With the COVID-19 pandemic forcing hundreds of millions of people to shelter in place across the world, the International Olympic Committee (IOC) postponed the Tokyo 2020 Summer Olympic and Paralympic Games to commence on July 23 and August 24, 2021, respectively.
Just a few weeks ago, advertisers were finalizing their plans for the biggest marketing and promotional event of the year, with the Summer Olympic Games set to begin on July 24. The 2020 Olympics presented a unique opportunity after changes to Rule 40 took effect, permitting non-Olympic sponsors to leverage the event in their advertising for the first time, as long as they complied with certain requirements.
But the decision to postpone the Summer Olympics until 2021 leaves advertisers—the 14 global sponsors known as The Olympic Partners Programme (TOP) as well as national sponsors—with plenty of questions. Since the start of the first modern Olympic Games, the Olympic Games have been canceled only three times, once during World War I and twice during World War II, but they have never been postponed. There is, therefore, no Olympic precedent on which sponsors can rely, and no road map they can follow, to make the most of what is still a marquee marketing opportunity.
Advertisers hoping to capitalize on the marketing opportunity around the Olympics fall into three categories: (1) official Olympic sponsors—e.g., TOP sponsors and sponsors of National Olympic Committees (NOCs) like the United States Olympic & Paralympic Committee (USOPC); (2) sponsors of National Governing Bodies (NGBs) of various Olympic sports, like USA Swimming; and (3) non-Olympic sponsors who complete the Personal Sponsor Commitments (PSCs) and receive Rule 40 permission to allow them to feature Olympic athletes in their advertising campaign during the Rule 40 period (the period that covers shortly before, during and after the Olympic Games, approximately four weeks in duration, during which Olympic athletes are restricted from engaging in advertising for non-Olympic sponsors).
Unlike outright cancellation of the Olympics, a one-year postponement affects these sponsors differently and requires different considerations as advertisers shift their marketing strategy as a result of the postponement.
In order to determine their options based on the IOC’s decision to postpone the Olympics, all sponsors need to review their sponsorship contracts to see whether they have a force majeure clause that could provide them with a remedy relating to the postponement—for example, (1) allowing them to terminate their sponsorship or (2) extending their sponsorship term. Most sponsorship contracts include a force majeure clause, which typically excuses a party for any delay or failure of performance for reasons outside of that party’s control, but not all force majeure clauses include a termination right or an automatic extension of the sponsorship term. Some force majeure clauses may also entitle the sponsor to a make-good or even a clawback or adjustment in sponsorship fees for benefits lost due to a force majeure event, but these are more rare and only included in highly negotiated contracts.
Even if the sponsorship contract does not include a termination clause for a force majeure event, like the current coronavirus pandemic that has caused a global shutdown, the IOC and NOCs are more likely to be accommodating if a sponsor wants to terminate its sponsorship. In fact, the IOC and Tokyo 2020 organizers have formed a task force named “Here We Go” to solve issues presented by the postponement, including sponsorships. So far, it seems that the major corporate sponsors are standing by and have announced different ways they are supporting the postponement, such as extending their Olympic athlete deals accordingly.
If a sponsor decides to continue with the Olympic sponsorship, it’s important for the sponsor to document the parties’ agreement on the effect the postponement will have on the sponsor’s rights and obligations. For example, how will the postponement affect the payment of the sponsorship fee or the marketing activations that are contingent on the receipt of certain assets from the IOC, the NOCs or the NGBs?
A sponsor whose sponsorship extends beyond the current Olympic quadrennial period will also need to take into consideration how this extension will affect its rights for the next quadrennial period, which will now be shortened to three years, with the 2022 Winter Olympics starting less than six months after the end of the 2020 Summer Olympics. A sponsor whose sponsorship ends with the 2020 Summer Olympics will need to review its contract to see how the postponement affects its sponsorship renewal right (if there is one) or its exclusivity in its product category, since that category could be sold to another competitor and there could be an overlapping period when two competitors have sponsorship rights in the same category.
A different challenge exists for NGB sponsors, because NGB sponsorship includes much more than just the Olympic Games, and extends to exhibition and competitive events leading up to the Olympic Games. These sponsors may require more extensive discussions with the NGBs on adjustment to the sponsorship term, fees, and sponsorship assets and elements; a material part of the sponsors’ support of the national teams could be outside the sponsorship fee, such as marketing activations, media buys, support of individual athletes and/or in-kind contribution (jerseys, equipment, etc.). These issues are also present for TOP and NOC sponsors, especially those TOP or NOC sponsors that are also NGB sponsors.
For non-Olympic sponsors seeking Rule 40 permission, the USOPC has temporarily closed the Rule 40 Permission System for new submissions but has announced that the PSCs already completed in the system will be extended to the new 2021 Rule 40 period (which has not yet been announced). This means that for now, non-Olympic sponsors do not need to worry about using Olympic athletes for the remainder of 2020, but will need to make a decision in the early part of 2021 to determine whether or not they will seek Rule 40 permission. This is true even for those advertisers who have completed the PSCs, as the USOPC will be checking in with them in 2021 to determine whether they still intend to run any campaigns with Tokyo 2020 participants during the new Rule 40 period, and whether the information submitted in their PSCs still accurately reflects campaign plans for 2021.
Why it matters
The first interruption of the Olympic Games since 1944 leaves advertisers facing a host of uncertainties, especially in the face of the current global public health crisis that may continue well into 2021. Ad campaigns that have already been completed may be shelved until next year or thrown out completely, with new campaigns developed closer to the event in order to be timely and fresh for the event. Endorsement deals with Olympic athletes face similar problems, as some are set to expire by the end of 2020 and may need to be renewed—or not. Advertisers looking to launch a new product or service in conjunction with the Olympic Games will have to come up with a different way to market their innovation. With all these considerations in mind, it is important for advertisers to review their options carefully and choose the optimal course that gives them the most flexibility to support their shifting marketing strategy.