COVER

A PROMOTIONAL GAMBLE

MILLIONS ARE RIDING ON STAR ATHLETES

TOM FENNELL,ANN WALMSLEY April 9 1990
COVER

A PROMOTIONAL GAMBLE

MILLIONS ARE RIDING ON STAR ATHLETES

TOM FENNELL,ANN WALMSLEY April 9 1990

The tears in The Great One's eyes sent millions of hockey fans into mourning. The blow came on Aug. 9, 1988, the day when Edmonton Oilers owner Peter Pocklington announced that he had sold Wayne Gretzky—the greatest hockey player in the world and a Canadian institution—to the Los Angeles Kings for $18 million. The Kings, who had been a hapless outfit throughout much of their 21-year history, were taking a big gamble on Gretzky’s ability to expand the Kings’ ticket, advertising and television revenues fast enough to pay for the deal. In retrospect, it was a safe bet. The 29-year-old centre’s intrinsic magic, on-ice heroics and star quality have proved so profitable that the deal has almost paid for itself in 20 months. Said Kings owner Bruce McNall: “I have been accused of grand theft. Pocklington did not realize how important Gretzky was.”

Leap: Gretzky’s leap into one of the most hotly promoted sports meccas in North America could hardly have been better timed. Sports marketing, the use of athletes like Gretzky to promote products and services, is booming across the continent. Gretzky’s move came as North American corporations’ total spending on advertising is growing by five to six per cent a year, while the proportion that they are dedicating to sports marketing is increasing by 10 to 12 per cent a year. In 1989, Canadian corporations spent almost $925 million on sports-related advertising promotions, event sponsorship and sports celebrity endorsements, while their U.S. counterparts spent $10 billion. “Interest in sport is growing almost daily,” said Anthony Eames, Toronto-based president of Coca-Cola Ltd. of Canada. The soft-drink giant is dedicating 20 per cent of its 1990 ad budget to sports advertising, including Gretzky promotions, up from 17.5 per cent in 1989.

Executives say that hitching their company names and logos to players or sporting events often pays off in spectacular increases in sales. During the Super Bowl, Nike, the Portland, Ore.-based athletic-footwear manufacturer, dazzled television viewers with an estimated $ 1.5-million fast-cut advertisement in which many of the best-known stars in professional sports each appeared for only a split second. The athletes flashing by on the screen included such stars as Gretzky and Bo Jackson, the star outfielder of the Kansas City Royals who is also a star running back for the Los Angeles Raiders. Nike executives say that its ad strategy of associating star players with its products is a key reason why Nike’s U.S. sales, which soared to $1.4 billion last year, are continuing to increase at 25 per cent per year.

But with the financial rewards to be found in sports marketing come major risks. After Ben Johnson sprinted across the finish line in the 100-m race in the 1988 Summer Olympics in Seoul and traces of a banned musclebuilding substance were discovered in his urine, major corporations around the world suddenly found their names linked to the man at the centre of one of the worst sports scandals in history. Dozens of Johnson’s sponsors, including Toshiba of Canada Ltd., were hurt by their association with Johnson. Said Tod Rehm, Toshiba’s general manager, in describing Johnson’s victory and subsequent downfall: “On that Friday night, I was the greatest—a hero. By Sunday, I was a bum. You never know the risk.”

Top: The competition for top names to endorse products has become so heated that a handful of athletes now have endorsement income measured in the millions. In addition to his yearly salary—$3.3 million including deferred payments — Gretzky earns more than $2 million from endorsements annually. Even Chicago Bears coach Mike Ditka makes an estimated $1 million a year— twice his salary—from such sponsors as Campbell Soup Co. Ltd. and American Express Co. San Francisco 49ers quarterback Joe Montana, age 33, who earned $2.3 million last season, earns another $4 million yearly in endorsements. Montana’s latest suitor is athletic-footwear manufacturer L.A. Gear of Marina Del Rey, Calif., which last February agreed to pay the quarterback $3.6 million over the next three to five years for his public seal of approval.

While Gretzky benefits from increased exposure in Los Angeles, Kings owner McNall is also making additional millions off of his star player. Team spokesmen say that, primarily because of Gretzky’s presence, the Kings will make an undisclosed profit this year after breaking even in the first Gretzky season and losing $6 million the year before he came to Los Angeles. Indeed, the Kings’ revenues have increased in almost every segment of the team’s operation. Demand for tickets to see Gretzky play allowed the Kings to increase the price of their prime seats to $42 from $27. As well, they have hiked the advertising rates on rink-side boards inside their arena, the Great Western Forum, to $170,000 from $60,000 for a single board. Since his arrival, average attendance has jumped to 15,875 from 11,667; ticket revenues have climbed to $420,000 from $129,000 per game; and advertising revenues have tripled, to more than $4 million a season.

Wide: Gretzky has also helped the Kings to reach far beyond the affluent southern California market. Prior to Gretzky’s arrival, only one radio station broadcast Kings games, but currently 15 stations, including outlets in Texas, Nevada and Arizona, carry the games. Gretzky has also ignited an explosion of orders from across the United States for a wide range of Kings products, including sweaters, jackets and sticks. Before his arrival, Oshman’s, the largest sporting-goods chain in California, carried only three Kings items. But the demand for Kings products is now so great that Oshman’s and the Kings are negotiating to establish Kings specialty shops in all of Oshman’s 38 West Coast stores. Said McNall, a coin dealer and film financier: “Gretzky saved the franchise.”

Still, Gretzky cannot provide as strong an attraction as professional golfers and tennis players for endorsements. One of the more remarkable is Arnold Palmer, who last won a tournament on the PGA tour in 1973. Now 60, he still earns an average of $11 million per year through endorsements. Jack Nicklaus earned just $116,000 on the professional tour in 1989, but he picked up an estimated $9 million through advertisements and promotions. Greg Norman, one of the current stars of the tour, earns almost $10 million a year endorsing everything from golf balls to hamburgers. Says Norman: “Nobody who isn’t around professional golf can even conceive of how much money there is available to us.”

Apart from conventional television advertising, corporate names and logos seem to show up almost everywhere in the play itself. Pro golfers have become walking billboards, carrying the sponsor’s name or logo on the visors of their caps, the sleeves and breasts of their shirts and their golf bags. Pro tennis players also turn their relatively limited competitive clothing into valuable advertising space, while downhill skiers frequently become shiny human advertisements, with corporate logos on nearly every piece of their suits and equipment. Said Gretzky’s agent, Michael Barnett: “During the Whistler World Cup, my Canadian skier, Rob Boyd, wore Fuji’s name on his helmet, skied across the finish line and stopped at a Fuji banner, donned a Fuji baseball cap and threw Fuji quick-snap cameras to the kids.”

Action: Meanwhile, some corporations pay millions of dollars to ensure that their names become incorporated into the title of a sports event or program. Indeed, two of Canada’s most popular television programs are officially called Molson Hockey Night in Canada and Labatt’s Blue Jays Baseball. In addition, product names show up during the televised action as well as during the ads. The NHL, for one, has developed a lucrative source of revenue by selling advertising space on the boards around its rinks. Says Edmonton Oilers president Glen Sather: “It’s the best deal going for advertisers. They get their name in front of a crowd all night long.”

Coke and archrival Pepsi-Cola Co. are helping to drive the sports-marketing trend through their star-athlete advertisements. Coca-Cola launched its attack in January, 1989, by taunting its adversary with ads showing boxer Sugar Ray Leonard, four-time Wimbledon tennis champion Chris Evert and Gretzky all switching to diet Coke from Pepsi. In the latest, Sugar Ray Leonard says: “I have a new title now. Just call me Sugar Free.”

Better: Pepsi responded with an ad showing Montana challenging the athletes who endorse Coke to a taste test comparing diet Coke with diet Pepsi. Says Montana in the ad: “Come on, Miss Wimbledon, I’m serving.” Pepsi is also claiming victory for its Super Bowl campaign, because Montana was the game’s most valuable player. Said Rebecca Madeira, representing Pepsi in Somers, N.Y.: “Every time Montana scored a touchdown, we ran our Montana ad. You cannot ask for better publicity than that.”

While Montana, Gretzky and other apparently squeaky-clean athletes, such as Florence Griffith-Joyner, are popular investments, the downfall of Ben Johnson showed how dangerous sponsoring individual athletes can be. As a result, many more companies now insist on the right to cancel a sponsorship contract if an athlete becomes an embarrassment to his sport or is convicted of a crime. Says Barnett: “Now, every company is asking for a morals clause.”

Racing: There are other pitfalls associated with flashy and expensive sports campaigns. While they please some top executives, others take a different view. During the time that golf enthusiast F. Ross Johnson ran the food-and-tobacco conglomerate RJR Nabisco of Atlanta, from January, 1987, until February, 1989, the firm paid Nicklaus $1 million a year to play with clients. Also during Johnson’s tenure, the company spent more than $70 million a year on sports sponsorships—including everything from stock-car and motorcycle racing to World Cup soccer championships. “All of their activities were skewed to customer hospitality, like inviting the president of a grocery store chain to play with Nicklaus,” said a former RJR employee, who asked not be identified. “Ross would tell you those promotions all paid out. But did that customer buy another $1 million of RJR products because of that experience?”

Since his departure, Johnson’s successor, Louis Gerstner Jr., has halved the sportsmarketing budget. Last month, RJR withdrew from the Nabisco Grand Prix of Golf tour, which cost the conglomerate about $24 million last year, and the Grand Prix of Tennis, which cost a further $4.2 million.

Other companies are also finding that some sports sponsorships are becoming too expensive. In 1989, Imperial Oil Ltd. severely cut back its $400,000-per-year sponsorship of amateur swimming in Canada, and the Royal Bank of Canada dropped its $500,000 annual investment in the Junior Olympics in 1988, after 15 years. Peter Case, vice-president of advertising for the Royal, said that the Junior Olympics programs simply did not have a high enough exposure to make the investment pay. Added Case: “Instead, we are supporting figure skating, which has a clear business link— we are the bankers for the Canadian Figure Skating Association.”

Skating: But most executives still maintain that sports sponsorships are one of the best methods of reaching a well-defined target audience. Says Case: “It’s possible to identify which market segment follows which sports and communicate to them very economically.” As well, television, radio and newspaper coverage of sporting events that stretch over a number of days, like figure skating, puts the company name and logo before a mass audience for an extended period. Case says that this prospect was another reason that led the Royal Bank to sponsor the Canadian national figureskating championships in Sudbury, Ont., in February, and for the next two years as well. Declared Case: “It’s an added opportunity to use television airtime for commercial purposes.” And as more firms such as the Royal struggle to find an athlete like The Great One, who will return his endorsement fee through increased revenues, the competition is becoming as hot as the seventh game of a Stanley Cup final.