising, particularly media advertising, and also due to the restrictions on advertising products such as alcohol and tobacco. Sponsorship has developed into a universal medium due to global events, particularly in the sporting world, and sponsors will pay large sums of money to be associated with events that have worldwide coverage.

Sponsorship was originally used as a method of creating awareness of a brand or a company. As the medium has matured, it has become a method of shaping brand identity, and is used in conjunction with other marketing tools.

As a result of considerable growth in the industry, there has been an increase in support services such as sponsorship consultants. Support companies have increased in professionalism, and there is a growing trend towards specialisation by sponsorship category. Advertising agencies have overcome their prejudice and are now forced to accept sponsorship as a legitimate marketing tool by offering sponsorship as an option to their clients. Research agencies are a useful development in providing profiles of audiences and evaluating success using measurements associated with traditional advertising.

There are a number of factors influencing the sponsorship industry. Currently the most pertinent factor is the impending ban on all tobacco advertising and sponsorship. This is an ironic development for the industry, since its growth was largely due to restrictions on other methods of tobacco advertisement.

The ban on tobacco advertising and sponsorship comes into effect later this year, although current sponsorship deals will have a period of grace to draw to a conclusion. All tobacco sponsorship will be outlawed in Europe on 1 October 2006. The UK marketing sector is set to lose over £100m as a result. This legislation is fuelling fears that there may be similar bans on sponsorship by alcohol brands.

Other factors influencing the industry include government intervention and the National Lottery. The level of government funding for sports and arts is key to the survival of these activities. Whilst business sponsorship contributes much of the funding to keep events and organisations alive, the majority comes from the government, and there is a general belief that this is an area for which the government has a duty to provide. If the government were to reduce funding, it does not necessarily mean that businesses would fill the gap as they do not like to feel that they are letting the government off the hook. The aim of the National Lottery is to provide funds to arts, sports and voluntary organisations. However, this money is being used mainly for capital projects, and as a result is redirecting sponsorship money into capital projects and away from the day-to-day running of such ventures.

The UK sponsorship industry is estimated to be worth £626m in 1998. It can be divided into four main sectors: sports (accounting for 53 percent of the market), arts (15 percent), broadcast (24 percent), and social and environmental (8 percent). Plans for the millennium are generating a large amount of sponsorship activity, however, the value of millennium sponsorship is as yet not quantified.

The sponsorship industry in the UK is expected to increase by 44 percent, to reach £901m by the year 2003, indicating a compound annual growth rate (CAGR) of 8 percent between 1998 and 2003. By 2003, the share of UK sports sponsorship is likely to be 47 percent, followed by broadcast sponsorship with 33 percent, arts sponsorship with 13 percent and social and environmental sponsorship with 7 percent.

Original consumer research on sponsorship, recently conducted for Market Assessment by NOP, reveals that, the majority of adults have a favourable attitude towards companies that sponsor their favourite sports, radio and television programmes, implying that the sponsorship is having the desired effect on the audience. Consumers are less inclined to favour companies that sponsor their favourite arts, and this may be due to the ambiguous attitude regarding the benefits to arts of commercial sponsorship. The research also shows that social sponsorship is effective in generating goodwill amongst consumers, with more than four-fifths stating that they have a favourable attitude towards companies which sponsor charities, environmental concerns and educational activities.

The anti-tobacco and alcohol sponsorship sentiment however, is not as widespread amongst consumers, as officials wish to believe. Only about half the consumers, in this research sample, think it is wrong for tobacco or alcohol manufacturers to sponsor sporting events. Less than a quarter of consumers agree that, it is wrong for confectionery manufacturers to sponsor sporting events.

Awareness of millennium projects and the need for commercial sponsorship to support them is high amongst consumers; approximately three-quarters of consumers are aware of such plans. This is probably due to the high profile Millennium Dome in Greenwich, which has been criticised as being an unnecessary expense. In response to such criticism, there has been extensive publicity of the main sponsors and the considerable sums of money they are donating.

Sports sponsorship is the largest sector, currently (in 1998), worth £333m in the UK. Sport is an attractive option for sponsors due to the huge audiences and media coverage it commands. In recent years, there has also been a great deal of money invested in grass-roots sports with the advent of government initiatives such as the ‘Sportsmatch’ scheme offering pound for pound matching funds. The main issue facing the sports sponsorship industry is the ban on tobacco sponsorship. This is likely to have the biggest impact on motor racing, which accounts for approximately a third of sports sponsorship expenditure. Nevertheless, sports sponsorship is expected to increase by 27 percent to £423m by the year 2003, at a CAGR of 5 percent.

Sponsorship of the arts is a controversial area. Many believe that the government should fund arts without help from the private sector. Moreover, many have the opinion that arts sponsorship restricts artistic freedom due to sponsors influencing programmes in order to attract wider audiences. The UK arts sponsorship industry is estimated to be worth £91m in 1998, with theatre and museums at the top of the list. Like the sports sponsorship sector, government initiatives such as the ‘Pairing Scheme’ have supported growth in arts sponsorship in recent years. The arts sponsorship sector, is expected to increase by 24 percent, to reach £113m in the year 2003, at a CAGR of 4 percent.

Broadcast sponsorship has only existed for the last 10 years in the UK, but has already overtaken arts sponsorship, to become the second largest sector in the UK sponsorship industry. Broadcast sponsorship, in 1998, is estimated to be worth £150m. Like sport, the medium commands large audiences, and this is the main attraction for sponsors looking for mass appeal. Like advertising, television and radio sponsorship is strictly regulated by the Independent Television Commission and the Radio Authority. Currently there is an emphasis on developing effective research methods to measure the value of sponsorship, as sponsors demand tangible results from their investment. The UK broadcast sponsorship industry is expected to rise by 99 percent, to reach £299m by the year 2003, indicating a CAGR of 15 percent between 1998 and 2003.

An increasing need for businesses to demonstrate social responsibility has led to growth in social and environmental sponsorship. There has always been a tradition of company-giving, but sponsorship is now favoured as a way of obtaining recognition for charitable gestures, and as a means of exploiting this activity. Sponsorship of social concerns is supported by government initiatives such as ‘Business in the Community’ (BitC), which promotes ‘Cause Related Marketing’, whereby companies benefit a cause, and in return, gain benefits from the marketing opportunity. Currently public services such as the police and the London Underground system, are cashing in on sponsorship opportunities, with the latter, inviting companies to sponsor individual stations. The social and environmental sponsorship sector in the UK, in 1998, is estimated at £52m and is expected to rise by 27 percent, to reach £66m by the year 2003, indicating a CAGR of 5 percent between 1998 and 2003.

The millennium is being embraced as an opportunity to hold events, build monuments and generally mark the occasion as a momentous historical event. This in turn, gives companies the opportunity to associate themselves with millennium projects and to make a statement about their commitment to the future of the UK. The media coverage of millennium projects is already fairly extensive, and will only increase as the event approaches, thus offering publicity opportunities for millennium sponsors. The total cost of millennium projects in the UK is in the region of £2791m. The Millennium Commission Grant for these projects is about £1150m ie about 41 percent of the total cost, the balance 59 percent is expected to be met through sponsorships. Sponsorship deals are usually made for a finite period of time, so it would be interesting to see what shape millennium sponsorship projects take beyond the year 2000. The Millennium Dome in Greenwich is generating £150m in sponsorship money alone, however, although there is a large potential waiting to be tapped, the full extent of millennium sponsorship has not as yet been fully assessed.

The sponsorship industry will continue a trend towards longer-term deals, and investment in ‘worthy’ causes, to create a caring company image. Meanwhile, major deals, especially in the sporting arena will continue to command increasingly large sums of money. This will create a polarisation of sponsorship money to the two ends of the spectrum with little left over for medium sized events.

The Internet will provide a new platform for sponsorship, and opportunities to be online sponsors of events, will add a new dimension to sponsorship activity. Legislative measures will take effect very soon, and it remains to be seen, whether the money lost from tobacco companies will be replaced by other sponsors, or whether a gap will appear. Further legislation regarding sponsorship by alcohol brands, and sponsorship of education, and youth-related events and organisations is likely to be a threat in the future.

Text © 1998 MAPS

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