Days of double-digit growth have ended for now; new dollars and highest-level deals will be difficult to come by in near-term.
The 24th annual industry forecast from IEG SR projects growth of just 2.2 percent in spending on sponsorship by North American companies, the smallest growth rate in the forecast’s history.
No other economic downturn in the past two decades has had such a negative impact on the outlook for industry spending. In the post-9/11, dot-com bust environment seven years ago, the forecast was for 2.9 percent growth. When recovery came relatively quickly in ’02, the actual spending increase turned out to be 3.7 percent.
While wishful thinkers hope for a similar rebound in ’09, it is precisely the uncertainty and instability of the current situation that has sponsors holding tighter to purse strings than ever before, not knowing whether the economy is near bottom or whether tight credit, lackluster consumer spending and the threat of more corporate collapses will extend this recession through and beyond next year.
Sponsorship professionals can take some comfort in the fact IEG SR is projecting even a small increase. Colleagues in media advertising are facing a decline in projected spending, a rare occurrence and the first since ’02.
North American media spending is predicted to decrease 3.2 percent in the coming year, according to the worldwide media and marketing forecast produced by GroupM, the global media investment management operation of WPP Group plc.
Spending on business and consumer promotions is expected to grow at a rate of only 1.7 percent in ’09, according to the annual industry forecast from private equity firm Veronis Suhler Stevenson.
Where The Dollars Went And Where They Will Go
The 2.2 percent increase will result in total spending by U.S. and Canadian companies of $16.97 billion in ’09 compared to the $16.61 billion spent this year.
With ’08 budgets set largely before the height of the current economic crisis, the year just ending still proved to be a good one for sponsorship. Although some major cuts and significant deal drops were announced this year, they will not take effect until ’09.
While spending missed IEG SR’s projection a year ago of 12.6 percent growth, the increase was still a healthy 11.4 percent over the $14.91 billion spent in ’07.
Although no sector of the industry will enjoy that type of increase in the near future, perhaps the biggest impact of the recession will be felt by the sports sector. One of the key differences of conditions today versus previous downturns is sponsors’ willingness to bail out of big-ticket sports deals.
That is a change of heart from conventional wisdom that up until now has viewed sports deals as the safe bets to turn to and kept investment in sports sponsorships steadily growing at a rapid pace. Such thinking apparently has been trumped at many companies by the more basic need to save money and the opportunity to do so by cutting or passing up high-priced packages.
This new reality is reflected in the projected growth for each of the industry’s six major property sectors. Although sports’ growth in ’08 was nearly 15 percent–nearly double the rate of the second fastest growing sector–it is projected to have the smallest increase in ’09.
Projected dollar amounts for each property type are sports: $11.61 billion, up 1.8 percent from $11.4 billion in ’08; entertainment tours and attractions: $1.66 billion, up 1.9 percent from $1.63 billion; causes: $1.57 billion, up 3.1 percent from $1.52 billion; arts: $848 million, up 2.5 percent from $827 million; festivals, fairs and annual events: $786 million, up 4.4 percent from $753 million; and associations and membership organizations: $503 million, up 4.4 percent from $482 million.
As a result, sports’ share of overall North American sponsorship spending will dip a percentage point to 68 percent, while festivals, fairs and annual events increases its share from four to five percent.
International Outlook Rosier, But Slowdown Will Occur
Just as the economic crisis has taken its major toll in the U.S. with a ripple effect elsewhere in the world, the impact of the downturn on sponsorship will be felt around the globe but not yet to the same degree as on the home front.
The absence of the Beijing Olympic Games and the unprecedented spending surrounding that event also will contribute to slower growth in ’09, although the Asia Pacific region will remain the fastest growing.
Overall, including North American spending, ’09 global sponsorship expenditures should reach $44.8 billion, a 3.9 percent increase over the $43.1 billion spent in ’08, a number slightly below IEG SR’s projection of $43.5 billion.
Subtracting U.S. and Canadian activity, spending by the rest of the world is expected to reach $27.8 billion, 4.9 percent more than this year’s $26.5 billion.
Europe will remain the region whose companies spend the most on sponsorship after North America. European firms are projected to spend $12.2 billion in ’09, up 4.3 percent from $11.7 billion this year. Asia Pacific companies should increase spending 7.4 percent from $9.5 billion to $10.2 billion.
Companies based in Central and South America should see 2.9 percent growth from $3.4 billion to $3.5 billion, while companies from all other regions are expected to grow expenditures 2.6 percent from $1.9 billion to $1.94 billion.