Economic Decline Continues to Haunt 2010 Olympics & Corporate Sponsorship

ROD MICKLEBURGH
Globe and Mail, November 18, 2008

VANCOUVER — Are economic vultures beginning to hover over the 2010 Winter Olympics? Or is it business as usual despite concerns that many parts of the world, including North America, are slipping into recession?

The questions are pertinent because more than half of the Games' $1.63-billion operating budget is to be covered by corporate sponsorships, and at least two key 2010 sponsors, Nortel and GM Canada, are having an exceedingly tough time making any kind of ends meet.

“You're damned right VANOC [the Olympic organizing committee] should be worried,” Simon Fraser University marketing expert Lindsay Meredith said Tuesday. “If some of these sponsors are forced to drop out for financial reasons, before their funds are allocated, that's pretty serious.”

Although both Nortel and GM insist they are in for the long haul, and VANOC officials profess to be unconcerned, there is also possible trouble at the rarefied international level of the Olympics.

The International Olympic Committee, which is budgeted to provide Vancouver organizers with more than $200-million from its own top-dollar sponsorship program, continues to shed corporate sponsors.

The latest to pull out is Johnson & Johnson, a big hit at the recent Summer Olympics in Beijing with a huge-on site presence that included an authentic terra cotta warrior from the world-famous archeological site near Xian, China.

Few doubt that the decision was prompted by severe revenue drops in the pharmaceutical industry and increasing pressure from generic drug companies. Johnson & Johnson's four-year sponsorship deal with the IOC, which ended this year, was worth more than $70-million to the Olympic organization.

Earlier, the IOC lost Kodak, Lenovo and ManuLife from its Olympic Partnership Program (TOP), leaving the organization still $114-million short of its $1-billion goal for the program's next four years, which include the 2010 Winter Games in Vancouver.

Both the IOC and VANOC played down the latest big business withdrawal.

“Johnson & Johnson will not renew its membership in the TOP program … in order that it can focus on other business priorities,” IOC spokeswoman Emmanuelle Moreau said in a statement Tuesday.

However, Ms. Moreau expressed confidence that new sponsors will be signed up during the coming year.

VANOC executive vice-president Dave Cobb said local organizers were aware that the pharmaceutical giant might discontinue its deal with the IOC. “But the IOC has told us they are still confident they will complete 11 agreements with top level sponsors for the 2010 Games.”

Nortel was selected last year as official supplier of converged network equipment for the Winter Olympics and Paralympics. But the company has recently plunged on the stock market, and RBC Dominion Securities Inc. warned last week that bankruptcy was a “distinct possibility” for the financially troubled company.

Yet spokesman Mohammed Nakhooda said there is no chance of Nortel severing its relationship with VANOC and the Olympics.

“We are committed to the 2010 Games. They represent the ultimate demonstration of Nortel's capabilities and [business values],” said Mr. Nakhooda, who declined to say how much Nortel's sponsorship deal was worth. “It's simply good business for us.”

His view was echoed by GM Canada, the 2010 Olympics' official vehicle partner, which is committed to providing $53-million worth of vehicles, services and marketing support for the Games, plus $14-million in other related investments such as the Own the Podium program for athletes.

“We think [the Olympics] is an ideal time to showcase our environmental technology to the world,” said David Paterson, vice-president of government and public affairs for the auto firm. “It would be a shame not to be part of that.”

Mr. Paterson added that many of the partnership costs have already been incurred by GM. “This is going to be a pretty good cornerstone for us.”

So far, VANOC has met more than 90 per cent of its own sponsorship revenue target of $760-million, and no official partner has reneged on its financial promise.

Mr. Meredith at SFU said he would be surprised if some beleaguered companies aligned with VANOC don't at least take a hard look at their sponsorship contracts.

“If you run into a life-and-death situation for your company, when you are facing that kind of question, then cancelling everything in sight has to be looked at,” he said. “There are not common rules of engagement here.”

But any company that considers dropping out would also have to consider the damage to its reputation from tearing up a contract with VANOC, Mr. Meredith added.

“What kind of message would that send? What would it tell their suppliers about paying its debts? So they might very well decide to hang in with VANOC, rather than breach their contract.”

With a report from Greg Keenan in Toronto