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05 July 2021
Japan’s ad giants count cost of Olympic doubts
SportsCrisis managementSports sponsorship
The troubled Tokyo Olympics, still facing uncertainty with less than a month to go before they are due to begin, are proving to be anything but the cash cow Japan’s mightiest ad agency Dentsu had hoped for.
Already facing business headwinds, according to reports, from the challenge of adapting to the digital revolution in advertising, Dentsu saw the Olympics as a crucial source of profits.
The world’s fifth-biggest ad agency was rapidly recruited as soon as Tokyo was announced as the Olympic host, and it brought in more than 40 major corporate sponsors. This resulted in the most heavily sponsored event in history, the FT reports, worth an estimated $3.1 billion, with a number of companies paying as much as $100 million each.
For Dentsu, though, the real returns would have come in the lead-up to and during the games, as sponsors ran their campaigns, resulting in fierce competition for premier TV slots, which Dentsu mostly controls. Some observers suggest this would have contributed around $90 million, or as much as 9%, to the group’s annual profits.
But the optimistic forecasts have now fallen away as corporates pull back from Olympic advertising, fearing being associated with what is now a controversial event being held amid a new wave of the pandemic in Japan. Even if the games do not encourage a spike in Covid infections and Dentsu benefits from post-event advertising, it is estimated it will, at best, break even.
Analysts suggest that Dentsu may be forced to mend relationships with companies disappointed by the lacklustre returns on their Olympic sponsorship by offering discounts on advertising placements – which would mean a painful financial hit for the advertising giant.
Even without the Olympics, the pandemic has brought about huge challenges, resulting in a record loss of $1.4 billion for Dentsu last year.