Big Blue Bids the Olympics Adieu

Big Blue Bids the Olympics Adieu

When IBM Corp. first teamed up with the Olympic Games in 1960, punch cards were cutting edge, casual Friday meant a tan suit - and the Internet was still a generation away. Early on, IBM's role was limited to providing the host cities with technology. Over the years, Big Blue has pumped up its participation by nurturing a mutually beneficial relationship: The Olympics got technological support and a fortune in fees, while IBM got unparalleled global exposure.

The partnership worked when technology was a confined piece of turf, pretty much limited to recording, processing and distributing information on timing and scoring events. Then came the Internet, and the stakes exploded, putting a 40-year marriage on the rocks.

At issue is the scope of IBM's sponsorship. In 1992, IBM and the International Olympic Committee agreed on a deal that made IBM the official information technology sponsor for the next eight years, ensuring that it would be the only IT provider during the Games and the only one allowed to use the Olympics logo.

Neither party could have known how great a force the Internet was about to become.

Now, IBM argues that its IT sponsorship gives it dibs on the rights to continue building the official Olympics Web site - something it's been doing since the 1996 Atlanta Games, but only because it negotiated those rights separately with the host cities - and, although the company won't say so publicly, to claim some sort of exclusive Internet sponsorship. Not so fast, says the IOC. The committee was late to see the Net's value and is now approaching the potential gold mine of an Internet sponsorship cautiously. "This is like any breakup or divorce, and there are two sides to the story," says Rob Prazmark, VP of IMG, a New York-based company hired to help sell Olympics sponsorships through 2004.

"Basically, the two groups couldn't see eye to eye on how to value marketing rights when it came to the Internet." Defining what the Internet means to the Games is at the heart of the dispute.

Is it a medium or an advertising sponsorship category? Like broadcast rights, Internet rights could bring the IOC and the host cities big bucks from major media companies. If, however, the Internet is considered an ad sponsorship category (as it has been on a local level until now), a tech company like IBM could lay claim to Internet rights for a fraction of the price.

A sponsor can cut deals with any of four governing bodies. The International Olympic Committee grants sponsors the rights to use the Olympics rings in their worldwide advertising and marketing outside the U.S.; the U.S. Olympic Committee grants those rights within the U.S. The host cities grant rights to use the logo for that year's Games, among other things. And the broadcaster grants TV advertising rights for the Games themselves.

IBM was among the first official sponsors when the IOC introduced the official sponsor program in 1984. In exchange for tens of millions of dollars, IBM got the right to use that designation and the Olympics rings in its marketing and advertising. Any company willing to pony up the money could use the rings, even corporate competitors. In 1992, the IOC came up with a new exclusive sponsorship, called The Olympic Partner, for categories such as soft drinks or credit cards, granting the buyer sole rights to use the Olympics rings and to call themselves the official sponsor in their category. IBM was quick to snag the Information Technology category.

IBM insists its current IOC agreement includes "transactions over networks." As IBM interprets it, that covers Internet communications. The company reached separate agreements with Atlanta in 1996, Nagano, Japan, in 1998 and Sydney, Australia, this year to win bragging rights to call itself the brains behind the official Olympics Web sites. (The host cities oversee the official Games Web sites.) Building those sites, IBM reasons, gives it the Internet sponsorship. But the IOC maintains that Net rights have never been up for bid for any Games. And regardless of whether it is called a medium or category, the IOC now wants to control the Internet.

"It's a position IBM has taken to which we object," says Dick Pound, VP of the IOC. "We simply do not agree that they have the [Internet] category." When IBM and the IOC met in 1998 to renegotiate their contract, the two deadlocked over Internet rights and parted ways. The contract expires Dec. 31.

The IOC insists that IBM's Internet arrangements with host cities never had its blessing. The two stalemated. IBM says the IOC wanted IBM to provide all the information services it had in the past as the IT sponsor, but without the Internet as a piece of that category. But IBM now views the Internet as the meat of its business. Without Internet sponsorship rights included in the IOC deal, IBM wanted to call it quits.

"The IOC was going to have a separate category for the Internet and it wasn't clear whether it would be [The Olympic Partner] or local sponsorship," says Eli Primrose-Smith, IBM's VP of worldwide and Olympics sponsorships. "To take only one piece after we've had a broad sponsorship just didn't make sense." Still, she maintains that battling over the Internet was just one part of the negotiations and "not the most important part." Now that the IT category is less than IBM wants to be, this is the company's last Olympics. Its swan song is not cheap: IBM is shelling out US$200 million on the Sydney Games, almost a third of its entire budget of $660 million for 2000. Fifty million of that went to the IOC to secure the worldwide IT sponsorship.

The company's deal with NBC, say people close to the two companies, cost it another $50 million, granting IBM the rights to be the only IT advertiser during the Games. The rest of the money covers payments to Sydney, the host city, to use the logo and to be the official Internet sponsor; fees to the USOC for U.S. marketing rights; plus the costs of advertising that sponsorships don't include, such as producing the commercials and buying air time. (Figures provided are from people familiar with the deals; the company won't break out its expenditures.) Finally, the company is sending more than 1,000 IBM employees to Sydney to man a setup of 7,000 PCs, 1,000 laptops and 50 workstations. "IBM actually helps put the Games on," says Chris Wall, creative director at Ogilvy & Mather, IBM's ad agency. But not after Sydney.

Now that the IOC is free of IBM's hold on the Internet category, it must figure out how to approach the ever-changing world of the Internet. The IOC hasn't offered Internet category exclusivity to any one business for the upcoming Winter Games in Salt Lake City. But in August, NBC and Quokka Sports (QKKA) signed a deal with the Salt Lake Organizing Committee to produce the official Web site for 2002.

After Sydney, Internet broadcast rights may very well go to NBC, which has already sewn up the broadcast rights and has proved its ability to attract huge audiences. And exposure, after all, is what the Olympics is all about.

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