July 23 (Bloomberg) -- Companies from Vale SA to Petroleo Brasileiro SA are balking at sponsorships for the 2016 Olympics in Rio de Janeiro that cost three times as much as previous games, boosting the chances organizers will ask the government to help foot the bill, people familiar with talks say.
While the Rio 2016 local organizing committee led by Carlos Nuzman met its original sponsorship target of 1 billion reais, the goal is being revised as costs rise and may reach 2.6 billion reais ($1.16 billion), said an official who asked not to be identified because the new figures aren’t public. In 2009, three years before London staged the games, the committee raised at least 80 percent of its final 700 million-pound ($1.1 billion) goal, the London Evening Standard reported at the time.
After a strong start led by Mexican billionaire Carlos Slim’s America Movil SAB and Banco Bradesco SA, sponsorships have dropped off as focus shifts to soccer’s 2014 World Cup. State-run oil producer Petrobras ended preliminary talks this year because it didn’t want to spend 400 million reais in a weakening economy, and Vale was put off after being asked for 200 million reais, said three people who asked not to be named because the talks are private.
“There were some very triumphant announcements early on and we thought Rio is going to rewrite records and they’re obviously going to have a successful games,” said Tim Crow, chief executive officer of London-based sponsorship consultant Synergy, which has worked on Olympic programs for two decades. “But since then there’s been a deafening silence.”
Petrobras declined to confirm or deny the talks in an e-mailed statement. Vale, which like Petrobras is also based in Rio de Janeiro, said in a statement that Rio 2016 asked the company to present an Olympic project and that it has yet to make a decision.
Petrobras shares rose 1.2 percent to 16.50 reais at 2:34 p.m. in Sao Paulo trading, and Vale climbed 1.6 percent to 28.89 reais.
The decline in recent sponsorship deals is raising concern at the International Olympics Committee that Brazil may not reach its new target, said two senior IOC officials who asked not to be identified. IOC spokesman Mark Adams said in an e-mail that Rio 2016 is doing better than originally anticipated and didn’t comment further.
Missing the revised fundraising target would force the government to pick up the tab even as President Dilma Rousseff tries to quell unrest by protesters upset with the 30 billion reais being spent on the World Cup-related projects and $11.6 billion in public and private funding for the Olympics.
World Cup ‘Repeat’
“It’s a repeat of the World Cup, which was supposed to be financed privately and now is 97 percent financed by the taxpayers -- the Olympics won’t be any different,” Senator Alvaro Dias of the opposition PSDB party said in a telephone interview from Brasilia. “The majority will spend a lot so that a few can have a party.”
Brazil’s Sports Ministry didn’t respond to a request for comment.
Rio 2016 surpassed the 1 billion-real mark in 2011 with just two sponsors: Bradesco and America Movil, said Rodrigo Frazao, the group’s sponsorship sales director. Mexico City-based America Movil, which controls wireless operator Claro and fixed-line and Internet company Embratel, also won the rights to broadcast the Rio Olympics in Latin America, excluding Brazil.
America Movil and Bradesco, based in Osasco, Brazil, declined to comment.
For the London Olympics, the most expensive local sponsorships were for $63 million each, paid by seven companies including British Airways Plc and Lloyds TSB Bank Plc, the Guardian newspaper estimated in July 2012.
Rio 2016 is counting on new deals with as many as eight companies, including an accord with Sao Paulo-based Cia. de Bebidas das Americas’s Skol beer brand set to be announced as early as this week, to help raise as much as 1 billion reais more in sponsorships in the next eight months, said one of the people familiar with the talks. An Ambev press official from an outside agency declined to comment.
“We are doing very well,” Rio 2016’s Frazao said. “We’re not just looking for financial support, but for synergy. I look for things that bring value beyond just bringing a sack of money.”
Nuzman, the head of Rio 2016, said in an e-mail he’s “fully confident” the committee will reach its revenue plans.
Some potential sponsors may have been scared off by Brazil’s recent street demonstrations, which drew more than 1 million people and were the biggest in Brazil in two decades, said Crow, the Synergy consultant.
“There’s no question it’s much harder to raise money now,” he said.
The rush for funds comes after Rio 2016 has gone through two CEOs, three chief operating officers and three commercial directors since Brazil won its bid to host the games in 2009. Economic growth is slowing, too, with a first-quarter pace of 1.9 percent compared with 7.5 percent in 2010, when Bradesco signed on.
The committee is revising its total 5.63 billion-real budget to stage the games, which includes the initial 1 billion reais from sponsorships. The government is contractually obligated to cover any shortfall in addition to public funds being spent on related projects. The new budget is expected to be released next month, Frazao said.
“We did a budget in 2007 with the dollar at one level,” Frazao said in a telephone interview from Rio. “Over the years, a lot happens -- the real loses or gains in value. Six years ago, a lot hadn’t yet been defined.”
Budgets Too Low
Olympic budgets are always underestimated as part of the years-long competition to win the games, said Andrew Zimbalist, an economist at Smith College in Northampton, Massachusetts, and author of 12 books on the business of sports.
Games in Athens and Beijing, “take your pick and what you inevitably find is that there are fantastic cost overruns,” he said in a telephone interview.
Many companies are zeroed in on the World Cup, according to BRF SA, Brazil’s biggest food producer and the most recent company to sign on with Rio 2016.
“Until the World Cup is over, the Olympics won’t have all the attention,” said Eduardo Bernstein, BRF’s director of marketing, said in an interview in Sao Paulo. “As soon as it’s done, all eyes will turn to the Olympics.”
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