Companies are cutting spending on hospitality centred around sports events in the face of the recession and criticism that such outlays are unnecessary, a top marketing executive said on Friday. "People are spending, but they're spending a lot more judiciously," said Jan Katzoff, executive vice president of Radiate Group, the experiential marketing arm of advertising giant Omnicom Group Inc.
North American companies are expected to increase spending on sports, arts, causes and entertainment marketing by just 2.2 percent this year to almost $17 billion, according to IEG, a research firm owned by ad firm WPP Plc. Sports make up the bulk of that spending.
However, even that estimate - the smallest increase in the 20 years IEG has tracked such spending - may be optimistic as Katzoff estimated such outlays fell about 15 percent in the first quarter. Professional golf and NASCAR racing are feeling the cutbacks the most, Katzoff said. "There's never been so much pressure and so much scrutiny on these type of investments," he said.
Radiate, coming off a record year of sales in 2008, is a network of agencies that provide such companies as Visa Inc, Procter & Gamble Co and Adidas AG with help in planning and hosting events to entertain clients around such sporting events as the Olympics, soccer's World Cup and NASCAR, Katzoff said.
However, Radiate Group's first-quarter sales were off about 10 percent and a good year would be holding steady, he said. Other clients include Bank of America Corp, Lowe's Cos Inc and Hershey Co, Katzoff said.
The backlash against hospitality spending has been intense as many criticise the spending as unnecessary. In February, US lawmakers railed against Northern Trust Corp amid reports the Chicago investment management company, which received a taxpayer-funded capital infusion last year, had hosted lavish parties at a Southern California golf tournament it sponsored.
Citigroup has been criticised for a 20-year, $400 million naming-rights deal that it signed in 2006 for the New York Mets' new baseball stadium. Despite the backlash, the stadium is set to open next week under the name Citi Field.
Morgan Stanley and Wells Fargo & Co have pulled back on hospitality plans at golf tournaments they sponsor. Some in the industry feel the criticism has gone too far. Bank of America Chief Executive Kenneth Lewis said last month his firm generates $10 in revenue and $3 in earnings for every $1 spent on sports marketing.
Katzoff said many firms have not done a good enough job articulating the return on sports marketing spending. "I've seen companies deliver more business at the Masters or at the Final Four than they ever could do sitting in a meeting room," he said of a top PGA Tour golf tournament and the NCAA college basketball playoff tournament.
The criticism Northern Trust faced has caused companies to put more effort into inviting only top customers and then spending more time explaining company products, Katzoff said. He said clients at the Final Four this weekend in Detroit are focusing on corporate outings and small dinners, not extravagant parties.
Katzoff is hoping Chicago is awarded the right to host the 2016 Olympics as that could be a big boost to his company, which handled 9 corporate clients and 15,000 corporate guests last summer at the Beijing Olympic games. "There's no question that to bring an Olympics to US soil would be a huge boost for the sports industry in general and for sports marketing," he said.