Banks defend sports marketing
Wed March 25, 2009
Banks defend sports marketing
Last year, money spent on sports marketing was estimated at $10 billion. That includes things like stadium rights and NASCAR sponsorships. Nearly 10 percent of that money came from banks and other financial services companies. But in light of bailouts and billion dollar losses, these companies are under intense scrutiny. And as a result, banks say they're walking away from money-making deals, just to avoid the controversy.
No company is more prominent in the world of sports than Bank of America. Its home city of Charlotte is a perfect example. It spent $44 million on sporting event last year, including NASCAR's Bank of America 500.
The man who oversees sports marketing at the bank is named Ray Bednar. Sitting in an office overlooking Bank of America Stadium, Bednar seems a little puzzled by all the recent criticism of his profession. You see, Bednar literally wrote the book on how to measure money spent on sponsorship deals to see how well the deal are - or not - working. His 2005 book "Sponsorship's Holy Grail" ultimately led to his hiring at the Charlotte bank.
"Well, I don't take it even remotely personally," he says. "We need to figure out how we can help them (politicians) understand how this is such an important business to help us make profit at the bank."
Bednar's decisions are under the microscope these days. Bank of America last year spent more than any other bank on professional football, baseball, basketball, racing and golf. In return, the bank gets to market its products to those sports' fans. But another huge benefit is getting to handle the day-to-day finances and wealth management of some very big clients. But deals are getting a lot of criticism from people like Ohio Congressman Dennis Kucinich.
"When these companies are getting huge amounts of money - billions of dollars from the federal government - it's just not right that they pretend it's that somehow it's their money that's putting their name up there. It's not."
Bednar response: "Whatever generates great profits back to help us repay those TARP funds, is a smart business for us to be in to."
In fact, Bednar says for every one dollar the bank spends on sports, it generates three in income. Paul Swangard is a sports marketing professor at the University of Oregon.
"I can't see why you 'd have strong criticism because that's what will get these banks out of the situation they're in," Swangard says. "By engaging the right customers, those who will deliver economic value to the long term. And if it happens to be that it's their loyalty to a sports brand that gets you the opportunity to have that conversation, I see nothing wrong with that."
Bailout money can't be directly spent on sports. But still, they're changing how they look at sports marketing. They're asking themselves if its worth the potential PR hit. Bednar says in at least one instance - a major deal with the New York Yankees - Bank of America determined it was not.
"It would have made us a lot of revenue, a lot of income to help pay back TARP," says Bednar. "But the climate wasn't right for us to do that. We understand and recognize the outcry of taxpayers, politicians and the public in general that they think it's frivolous. And we took that into consideration when we decided to walk away from that revenue generating opportunity."
Golf is also getting hit hard. A February tournament in California caught Northern Trust all kinds of flack for the entertainment package it provided clients. Soon after, Wells Fargo decided it wouldn't put its name on Charlotte's annual PGA tour event, despite being obligated to pay an estimated $6.5 million. Decisions like that have the attention of PGA Tour Commissioner Tim Finchem.
"The level of rhetoric has distorted really the business model that is used on the PGA Tour, where a sponsor sponsors a tournament," Finchem says. "The value stream back to the company is branding, advertising, global reach, as well as a business to business platform is extremely valuable to companies. It is not lavish entertainment."
Finchem thinks a lot of people criticizing sports marketing lately don't fully understand how it works. But Paul Swangard, at the University of Oregon, says not all of the criticism is without warrant.
"Maybe less food at the all you can eat, or less high end alcohol offered in some of these corporate hospitality tents," Swangard says. " I think there's just ways we can respect the times that we're in."
But Swangard says the scrutiny will make an effective business practice even better.
"I think that companies out there are just going to come out of this a little smarter and wiser in the way they spend their money. But at the end of the day what has to not be lost in all of this issports marketing works."
And at a time when banks and other financial institutions need all the help they can get, people like Swangard say not taking advantage of every single business tool, seems like anything but smart money.