How sponsors will react if a Covid-19 spike gets the Tokyo 2020 Olympics canceled

Days from launch, Toyota decided to take its Olympics-related TV ads off air in Japan (dubbed a smart move by our sources). But there’s further consternation from brands that believe there is a lack of public interest in this cycle. Then on Tuesday morning, at a news conference for the Games, Toshiro Muto, head of the organization committee, did not rule out canceling the Games as Covid-19 cases rose. There are 68 cases (and counting) confirmed in the secure bubble of athletes and organizers.

As a result, major sponsors will not be attending Friday’s opening ceremony. The Drum explores what a cancelation means for brands and sponsors.

No surprises

Steve Martin, global chief executive at M&C Saatchi Sport & Entertainment, says that brands had “open eyes” coming into the Games. They “will have to show empathy” if organizers have to cancel, their absolute last resort.

Local and global sponsors will have ideally already built a lot of brand equity from the Games (remember the cycle running up to it was extended by a year) – we’ve seen “hesitation” and great work in the run-up. Martin says: “Those brands who went a little bit earlier will have generated some strong equity.”

It’s now the riskiest part of the creative cycle. Smart sponsors should shift to show more “support for the athletes, as really they are the ones most affected by any possible cancelation”. Martin adds: “They have prepared relentlessly for more than four years for this moment and their dreams will be hit so badly with any postponement. Those who do this right will be remembered.”

Contingencies in place

Jon Evans, chief marketer at ad research firm System1, points out many sponsorship deals have performance-related clauses and insurance protection. The risks have long been known, and the contingencies are in place.

Sponsors should be quick to change campaigns, ready for any issues. “These brand partnerships should be rooted in authenticity, and therefore the work shouldn’t have to go down the drain – just repurposed and deployed in other ways.”

Evans doesn’t think a subdued Games will have a negative rub-off on brands. Euro 2020’s Christian Erikson incident is evidence that brands can strike a somber and meaningful tone in the face of adversity.

“The Olympics themselves are about celebrating the incredible achievement of humanity, and the Games have the potential to be even more special given the pandemic. The Games and participating brands, therefore, need to use this adversity to unite us all.”

What sponsors get

Joel Seymour-Hyde, managing director of Octagon, notes that rights-holders will be tired of being told by brands to “make good” on impacted contract values.

The IOC is expected to bring in about $2bn in this four-year cycle. Remember there is a Winter Olympics coming next year too. For an individual top-tier sponsor, that’s priced at roughly $300m during this window – although standard rates could be out of the window in the current climate.

Each deal is “notoriously complex” and contains select benefits and variables that will be impacted in different ways, but typically rights-holders can “make good” with a mix of additional or new sponsorship assets and, in some cases, rights fee reduction if that can’t be delivered.

We’ve seen marketing campaigns altered, but Seymour-Hyde reminds us that a huge element of these deals is actually the hospitality component – hosting thousands of dignitaries and competition with exclusive experiences.

“This is not seen by consumers but it is often greater in spend than the marketing component and clearly it has already been massively impacted, more so in many cases than changes to advertising media spend.”

There is a minor danger to sponsors, he believes, but he hopes cooler heads prevail.

“There may be some negativity directed at brands by those who vehemently oppose the Games (the pandemic seems to have made opinions even more binary), but in general I think the majority of consumers would accept that everyone involved is now doing what they can to make the best of an extremely difficult circumstance.”

Brands seem to be taking the correct amount of caution in the domestic market in any case.

Perception versus reality

But perhaps it is all about perception. Jon Tibbs, founder and chairman of sports agency JTA, is on the ground in Toyko. He doesn’t believe the Games can or will be canceled. He says there are fewer positive tests than the organizers were expecting in their scenario planning. It’s not an ideal situation for stakeholders, but what we are seeing from some sponsors is “damage limitation PR”.

He says: “Organizers will be concerned that perception is reality and if the Japanese PR narrative puts the blame of the rise of the Delta variant on the Olympic Games, and the Japanese public agrees with this, then national sponsors will move to disassociate themselves from the positive projection of the Games.”

While some sponsors will feel that their contractual activation rights have been badly affected and “will no doubt want to discuss recompense, more creative sponsors will find ethical opportunity”. The winners will mix pure commercial activation with more purpose-driven campaigns showing empathy and concern.

The experienced marketer points out that it is not unusual for the build-up to the opening ceremony to be predominantly negative. In the week running up to the event, the media often highlights perceived major issues and concerns. This happened in Sochi and Rio with lack of preparation and unfinished infrastructure, while at London 2012 the concern was around security. Once the rings are lit positivity will dominate, he says.

High stakes

Matt Readman, chief strategy officer of Dark Horses, understands why there’s a reluctance to cancel. “The commercial stakes are so high.”

But having delivered two huge campaigns at Euro 2020 for TikTok and JustEat, he says: “We were constantly having to change plans but we never changed our ambition. I think the hesitancy, in this case, is for other reasons.”

Public opinion has never been so hostile in a host city. He believes that “the moral authority of the Olympic movement is under scrutiny” and if the Games serve as a superspreader event, it could be a disaster for sponsors who could end up on the “wrong side of history”.

Toyota stepping away from TV advertising during a home Olympics is “mightily significant in how these Games will be received in Japan”.

Meanwhile, Dipanjan Chatterjee, vice president and principal analyst at Forrester, points to the cancellation of the "Indian Premier League cricket tournament which had to be abandoned midway this year, leading to losses over $500m for the organizer. The financial impact of the Olympics will be far greater".

There would be a lot of “told you so’s” in reaction to any Olympics cancellations he says. "The authorities are likely driven by the sunk cost fallacy – their actions are motivated by the past (and vast) investments in the Olympics rather than a calculation of immediate costs and benefits – to dig in and go ahead with the Games."

Meanwhile, Readman concludes: “With an unwelcoming city, canceled events and missing competitors – not to mention row after row of sad empty plastic seats – there is a real danger that these games fall flat. But... it might just be the romantic in me, but I back the positivity of sport to overcome the negativity of this virus.”

Whether the Games go ahead or not, marketers will have worked out new digital ways of activating their sponsorships – which will have implications on future Games, whether this one lands well or not.