Media Spending for Sports Teams Felt by GM and Chrysler Bankruptcies

In a recent post at the LA Times website, author Alana Semuels states that TV stations, newspapers and magazines will feel the latest blow from the GM and Chrysler bankruptcies. In the article, the author also points out:

“Sports franchises also could feel the sting, with analysts expecting the automaker to continue cutting back its multimillion-dollar sponsorships of professional teams.”

Not only will the media outlets feel the crunch, the sports franchises themselves will also bring in less income.

At least one Major League Baseball team is sponsored by General Motors, as stated by Jim Andrews, senior vice president of IEG Inc., a research and consulting firm. GM spends about $5 to $10 million per year on Major League Baseball and about $1 million per year to sponsor teams in the National Basketball Assn., National Football League and National Hockey League.

GM is also decided not to renew its deal with the US Olympic team, estimated to be worth about $7 million. It is also scaling back its NASCAR sponsorship and has ended its 9-year endorsement contract with Tiger Woods for Buick.

The Effects of GM’s Marketing Budget Cutbacks

Last year, according to the Nielsen company (of Nielsen ratings), GM spent $2.1 billion in advertising, coming in second only to Procter and Gamble. Companies coming out of bankruptcy can’t be expected to have billions of dollars avaiable for their marketing budgets. Already in Bankruptcy Court, Chrysler has been asked by the Obama administration to cut its marketing budget in half. This does not bode well for GM’s media suppliers or the teams they sponsor.

The ripple effect of reduced expenses goes even farther down the chain. By the end of 2010 it is expected that GM will cut almost 2,500 dealerships who would otherwise be expected to purchase local advertising. This fact is reinforced by Gordon Borrell, chief executive of research firm Borrell Associates, who states:

“You have a double whammy with dealerships shutting down and manufacturers curtailing their ad spending, … It’s across the board hitting everybody.”

Local TV Stations Hit Hard

The LA Times article states that “In the short term, the GM filing is likely to hit already struggling TV stations and newspapers the most dramatically, Borrell said, because both get a large percentage of their advertising revenue from dealer groups and dealerships. Some television stations get half of their advertising dollars from the automotive category, he said.

“Last year the category accounted for 11% of all dollars spent on newspaper advertising — $2.5 billion, according to TNS Media Intelligence. Newspapers are hurting badly, with ad sales down 30% in the first three months of the year, the Newspaper Assn. of America said Monday.”

Advertising Cutbacks by Automotive Dealerships

The LA Times article goes on to state:

“Companies typically market cars through three tiers: Manufacturers pay for commercials that advertise new models or push a brand nationally, dealer associations corral voluntary contributions from regional dealers into ad campaigns, and individual dealers advertise pricing and perks to get customers into their lots.

“Dealer spending shrank 24% last year from 2007, and manufacturer spending decreased 10%, according to TNS Media Intelligence.

“Advertising from dealer associations has suffered as more car dealers decide they don’t want to spend on group advertising when they have to cut back so much in other areas, said Peter Welch, president of the California New Car Dealers Assn. Many are opting out of assessments, the voluntary 2% contribution they put into funding the regional dealer ads.”

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