Question came from thinking of Emirates Airline who sponsor Arsenal, Real Madrid and Milan (and others). This costs them over £100m, surely they cannot be seeing a return on that investment?
In: Economics
I think you’re underestimating how impressionable people are. It’s all about getting your brand out there in front of as many eyeballs as you possibly can.
I can almost guarantee that they’re seeing an increase in revenue that matches the ad spend, or they wouldn’t spend the money.
Its called sports washing. Authoritarian goverments use companies like airlines to sponsor sports in western countries to influence the general publics opinion on these countries and have an influence on local and countries politics. Its basicly a form of bribing western populations to not see these countries leaders for what they acctually are or atleast ignore it. And it has been working incredibly well.
Marketing is a part of any company’s expenditure budget, and yes, the numbers can be staggering. Emirates is a bit of a special case as it’s Sheikh Mohammed bin Rashid al Maktoum’s vehicle for getting the name out there, so the return there is measured in more than in just Emirates Airlines profit.
Unrelated anecdote: the tallest building in the world got its name just a week before the grand opening. For the three years of construction, the name was Burj Dubai (Dubai Tower.) A week before the grand opening, the local paper, Gulf News, reported that Sheikh Mohammed was in a financial jam and would not be able to meet an upcoming payment to Dubai Investments, one of his companies.
Sheikh Mohammed ended up visiting his cousin, Sheikh Khalifa, ruler of Abu Dhabi, about 100 miles down the coast. Abu Dhabi’s ruler is also President of the UAE, by virtue of the Golden Rule: he who has the gold, rules. Abu Dhabi has all the oil, Dubai has none. The cities are rivals, as Dubai is a successful international business centre and Abu Dhabi wishes it was.
So Sheikh Khalifa asks his cousin how much he needs.
“Ten billion dollars.”
Khalifa figures that’s about 100 days of oil revenue, yes, he can manage that.
But the tallest building in the world, The Burj Dubai, became the Burj Khalifa.
I was living there then. Hilarious.
Every game that Madrid (and every major teams) plays in is televised and watched by millions. They also sell millions of jerseys, which are worn out and about, meaning millions of non sports watchers still see the logo. Every social media post by the team, or by a player of the team, or of a fan who bought the jersey shows the logo. It’s difficult to track quantifiable return on indirect advertising like that, but hundreds of millions of people see the logo on the jersey every year. It definitely has a return on the investment.
(Also a lot of Middle Eastern airlines are owned by the country, and they’re less concerned with the company being purely profitable, they’re more focused on sportswashing or funneling money to certain teams, but that’s a somewhat different topic.)
You can never overestimate the price people will pay to have their egos massaged. There are oil rich Arabs in the Emirates and Saudis who just like seeing their names alongside those of Western nations and they will pay anything for that.
Emirate Airlines revenue is 32 billions US Dollar, says wikipedia. Spending 100 millions in marketing is spending 0.3125% of their annual revenue. After all expenditures they pocket 3 billion per year as profit.
If that marketing campaign increased revenue by 0.4% it’s bringing more than it costs.
My current company sponsors a golfer (logo on the hat) and we look at it for client retention. As part of the package, we get luxury box seats at a number of tournaments and he is committed to a couple of pro-ams (usually we get 9-holes and another sponsor gets the other 9), and a few private clinics that he puts on for ours (and other sponsor’s) clients. We send our best clients and then wine and dine them afterwards. They have a great time and ideally increase their spend. No one is buying our product because they saw a logo on the hat.
A big client for us spends about $5MM a year and the hat sponsorship isn’t even 10% of that.
Emirates does that on a way, way, way larger scale. There are only a few airlines that fly to the Middle East from London (and I assume other parts of Europe) – Emirates is the largest. There are a lot of people from the Middle East living in the UK (and around Europe). There are a lot of business people going back and forth too. They want those eyeballs and they want those people to think Emirates when they have to go to the region for work. So branding is probably 1/4 of that sponsorship spend.
Back to my tiny (in comparison) golf sponsorship, Emirates can lock in more corporate clients (big company that has an office in London and an office in Dubai and commits to 1,000 flights a year or something), and more profitably, corporate freight (Emirates Sky Cargo) with their biggest clients (think FedEx but for that region). They can wine and dine their clients like crazy. Don’t like soccer? That is okay because Emirates seems to sponsor anything that you’d like.
In 2020, Amazon spent $13B on shipping (that is a figure that blows my mind – just showing this to show what large clients spend on shipping). If I’m a large freight shipping client with Emirates (maybe spending $100MM+ per year), you know that they want to keep me around. There are other clients like me too. It is easy to keep me spending that money annually if you take me out to a few games, wine and dine me, let me get a photo with Saka, take me golfing in Dubai, etc. I’m going to stick around and keep giving Emirates SkyCargo my shipping spend.
Sponsorships also include things like access to box suites or exclusive access to events. Want to woo a potential client or investor? Bring them to watch a game in a suite and invite them to come meet some players after.
Freakonomics did an interesting podcast on advertising. IIRC there is very little research done that proves advertising works at all and what sort of ROI it gets.
People are talking about sport washing and the relation with oil barons. Which is true.
However there are other sponsorships, and one of the reason for sponsorships is that some companies sell products that have competitors. For years Manchester United was sponsored by Vodafone. Any economic activity that have competition and that profits by selling products to millions of people (such as cell phones) will benefit in sponsoring a sports team. The only question is how much they will pay for it.
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