When young bankers want to advertise that they have arrived, they splash out on sports cars and luxury watches. The corporate equivalent is a sponsorship deal.
Chinese conglomerate Wanda Group’s global spending spree included a 2016 deal with World Cup organiser Fifa. Ecommerce giant Alibaba became a global backer of the Olympic Games in 2017. On Monday, Airbnb signed a worldwide deal to back the next five Olympics. The deal, estimated to be worth $500m in cash and services, is the accommodation-booking platform’s first major global sponsorship.
The International Olympic Committee says the deal will cut costs for host cities, improve sustainability and minimise the need to build hotels. Airbnb is looking to boost its brand as it prepares for a public listing next year.
History suggests that the company, currently valued at $42bn by investors trying to buy indirect stakes, may have a point. A 2017 study in the Journal of Advertising Research found that the announcement that a company is sponsoring the World Cup or the Olympics has a measurable, positive effect on the company’s share price: shareholders appeared to see it as a sign of confidence as well as a boost to marketing.
The effect was particularly large when the sponsoring company had a functional link to the event. Airbnb may well be hoping to convince investors that it will profit from the deal, which covers events in Tokyo, Beijing, Paris, Milan and Los Angeles, which are among the company’s biggest markets.
However, positive effects appeared only for the most popular events. Sponsors of the America’s Cup yacht race saw their share price fall after deals were announced, and a separate study found the same thing was true for Formula One racing. Even for the Olympics and World Cup, the size of the share price boost has been shrinking over time.
This suggests that investors are becoming wary of the rising pricetags for sponsorships and only approve of those that significantly boost a company’s profile in a positive way. US television viewership was down sharply for the 2016 Rio summer games and ratings for the 2018 Sochi winter games were the worst on record. Much of that is due to the shift away from broadcast and cable television, but it raises questions about whether the tie-ups are worth the price. In America, Budweiser, Citi, Hilton and AT&T have all stopped sponsoring the US Olympic committee.
Some Olympic sponsors have experienced public blowback. Dow Chemicals drew criticism for sponsoring the London 2012 games because of its links to the 1984 Bhopal gas tragedy in India. McDonald’s ended its longtime global association with the Olympics three years early, in 2017, as campaigners grumbled about the appropriateness of a fast-food sponsor. Similar complaints did not deter Coca-Cola from signing up again this year, but it opted to share its role as global beverage sponsor with milk group China Mengniu Dairy.
Raising Airbnb’s profile may not have been entirely positive. Paris, Los Angeles and the Japanese government have tightened short-term leasing rules recently and there are complaints that it is helping to drive full-time residents out of European cultural capitals.
The group is also coming to market at a time when investors have become more sceptical of free-spending companies in the wake of the botched WeWork listing. Airbnb has said it generated profits before interest, taxes, depreciation and amortisation costs in 2017 and 2018, but recent reports suggest it may have operating losses this year due to sharply increased marketing spending.
Ferraris and Rolexes may have a positive correlation with ambition, but their link to performance is suspect at best. US sponsors of sports arenas get into financial trouble so often that there’s talk of a stadium curse. Investors should keep both facts in mind when Airbnb comes to market next year.