Alibaba Is Now a Top Olympic Sponsor. But Is the Olympics Still a Good Business? | QDaily Business History

A businessman named Peter Ueberroth invented the modern commercial model of the Olympics at the 1984 Los Angeles Games — in plain terms, he put a price on the Olympics. The fiercest fight inside that model is the one for top-tier sponsorships. But today the Olympics is losing its hold on people's attention.

Compare it with the nationwide attention paid to the 2008 Beijing Olympics: the news that Alibaba had joined the Olympic Partner program — the Games' highest tier of sponsorship, known as the "TOP sponsors" — drew a much cooler response.

At the World Economic Forum in Davos on January 19, the International Olympic Committee and Alibaba Group jointly announced a partnership running through 2028. Alibaba joins the Olympic Partner program as the official partner for "cloud services" and "e-commerce platform services," and as a founding partner of the Olympic Channel.

Media outlets conservatively estimate the total at no less than US$800 million. Alibaba will neither confirm nor deny the figure.

Alibaba is now the world's largest e-commerce company, worth nearly US$240 billion, so the news surprised few. Together with Alibaba, Coca-Cola, VISA, General Electric, Toyota, Samsung and Panasonic make up the 12 companies in the current TOP sponsor lineup.

Alibaba is not the first Chinese company to get there. Lenovo was, and it announced its withdrawal as soon as it had sponsored the Beijing Olympics — less a business relationship than a political errand completed. That is not the same order of thing as the contract Alibaba has just signed.

Alibaba is the first company anywhere to reach a long-term sponsorship deal with the IOC running through 2028. Its global partnership rights cover the 2018 Pyeongchang Winter Olympics, the 2020 Tokyo Olympics, the 2022 Beijing Winter Olympics, and the Summer and Winter Games of 2024, 2026 and 2028.

In an interview, Jack Ma said Alibaba was not content to be "another sponsor" of the IOC, but wanted to be "a real partner that can be a game-changer." IOC president Thomas Bach said the two sides had been talking for a year.

In 2015 Jack Ma first spoke of "serving 2 billion consumers." At Alibaba's tenth anniversary in 2009 the number had been 1 billion. Sport looks like a fairly safe way to raise the company's international profile quickly.

Foreign coverage read the deal as a 17-year-old company buying international exposure and a repair job on its image. Jack Ma appeared on the cover of Forbes at the end of 2015 under the line "His $200 Billion Empire Is Built Atop A Mountain of Fakes."

A veteran American sports reporter revealed that Amazon had also bid for the top sponsorship but lost to Alibaba after several rounds of pricing and review, giving up the contract in both the cloud computing and the e-commerce categories.

What caught the IOC's eye was Alibaba Cloud's record on "Double 11": a peak of 175,000 transactions and 120,000 payments per second, which nothing else in the world matches. The ticketing systems in Atlanta, Sydney, Beijing and London all buckled under traffic during their Games; the official website of the 2012 London Olympics took roughly 200 million illegal login attempts, and the opening ceremony's power supply faced attack threats; last year the Rio Olympics website saw another 20 million attacks on top of that.

Alibaba's cloud business ranks third in the world by revenue, behind Amazon's AWS and Microsoft's Azure. By market share the gap is still wide: AWS holds 31% and Azure 11%, while Alibaba, CenturyLink, HP and Oracle together hold only 26%.

Jack Ma put it this way in an interview: "We are proud to be able to use our innovation and technology to support Olympic Agenda 2020, and to help the Olympics evolve for the digital era."

Alibaba Sports, founded in 2015, has won hosting rights to the FIFA Club World Cup, and Guangzhou Evergrande Taobao, the club it invested in and named, is now a top side in both the domestic and Asian leagues. Suning.com, in which Alibaba holds a stake, has moved into sport as well: its PPTV unit has picked up broadcast rights to La Liga and the Premier League, taken over the Jiangsu football club, and become the controlling shareholder of the old Serie A power Inter Milan.

The Olympics, though, is a far bigger stage.

But for a company or a brand, a ticket into the top tier is only the start. At the London Olympics more than 40% of revenue came from sponsors, and a top partner paid an estimated US$100 million on average. The business section of Time calculated that these companies then had to spend three to four times that on marketing during the Games. Sponsor without the advertising to match, and the effect falls away sharply.

Even for a company as rich as Alibaba, this is money worth weighing carefully. So how did the Olympics, the carrier of a sporting spirit of "faster, higher, stronger," end up built around a system of sponsors?

How Did the Olympics Become a Money-Making Business?

It is hard to imagine now, but the Olympics — today the world's biggest sports property — used to lose money and buy nothing but noise. That may be putting it gently. Before the Games were commercialized in 1984, an Olympics that routinely cost tens of millions of dollars was, for the public, a disaster.

The 1976 Montreal Olympics lost US$2.4 billion, the worst in Olympic history. The city government was left with US$1.5 billion in debt, and afterwards Montreal residents had to carry a new "Olympic special tax." The debt from 30 years earlier was not cleared until November 2006. Olympic history calls it the "Montreal Trap." The scar stayed: in 2005, when the public refused to back a bid for the World Swimming Championships, the head of the local organizing committee, under unbearable pressure, shot himself that same year.

The turn came in 1984 — the year the Olympics began to be a money-making business.

Peter Victor Ueberroth, then president of the Los Angeles Olympic Organizing Committee, changed everything. This businessman, who had once run an American travel company, set himself a target: spend not a cent of government money, and still make the Games a US$200 million profit.

At the time the city of Los Angeles, the state of California and the U.S. federal government all said they would not put public money into the event. It was the first time in Olympic history that governments had walked away from the Games, leaving them to be run by a private commercial outfit put together by individuals. President was his title, but Ueberroth found he did not even have a decent office. Afraid the committee could not pay the rent, the landlord quietly changed the locks and shut him out.

The smartest thing Ueberroth did was to make an ally of television, gathering the world's attention onto a single screen.

He was the first to put Olympic broadcast rights out to open tender. The Games had been televised since Tokyo in 1964, but nobody had thought of selling the rights. After six rounds of bidding, ABC won with US$309 million. The model is still in use and has become the main source of revenue for every big sporting event.

The table below lists the television rights fees for every Winter and Summer Olympics since 1994.

Brands choose the Olympics because it gathers a huge amount of viewer time and attention into a short window — a good moment to show a brand and a product. TOP sponsors get more privileges than the rest, and the most important is exclusivity.

The IOC formally launched "The Olympic Partner," or TOP, program in 1985. Under it, only one company in any product category is licensed; the rights include commercial use of the IOC's five-ring logo and first claim on advertising, among others.

Before 1984 the Olympics had sponsors of a sort, but they were many, mixed and unsystematic. Ueberroth's own research found some 12,000 companies worldwide willing to sponsor the Games, each willing to put up only a few thousand dollars. After the broadcast rights, he turned sponsorship into a privilege too: no more than 30 sponsors, only one per industry, with bidding starting at US$4 million. This was the forerunner of the TOP sponsor.

You know how it ended. General Motors, Coca-Cola and Fuji came out of the scramble as the first batch of Olympic sponsors, paying US$385 million in total. By comparison, the previous Games in Moscow had 381 sponsors whose combined US$9 million did not match what Coca-Cola alone gave Los Angeles.

The 1984 Los Angeles Olympics became the first Games to run without a deficit, and made US$220 million. Time wrote at the time: "Before the competition even began, the first gold medal had already been won — and Ueberroth deserved it."

Ueberroth passed up nothing that could be sold. Seats with the best views, the commemorative torch relay, Olympic souvenirs — he found a way to sell them all. He essentially fixed the commercial model of the modern Olympics: put a price on the Games.

All of this looks like ordinary business today, but at the time it caused an enormous row — which means going back to the spirit and origins of the Olympic movement.

In 1896 Baron Pierre de Coubertin, the father of the modern Olympics, founded the first modern Games. His aim was to restore what he took to be the most important tradition of the ancient Games: amateur athletes from around the world coming together to compete for love of sport and the spirit of taking part. Under Coubertin's design, the Games balanced their books on private donations and gate receipts.

Amateurism was one of the principles the ancient Games insisted on, and a winner's reward went no further than a wreath of sacred olive branches, a palm frond and some words of encouragement. Coubertin wrote the principle into the Olympic Charter and warned later generations again and again that the professionalization of athletes was a major reason the ancient Olympics fell apart.

As late as 2004, Athens — birthplace of the Olympics and host of the first modern Games — still insisted on a "pure" Olympic setting. To keep commerce out, the city took down 10,000 outdoor billboards; those left could carry only the Olympic emblem and official messages, no sponsor advertising. The number of sponsors was cut to a historic low, and they were barred from advertising outside the venues. Without that advertising revenue, US$10 billion of Olympic spending made Greece's public finances worse.

Even after Ueberroth's commercialization, though, the Olympics still looks purer than other big sporting events: apart from the athletes' clothes and shoes, in nearly 20 days you will not see a single one of the billboards that cover other venues.

Becoming a Sponsor Is Only Step One — the Olympic Marketing Wars Are Brutal

Read down the list of top Olympic sponsors over the decades and you get a history of corporate rise and fall. Some names never leave: Coca-Cola, Panasonic, McDonald's, VISA. Coca-Cola has sponsored the Olympics more often than anyone — 20 times since 1928.

Other names have vanished. Kodak, a sponsor since the first Athens Games in 1896, is gone, and so are IBM, Xerox and Motorola.

The most successful Olympic sponsor of the past decade or so is Samsung. Its Olympic sponsorship has grown up with the brand. In 1970 Samsung was a contract manufacturer for Japanese brands, and even in the late 1980s the West still saw it as a maker of cheap imitations. It became a domestic sponsor of the 1988 Seoul Olympics, then joined the IOC's TOP program in 1997. Samsung was carrying tens of billions of dollars of debt in the financial crisis of the time, but chairman Lee Kun-hee held that to make it a top global brand the company had to use an event with worldwide reach as its main marketing vehicle. Since the 1998 Nagano Winter Olympics, Samsung has not missed a single Games.

The going rate for a TOP sponsorship has risen roughly 10% to 20% each cycle. At the Beijing Olympics in 2008 the minimum for a global partner was US$60 million; four years later in London it was US$80 million. The organizing committee never published exact figures for Rio, but the 11 TOP sponsors there were estimated to have paid US$1.05 billion between them, 11% more than in London.

By last April the coming Tokyo Olympics had already passed Beijing to become the most lucrative Games ever, pulling in more than 150 billion yen. Beijing's total, at the exchange rate of the time, was 146 billion yen.

And that is only the first outlay. Before and during the Games, sponsors have to put more money into advertising and marketing, or the effect drops off sharply. Qiu Lijin, a doctoral researcher at Fudan University's Fudan-Olympic Sports Industry Center, describes a "1:3" rule in sports marketing: over the life of a sponsorship a company needs to spend three times the sponsorship fee on top, telling target consumers over and over that it is the official sponsor. That is why you see teaser ads well in advance, then a steady run of Olympic marketing tracking the news out of the Games.

Just as Ueberroth was rewriting the rules, the marketing war around the Olympics began. The classic case is official sponsors against the ambush marketing of unofficial ones.

Nobody does it better than Nike. In 1996, though Reebok was that year's official footwear sponsor, Nike set up experiences outside the venues and handed out huge numbers of ticket lanyards carrying its logo. Plenty of people came away thinking Nike was the sponsor.

You may remember Nike's "Find Your Greatness" campaign for the 2012 London Olympics, whose films alluded at every turn to the hottest marketing theme and place of that summer — East London in South Africa, Little London in Jamaica, a town called London in Ohio, and a gym named London.

Even the London organizing committee had to admit Nike had not stepped over the line drawn by the sponsorship-protection rules.

The "Find Your Greatness" posters followed the news out of the Games closely and were shared and reshared on social platforms. One online survey found that of 1,034 American consumers polled, 37% believed Nike was that year's Olympic sponsor, while Adidas, the actual sponsor, was recognized by only 24%.

Even when both sides hold legitimate rights the tangles remain. At the London Olympics Adidas sponsored Team GB and Nike supplied the American team's kit, and both teams publicly required medalists to wear the full national kit on the podium — which meant British athletes sponsored by Nike would stand there in Adidas shoes, and American athletes sponsored by Adidas would stand there in Nike shoes. Perhaps the only real fix would be for everyone to collect their medals barefoot.

The IOC goes to great lengths to protect its sponsors' rights: the London organizers taped over the maker's mark on the toilets in older venues, because some of them came from non-sponsor brands. Rule 40 of the Olympic Charter exists precisely to restrain marketing by companies that are not Olympic partners.

As more and more athletes attacked the rule, the Rio organizers loosened it in 2016. Outside China, top athletes are usually sponsored and paid by brands, and stripping them of their endorsement rights during the Games would have offended nearly all of them. The new Rule 40 lets non-sponsor brands run Olympics-themed campaigns featuring athletes within a set window, and Under Armour got out early, putting its film with Michael Fred Phelps II online at the start of 2016.

But when Phelps appeared on the cover of Sports Illustrated, a magazine with 18.2 million subscribers, wearing a conspicuous Nike logo, plenty of people still called it "a serious accident in the endorsement business." Apex Marketing estimated that Nike got US$453,000 worth of brand exposure out of it.

Next to old hands like Nike, Chinese companies are plainly short of experience. When Lenovo signed with Beijing's Olympic bid committee in 2001 to become its largest bid partner, the company did not have a single position devoted to sports marketing. One person on the project remembers group president Yang Yuanqing listening to an internal team's report and exploding: "We're about to spend this much money, and you don't even have one full-time person on it!"

Lenovo eventually paid US$65 million for TOP sponsor status at the Beijing Olympics. The deal set off a debate in the industry — some argued a brand whose business was entirely domestic had no reason to spend that much on the Olympics — and the argument only faded after Lenovo bought IBM's PC business in 2004.

IBM's exit was the opening Lenovo walked through. After the Sydney Olympics the IOC had been looking for a PC hardware maker as a global partner, and under the IOC's marketing development plan Lenovo was the only Chinese company with a shot at TOP sponsorship. It was pushed onto the Olympic stage at that moment, with a push from government too.

Alibaba, by contrast, has clearly come prepared. Barring surprises, we should see a good deal more Alibaba Olympic marketing before the Tokyo Games.

None of this is easy. One report found that of the 200-odd companies holding sponsorship rights at the 1996 Atlanta Olympics, only about 25% saw a return; most got a little short-term benefit and no more. In the final stretch before the 2008 Games, more than 20 sponsors were cutting their marketing spending. And across the three Olympics from 2000 on, nearly half the top sponsors turned over.

Sponsorship Keeps Getting More Expensive, But the Olympics' Influence Is in Doubt

In an age of competition for attention, keeping Olympic sponsorship attractive is what the IOC works at without pause. Everything it does comes down to guarding the value of that privilege.

But the Olympics itself is now in trouble.

At the heart of the commercial model Ueberroth built is attention — the momentary, keyed-up attention that comes with excitement and tension. Do people still like watching the Olympics? We mean watching in front of a television. Broadcasting is, after all, the single most important part of the Olympic business.

The Rio numbers say ratings were far worse than in past years. Even for Usain Bolt's much-watched 100m, NBC's Sunday night rating was only 14.9, with 26.7 million viewers, against 17.5 and 31.3 million on the same night four years earlier.

That was NBC's lowest Sunday prime-time rating since 1984.

Set against the previous two Games, NBC's Olympic ratings fell on almost every night in Rio, down 17% on average from London.

As for Chinese viewers, we analyzed in this piece why they have lost interest in the Olympics. You probably remember that what people actually talked about last year was how glitch-ridden Rio was, plus Fu Yuanhui's memes and one-liners; one of the few real sporting highlights was the Chinese women's volleyball team winning gold again after 12 years.

The opening ceremony, one of the most valuable advertising slots there is, tells the same story. In 2012, CCTV-1 and CCTV-5 together took a 48.7% national viewership share during the ceremony; this year, CCTV-1, CCTV-5, the news channel and the HD sports channel came to just 29.9% combined.

NBC, which holds the U.S. broadcast rights, saw ratings for the Rio opening ceremony fall 35% year on year. Kantar Media reported that this year's ceremony carried 19% less advertising time than London's, yet viewers' tolerance for ads was clearly lower than before. An NBC spokesperson said: "We believe new viewing habits, like binge-watching an entire show in one sitting, have changed how audiences perceive advertising."

That new habit is the internet. Social networks had already begun taking attention away from viewers at the 2012 London Olympics, and in the mobile era the phone screen has largely replaced the television. Fragmented channels scatter attention faster, and make the Olympics look like less of an occasion.

Yet weak ratings and all, advertising for the Rio Olympics sold better than ever. NBC had sold US$1.2 billion of it before the Games began, 20% ahead of London at the same point. Mark Lazarus, chairman of NBC Sports Group, told a conference call this was "the most financially successful sporting event in NBC's history."

The decline of television is not a new subject, but as we argued in this piece, until the new media platforms produce entertainment that can move the whole world, live events like the Olympics remain a relatively scarce resource. Work out the advertising each viewer generates per second, though, and the Olympics is not the most valuable property out there.

Another piece of bad news: as happened many years ago, a number of cities are again resisting or dropping bids to host. The reason is that over the past three decades and more, host cities that lost money still outnumber those that did not. Oslo, Boston and Munich all gave way to public opposition and withdrew.

At least so far, Tokyo has shown a more promising side. The Games are three years off, but Yoshihiro Oi, head of Dentsu's Asia division, has said Tokyo has already attracted more than three times London's sponsorship money from 42 sponsors. On Oi's figures, Tokyo has secured at least US$3.45 billion, and the number is still going up.

Meanwhile Yoshiro Mori, the former Japanese prime minister who chairs the 2020 Tokyo organizing committee, said on a television program that operating costs will jump from the roughly 300 billion yen originally planned to about 500 billion. To balance the books, Tokyo needs still more sponsors.

Seen this way, Ueberroth's creation is still throwing off heat. But the rules of the game have begun to break: Tokyo, for one, has abandoned the "one company per industry" convention.

For Alibaba, whose contract runs to 2028, the question now is how to make the money count.

Cover image: wn.com