Major events programs may face IT funding challenges

UK: The news of Nortel Networks entering Chapter 11 bankruptcy protection and of Satyam's continuing meltdown at the hands of former chairman Ramalinga Raju have something interesting in common: both companies are technology sponsors of major sporting events.

Nortel is a Tier One Partner (TOP) of the London 2012 Olympic Games, while Satyam is the Official IT Services Provider for the FIFA World Cup in 2010 and 2014.

Their crises have been precipitated or, in the case of Satyam, exposed by the global economic downturn, and this is likely to send a warning shot across the entire major events business that could potentially threaten new and existing IT funding of major events programs.

Nortel and Satyam will be looking to make cost cuts wherever possible

Nortel is one of eight TOPs to the London 2012 Olympic Games, each of which has paid the London Organising Committee for the Olympic Games (LOCOG) over £40 million for the opportunity to be involved and to promote their brand to a global audience. Nortel is also the network communications and services provider to the Winter Olympic Games in Canada in 2010.

Nortel is now planning a major restructuring programme that will see it reduce its debt mountain and use its $2.4 billion cash fund "to preserve its liquidity and fund operations during the restructuring process." This is clearly not good news for the LOCOG, which could find itself one TOP down in the near future.

Meanwhile, Satyam is facing the prospect of many of its customers looking elsewhere for their business, and is in dire need of raising funds to maintain its operations, following Raju's admission of falsifying $1 billion in cash and assets at the company.

High-pressure IT also represents high risk

Of course, it is highly unlikely that FIFA or London 2012 will want to be associated with organisations that have become beleaguered or have admitted to massive fraud. In major events sponsorship, IT suppliers and the major events providers are partnering for mutual benefit; for example, Nortel could use the Olympic rings in its promotional activity in return for significant financial investment.

Sponsors also get global brand exposure through the associated media coverage. However, major problems such as these have the potential to break trust in the partnership and by association reflect badly on the major event's brand. So it is possible that such relationships will be severed.

As such, this is the first example of cracks appearing in the IT sponsorship of major events, but it also underlines the big risks involved in high-pressure IT projects, which Ovum sees as delivering IT services on the biggest stage, under the highest level of scrutiny and with no room for mistakes. (We will be exploring this theme further in future Ovum research.)

Credibility will play a bigger role in future deals

While the situation may result in failures for Nortel and Satyam, it offers significant opportunities for other providers that want a piece of the action. In our view there is no shortage of interested IT vendors that would welcome the opportunity to take on these projects.

For example, Nortel was up against Cisco in the bidding for the London 2012 contract, so Cisco would be an obvious alternative candidate. Other Indian or global vendors could likewise bid to take on Satyam's work at FIFA.

If these relationships do end, the challenge for London 2012 and FIFA will be to replace Nortel and Satyam swiftly and with minimum disruption to their ongoing plans for the delivery of their respective events.

To avoid some of the pitfalls in future, we expect a greater emphasis to be placed on assessing the credibility of major sponsors, from their financial viability to their potential to deliver over an extended period of time. Equally, a strong brand image and long-standing reputation are going to be increasingly important.

This is likely to encourage a flight away from new and untried players and the perceived risk that they might present, and it may well play to the industry stalwarts such as IBM, Atos Origin, HP and Accenture, which can prove their credentials over a long period of time. The Commonwealth Games in India in 2010 is next in line to announce its IT supplier, so this may well be food for thought.

The author is senior analyst at Ovum, UK.