LVMH, the multinational luxury goods conglomerate, signed a groundbreaking sponsorship deal worth approximately 150 million euros for the Paris 2024 Olympic and Paralympic Games. This is a first for the group, which, after sponsoring events at brand level, such as with Hublot for the 2022 World Cup, has now signed its first group-wide agreement with Paris 2024.
The group engaged in lengthy negotiations with the organizing committee, possibly because the premium partner status does not allow companies to exercise their rights outside France or to communicate with audiences in foreign countries. This is where it faced a dilemma as the French market comprises only 8 percent of their sales (as per financial indicators), while Asia, including Japan, is worth 37 percent, and the USA is worth 27 percent. However, the International Olympic Committee, headed by Thomas Bach, granted LVMH an exceptional authorization to activate its partnership abroad.
For Paris 2024, it was of “pressing need” that LVMH sponsored the event, stated the Audit Committee in 2022. In close collaboration with the International Olympic Committee (IOC) and other stakeholders, the Board of Directors of Paris 2024 revised its multi-year budget to 4.38 billion euro to take account of inflation. In other words, it is a budget increase of around 10 percent, which had to find its sponsor in order to be financed.
Although the agreements were not finalized before the host city of the event was selected, LVMH is said to have provided financial support to the Paris organising committee's bid, eventually amounting to between 1 million and 2 million euros.
What Does LVMH Stand to Gain?
Taxation and Financing of Marketing Campaigns
With the activation of its international rights, LVMH seizes the opportunity to gain tax relief for its worldwide marketing and promotion campaigns. The group’s expenses for sponsorship purposes are indeed eligible for tax deductions. In fact, 60 percent of the donation is subject to tax deduction if it falls within the limit of 0.5 percent of the revenue of the sponsoring company, provided it is committed in direct interest of the operation.
Sales, on top since the negotiations of the sponsorship
At the beginning of 2023, LVMH made history. For the first time, a European company is worth more than 400 billion euros. As of July 29, it was valued at 420.85 billion euros. The group’s financial indicators are strong since the negotiations with Paris 2024 begun. During Q1, the company earned over 21 billion euros in sales, with fashion and leather goods leading the growth with an increase of 18 percent Year-on-Year. In the same period, sales growth was of 30 percent in the selective distribution channel, which includes Sephora, the Olympic torch relay partner, and airport duty-free shops. Sephora continued to increase its market share, especially in North America, Europe, and the Middle East.
Prestige and Global Exposure
The Olympic and Paralympic Games are renowned as one of the largest and most prestigious international events. With unparalleled media impact, the Games are expected to attract over 13 million spectators and a staggering 4 billion television viewers worldwide. By associating itself with the event, LVMH can leverage this global exposure to further enhance its brand reputation and reach new audiences around the world.
Risks and Challenges
Brand Image and Ethical Concerns
The association of LVMH with the Olympic Games has sparked controversy. In August 2022 animal rights organization Peta sent a letter to Thomas Bach, requesting that LVMH discontinue its use of fur and exotic skins in order for the group to partner with the event. The organization denounces the production conditions of the group's products, claiming that they notably pose a risk to public health.
Bernard Arnault, the Chairman and CEO of LVMH, has also been the subject of a petition that has gained nearly 40,000 signatures in the space of a week, in June this year. His alleged interest in opening a restaurant - since then denied by the Group - at the eastern entrance of the ‘Colonnade du Louvre’, the Paris’ museum's entrance, has raised concerns that may again be brought up during the event.
Socio-Political Climate in France
Strikes and violent protests over pension reform, rising energy prices, and more recently, the death of young Nahel have shaken the country. LVMH, the embodiment of luxury, will promote its brands in this troubled social and political environment and in a context of declining purchasing power for the French.
In fact, according to the French Observatory of Economic Conjunctures, inflation in France will remain high until the end of 2023, at between +5.5 percent and +6.5 percent, before falling to around 3 percent by the end of 2024.
Paris 2024 has thus reviewed its multiannual budget last year in order to address all the major issues and risks identified by the Organising Committee as the operational phase of the event approached. For example, the security budget was already increased by 50 percent during the previous budget review and received an additional 25 million euros. Similarly, the cyber security budget increased by 10 million euros in order to address the relevant risks. Paris 2024 decided to maintain its contingency provision of 200 million euros to mitigate operational risks during the last 18 months of implementation. These are actively being addressed by the Games partners, such as Cisco, which is currently deploying network equipment and cybersecurity infrastructures.