Sponsoring the Olympics offers powerful brand associations, but is there a compelling return on investment?

Lolo Jones, the American track and field star who is competing at the London Summer Games, has never won an Olympic medal. In 2008 in Beijing, she was the favorite to win gold in the 100-meter hurdles. She dominated the race, but tripped over the penultimate hurdle to finish in seventh place.

Despite the heartbreaking loss, Jones has won over Madison Avenue. Her corporate sponsors include Asics athletic gear, Oakley eyewear, Procter & Gamble consumer goods, and Red Bull, the high-octane energy drinks company. In addition to being a talented athlete, Jones has a compelling life story — she is the daughter of a single mother, and her father spent most of her childhood in state prison. She is personable and funny, not to mention 5’9′ and beautiful. If she wins a medal next month — Jones squeaked in to the third spot on the U.S. team in June — her potential to attract even more sponsors will skyrocket.

As the summer Games continue in London this week, corporate marketing departments and ad agencies are making a multitude of calculations about Jones and other hopefuls in an attempt to monetize the magic of the Olympics. A handful of companies, including Coca-Cola, McDonald’s and Dow Chemical, have paid dearly to be official sponsors of the Games themselves. Most companies, however, forge marketing agreements with individual athletes or groups of athletes. These sponsorships tend to be cheaper, and they provide an opportunity for companies to link their brand with the personality and accomplishments of a particular Olympian.

“The Olympics cultivate a particularly powerful feeling in us,” says Americus Reed, a Wharton marketing professor. “It transcends any affiliation to a particular sport or event. It appeals to our sense of national pride. We connect with the athletes. There’s something about being the very best on the planet that speaks to us. These are not athletes who are making millions of dollars — most of them, at least. They’re just like us: regular people with an Olympic dream.

“You can understand why companies want to connect with that feeling,” he adds. “But the question they need to address is: What is the purpose of sponsorship?”

Ring Exposure

The Olympics hold a special place in our global consciousness. The Games evoke our patriotism; they inspire us with tales of triumph over adversity. They expose us to new cultures and experiences. (How many times have you ever watched a canoe slalom race?) They excite us with perfect human specimens achieving things that have never been done before. And they get great ratings, too: The 2008 Beijing Olympics, for instance, drew an estimated global television audience of 4.7 billion over the 17 days of competition, according to Nielsen, the market research company. For advertisers, the Olympics represent an unmistakable opportunity.

The precise cost of sponsoring the Olympic Games is a tightly guarded secret. But it is undoubtedly an expensive undertaking. According to various media reports, this year’s sponsors are thought to have paid some $100 million to the International Olympic Committee for a four-year deal under which they are the only sponsors within their product category. This figure does not include the cost of participating at the Games or of promoting their sponsorship. Sponsorship enables companies to use the famed rainbow-colored rings on their products and in their advertising.

It’s a way for companies to bask in the glow of the prestige and excitement of the Games, says Andrew Brandt, sports business analyst for ESPN and a lecturer at Wharton who teaches sports law and negotiations. “The Olympics brand has great class and cachet. It is beyond any other sporting event. Companies want to be associated with those rings.”

But official Olympic sponsorship might not be the best use of a corporate marketing budget. Gallup & Robinson, a marketing research company based in Pennington, N.J., routinely runs surveys that test the effectiveness of sports sponsorships. It has found that while two out of three people say that Olympic sponsors are doing a good thing for the country, viewers seldom take notice of official supporters. The sponsorships of some companies are known by less than 10% of viewers. A salient example: Nike is the brand most associated with the 2012 Olympics, according to research by Jam, the digital marketing agency, but it is not an Olympic sponsor.

A 1997 paper by Kathleen Anne Farrell at the University of Nebraska-Lincoln and W. Scott Frame at the U.S. Treasury Department used stock return data to measure the value of sponsoring the 1996 Atlanta Summer Olympics. They found that the shareholders of sponsoring firms earned negative average returns around the announcement of Olympic sponsorship agreements.

There is an opportunity cost to sponsoring the Olympics, notes Wharton’s Reed. “Companies need to ask: Are there better ways to use our marketing resources other than putting the money into a sponsorship?”

Still, while the immediate payoff of Olympic sponsorship may be elusive, in the long run, companies should see benefits, according to Ron Goodstein, a marketing professor at Georgetown University’s McDonough School of Business. “Sponsorship of the event is purely equity building,” he says. “You want customers to think, ‘These are good people; these are good companies.’ If companies think that sponsorship is going to get customers to purchase a product, they’re dreaming. It should be more about enhancing their image.”

Take, for instance, BP, the oil company trying to burnish its reputation after its disastrous handling of the oil spill in the Gulf of Mexico. BP is an official London Olympic Partner. “It’s not to make you go buy gas from BP. It’s going to make you start to think that BP is doing things to make the world a better place,” Goodstein notes. “And over time, sales might increase.”

Breakfast of Champions

Another way for companies to capitalize on the Games is by sponsoring a particular athlete, or group of athletes. Finding the right Olympic spokesperson is an easier feat for companies that have a native, natural connection to sports. For bathing suit and running shoe manufacturers, for example, the Olympic Games are an advertising bonanza.

Other companies have to get creative. “This is where the fun part starts,” says Goodstein. “Companies try to match their brands to the theme of the Olympics with commercials that blur the line between the program and the ad. If they match the theme, they keep the audience involved. The ad could be about an athlete or it could be about the Olympics bringing people together.”

But what many companies have not paid enough attention to in the past is whether or not the ad and the athlete they feature match the product or service they are selling, he notes. “If it doesn’t fit, at the end of watching the ad, people feel duped. They feel like they’ve been tricked into watching the ad, and the strategy backfires.”

Fit is key. It makes sense, for instance, that Michael Phelps — the gold medal swimmer who famously blasts loud hip-hop music on his iPod before his races — got a deal to pitch for a waterproof headphones company after the last summer Olympics. It makes sense that in 1986, Eveready chose Mary Lou Retton, a gymnast known for her high energy level, to sell its batteries. But other sponsorships don’t quite work. “Brandi Chastain [the Olympic soccer player] is a great fit for PowerBar, but she has no particular fit for Gallery Furniture, and the effectiveness of her endorsement of that company is lower,” says Goodstein.

In choosing a spokesperson, companies look at the athlete’s name recognition, likability, image, personal story and sex appeal. “Companies are looking for a showman,” notes Anthony Fernandez, a Florida-based branding consultant who specializes in professional athletes. “They’re looking for someone who is passionate, who can entertain, who can bring folks to their feet. A lot comes down to personality.”

Another big factor: Companies want winners. “Think about the Wheaties box,” says David Reibstein, professor of marketing at Wharton. “It’s always the gold-medal winner because Wheaties is ‘the breakfast of champions.’ It’s not the ‘breakfast of champions and losers.'” He adds that companies have an incentive to sign up athletes before they are winners. “It’s simply an economic thing. They’re cheaper before they win. There is a feeling of, ‘Let’s sign them before their price goes up.'”

The biggest draw for any company is a winning, attractive athlete. Maria Sharapova, the tennis player who was the first woman to carry Russia’s flag at the opening ceremony in London, is a prime example. She is beautiful and ranked third in the world. She is also the world’s highest-paid female athlete, earning around $25 million a year, according to Forbesmagazine.

There is a big potential downside to sponsoring an individual, however: A company could sign an athlete who does something that generates negative press. The company risks having its brand hurt by association. Companies often are swift to drop the offender. O.J. Simpson, who was accused of killing his wife and her friend, lost his deal with Hertz, the car rental company. Tiger Woods, after his multiple extramarital affairs were discovered, lost Tag Heuer, Gillette, Accenture, Gatorade and a slew of others. Meanwhile, Michael Phelps, who was photographed smoking marijuana, lost Kellogg’s.

“You don’t want to have your name associated with a particular person who’s done something wrong,” says Reibstein.

Olympic Haves and Have-nots

The fact is, very few Olympic athletes are lucky enough to even have corporate support. Fewer than 5% of athletes who will compete at the Games have a direct sponsor, according toEvan Morgenstein, president and CEO of Premier Management Group, a boutique sports marketing agency. “There are the haves and the have-nots,” notes Morgenstein, who represents a large number of U.S. Olympic athletes. “The big-name athletes — the ones you see in bold like the Michael Phelps of the world — they have a lot of money and a lot of deals. Rank-and-file athletes don’t have a lot of money. They have to get side jobs to pay for their training.”

(A telling statistic: A recent survey conducted by the USA Track and Field Foundation found that only half of American track and field athletes who are ranked in the top 10 in their event earn more than $15,000 a year in income from that sport.)

Even those with sponsors are often in a tenuous situation. Before the Games, many companies sign multiple athletes in an effort to hedge their bets. This gives them a backup plan in case one of their athletes doesn’t place or implodes. Most contracts have clauses that allow the company some leeway to get out of the deal if that happens.

A miss at the Olympic trials could end a potentially lucrative relationship. Consider the unfortunate, oft-retold case of Dan & Dave. Dan & Dave was a $30 million advertising campaign by Reebok, the shoe manufacturer, during the build-up to the 1992 Summer Games in Barcelona to promote the Olympic face-off between American decathletes Dan O’Brien and Dave Johnson. But the showdown never happened. O’Brien didn’t make the team, and the campaign had to be modified. (Johnson went on to win the bronze medal that year. O’Brien won a gold medal at the 1996 Olympics in Atlanta.)

Olympic athletes are also at a disadvantage because they are only able to draw attention to themselves once every four years. Sure, there are other sporting events where athletes can shine — national meets, national championships and world championships — but those don’t come close to having the same level of media coverage as the Olympics. “Athletes have got to take their careers into their own hands,” says Morgenstein. “That’s the beautiful and awful thing about social media. You can make yourself relevant all the time. You build a fan base, and you work your fan base.”

But for most fans, that would seem to be an overly cynical take on how Olympic athletes view the Games and their followers. Lolo Jones’ Facebook page is themed: 12 years for 12 seconds. (In an ad for Oakley, she says she is trained 12 years for a medal that she hopes she will win in 12 seconds.) In interviews, she comes across as diligent, humble and passionate, not somebody who runs for big-dollar deals with corporate sponsors or who is trying to “work” a fan base.

“Olympic athletes come around every four years, and they have to capitalize on their fame at that moment or they lose it,” notes Wharton’s Reibstein. “It’s a small window. What I’d like to believe is that they’re not all in it for the bucks. The reason all these athletes work so hard is because of their natural athletic competitiveness and their desire to represent their country. The sponsorships are just a windfall.”

This article was originally published by Knowledge@Wharton.