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Chinese Advertisers Save FIFA

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Chinese Advertisers Save FIFA

July 12, 2018

As France and Croatia prepare to face off in the World Cup final on Sunday, advertisers across the world are hoping to see their investments pay off.  The culmination of the month-long tournament is the most-watched event every four years.  An estimated 910 million people tuned into the championship match in 2010, and viewership increased to over 1 billion people in 2014.

Competition to televise the tournament in the United States was fierce, as Fox paid $400 million to broadcast the 2018 and 2022 World Cups in English. Telemundo paid $600 million to provide the Spanish broadcast.

Companies locked down coveted commercial times well in advance of the World Cup. By September 2017, Fox had already sold three-quarters of advertising spots, and Verizon won the bid to be the official sponsor of the halftime show, while Volkswagen won rights to the postgame show.

So far, returns on early advertising investments may not have reached desired levels. The U.S. failure to qualify for the World Cup for the first time since 1986 has undoubtedly dampened interest domestically.  Furthermore, the large time zone gap between Russia and the United States has also presented problems, as many matches took place in the morning rather than at night in prime time.

Viewership in America was down 44 percent through the first round of games in comparison to 2014, and interest did not improve much in the knockout stage, as the number of viewers was 35 percent fewer than 2014 and 8 percent fewer than 2010.

Consequently, the cost of 30-second spots during the final match this year is lower than the previous World Cup in 2014.  The research outlet SQAD has calculated that companies will pay between $399,000 and $476,000 per commercial this year versus a range of $448,512 and $534,206 four years ago.

Beyond timing and engagement concerns, advertising during a soccer match presents unique logistical concerns.  Unlike American football or basketball games, which feature frequent breaks, soccer games are divided into two 45-minute halves with no pauses in the action that would allow for commercials to be shown.

To make up for the lack of traditional commercial time, alternative methods have been explored in other soccer markets.  In many of the world’s top club soccer leagues, companies place advertisements directly on jerseys to raise brand awareness during matches.  Teams in the British Premier League brought in $370 million for jersey sponsorships in 2016.  However, at officially-sanctioned FIFA tournaments, this kind of advertising is banned.

At the World Cup, the primary way for brands to market their products during the match is by advertising on billboards around the perimeter of the field.  However, only the eight companies that pay to be first-tier partners of FIFA are able to advertise on these screens.  With all of these restrictions on advertisers, it is difficult and costly to become a sponsor.

FIFA’s sponsorship apparatus took a major blow at the end of 2014 when Sony, Emirates, Continental, Johnson & Johnson, and Castrol announced that they were not renewing their deals.  As corruption investigations of FIFA intensified, the federation faced deep financial troubles.  In 2016, FIFA reported a record loss of $369 million, and many analysts doubted American and European companies would want to buy ads with scandal-plagued Russia hosting the 2018 World Cup.

However, recent investment by Chinese companies has filled much of the void, keeping FIFA afloat.  This year, 7 of the 20 official sponsors were Chinese, up from only one in 2014.  In fact, businesses from China have spent $835 million on World Cup advertising, more than double their American counterparts.

As a result of increased Chinese advertising spending, financial calculations have turned up better than expected for FIFA.  New projections suggest that FIFA will generate $6.1 billion in revenue at this year’s World Cup, which is 10 percent greater than the federation’s own original projections.

It is clear that worldwide demand for soccer remains strong, despite a drop in American engagement at this year’s World Cup.  Chinese companies that are not held to the same standards of brand social justice will gladly take the place of American businesses who do not want to be associated with corruption.

However, FIFA would be unwise to accept an American exit out of the market.  If corruption problems are properly addressed, U.S. companies could re-enter the bidding process.  Because opportunities for advertising are scarce, competition between Chinese and American businesses would result in higher bids and more profit for FIFA. FIFA should not let temporary success be an excuse to return to its corrupt past.

Stephen Vukovits is a contributor to Economics 21.  Follow him on Twitter @svukovits.

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