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Sponsoring the upside of the economic big dipper

Updated Friday, 1st October 2010

 With the economy experiencing ups and downs, why are companies still digging deep to sponsor sports and cultural events?

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The rollercoaster ride of the world’s developed economies since the onset of the financial crisis in late 2007 is a wonder to behold.

The Infusion, Blackpool Creative commons image Icon johnthescone under CC-BY licence under Creative-Commons license
The Infusion, Blackpool

You could be forgiven if you thought you had become Bilbo Baggins in The Hobbit and The Lord of the Rings, as the quest to resolve this misadventure unfolded. Just over two years since the US investment bank Lehman Brothers went bust and the crisis became a global recession, the world economy is facing the risk of a double dip recession.

Officially, the world's largest economy came out of recession in June 2009. But, unlike previous recoveries from recession, the one in the US has been fairly moribund, with unemployment rising.

In the first quarter (Q1) of 2009, Gross Domestic product (GDP) fell by 6.3%; bouncing back to 5.% in the last quarter as the government’s stimulus package did its job and stimulated economic activity.

By the second quarter (Q2) of 2010, GDP growth was down to 0.6%.

This upturn was short-lived as in March this year 162,000 new jobs were created in the US against a backdrop of a net loss of employment of 8.2 million since 2008.

The position in the European Union is more difficult with growth in its biggest economy, Germany, rolling up to 2.2% in Q2 from 0.5% in Q1 but down to 0.7% in Q3.

The global financial crisis destroyed $34.4 trillion of wealth, which is more than the combined total 2008 GDP of the US, Japan and the EU.

So this was no ordinary boom and bust cycle, and without the intervention of the central banks of the G20 countries, especially the US and UK, we would have been facing the prospect of the world economy crashing off its tracks.

Sign announcing work under the stimulus package, October 2009 Creative commons image Icon Simon Budgen, under CC-BY-NC-SA licence under Creative-Commons license
Stimulus work in Colorado

The worldwide fiscal and monetary stimulus packages to revive the economies amounted to $20 trillion (about 10 times the size of the UK economy).

Perversely, with the exception of the US, most of the G20 countries are espousing fiscal austerity as a precondition for economic recovery. This is a bit like the old medical practice of bleeding a patient to order to receive him or her and then finding they die: the cure being worse than the illness.

The logic of the accompanying politics to this fiscal fetishism is that room has to be created for the private sector to grow by cutting back the public sector.

The Myth of Sisyphus is a famous essay by Albert Camus on the absurdity of searching for meaning in a world devoid of eternal truths. Sisyphus is the figure from Greek mythology who repeatedly laboured to push a boulder up a hill to see it fall back again.

The myth of fiscal fetishism is that the public expenditure and investment “crowds out” private expenditure and investment. The theory, evidence and the data show that the reverse is true. The recent experience of the Irish economy, which is facing the real prospect of double-dip recession as a result of its austerity measures, amply demonstrates the myth.

Central banks are the lenders of last resort to the banking system, so that the bail-out of the financial crisis by public money suggests that the public sector is the guarantor of last resort of real demand and investment in economy. Many private businesses rely of government contracts and demands for their services.

For example, without government funds to help re-generate Blackpool a seaside resort in the North West of England, the Infusion fun-ride of the town’s theme park may have got less patronage.

The bottom line of a mixed economy, is just that – its is mixed, made up of private and public sectors and privileging one over the other is a bit like letting a Ferris-wheel loose from its axle mountings – rolling towards impending disaster.

Perhaps we should seek the sponsorship of the world’s top ten wealthiest people, who according to Forbes magazine have assets that total $270.8 billion with the top 400 accounting for $1.37 trillion in 2010. The former could pay-off two thirds of the total Greek public debt, whilst the latter could pay off 10% of the total public debt of the EU.

But why should these individuals or companies sponsor anything? All around the world, sporting, cultural events, films and TV programmes are sponsored by companies. Is it a form of viral marketing and marketing strategies in general or are these corporation and their CEOs being good corporate citizens?

A cynical charge would state that these corporate masters and mistresses of the universe are just publicly displaying their wealth and status by getting privileged access to the Americas Cup or Glyndebourne or the Olympics. But the market is part of civil society and businesses are part of that, so that suggesting they are separate from the activities of society is perverse.

There may be some organisational logic of being identified with a brand or activity that promotes health (sporting events). Or being a cultural patron in respect of literature or art (literary competitions and exhibitions of painting). Moreover, the names of the sponsoring organisations live long in the memory after the winners have been forgotten. For example the Mercury Prize for the best music album of the year is still awarded long after the eponymous companies stopped sponsoring it and ceased to exist.

The xx Creative commons image Icon RawRZ! under CC-BY-NC-SA licence under Creative-Commons license
The XX

Will The xx (the 2010 winners) still be remembered in 10 years time or will they be their generation's Roni Size, who won it in 1997 but has gone from public view?

Sponsorship is in the DNA of our culture but it does have a material logic.

This logic relates to the economics of advertising where your competitors have to spend more per unit of output to match market penetration and brand awareness. Similarly, you would rather sponsor a production of the Scottish play at Stratford-upon-Avon than the local drama society’s version of Wagner’s Ring Cycle.

This view sees sponsorship as being nice to have rather than core to the strategy and activities of companies, good in the upturns, bad in downturns.

But this overlooks some eternal bottom lines in business and society: the government directly and indirectly sponsors organisations whether it is businesses or sailing clubs. If you cut one you cut the other, with apparently short-term benefits turning into long run costs.

In 1959 Buddy Holly was killed in an air crash alongside The Big Bopper and the nature of pop music had to wait for the arrival of the Beatles to manifest a new wave. The Big Bopper was so-called because of his size, personality and music; and like the Big Dipper, his career was subject to ups and downs, even before his untimely death.

The question is that in the light of the economics of austerity and its impact on sponsorship is there a new Big Bopper to produce the mood music to help us ride out the roller coast we are all facing?

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