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Card issuers that traditionally have relied on arts sponsorships to enhance their reputations among cardholders are now at risk of seeing those programs backfire.
Many financial institutions, including card companies, long have sponsored such initiatives as art exhibits, theater programs, film festivals or even community picnics (
For issuers, sponsoring arts events also provides an opportunity to offer special benefits to their cardholders, such as advance tickets or free admission. But those benefits now contrast sharply with the other actions most issuers are taking with cardholders as they cut credit lines, raise interest rates, discontinue products and reduce rewards. Some of the affected cardholders now are wondering why the issuers are continuing to spend money on outside sponsorships.
"It's a little hypocritical," says one American Express Co. cardholder who identified himself with only his middle and last names, Alan Lee, out of fear of negative repercussions from AmEx. Lee, an owner of a land-development company in Tampa, Fla., who says he has never missed or been late on a payment, says AmEx cut the credit lines on his business and personal accounts by $70,000 in November without warning and that the company continues to cut the lines to his existing balances as he continues to make payments.
At the same time, AmEx, like many issuers, has continued to sponsor arts events such as the Tribeca Film Festival, a yearly event in lower Manhattan that was held in April. In April 2008, the New York-based card company signed a five-year renewal of that sponsorship, the amount of which was not disclosed.
"What we're doing at Tribeca and at our other sponsorships is creating value and special things for our cardmembers and helping drive business for the communities," says AmEx spokesperson Leslie Berland. She would not comment on a specific cardholder's account.
The company, including its philanthropic foundation, has scaled back on marketing and sponsorship spending this year, Berland says. "In this environment, we have taken carefully considered steps to manage risk both for us and our cardmembers, including selectively reducing credit lines and working closely with cardmembers facing temporary financial hardship," she says. "At the same time, it is important to continue to both invest in business-building efforts like our sponsorships and support communities that are hurting as a result of the economic conditions."
Community Backlash
But for Lee, AmEx has negated the effects of that community support. By sponsoring arts and nonprofit events, AmEx is "obviously trying to portray themselves as good corporate members of the community, and good members of the community don't treat their customers that way," Lee says. "As a result of their behavior, we will no longer for the rest of my human life participate in any American Express-sponsored activity."
Other cardholders also adversely affected by the actions of other issuers expressed similar sentiments.
"If I were a cardholder who had a promise of a low interest rate for life and then my interest rate were jacked up to three or five times what it was, that would annoy me to begin with," says Alan Finkel, a Long Island lawyer and Advanta Corp. cardholder. The small-business issuer raised the annual percentage rate on Finkel's card from 7.99% to 35.9% over the course of several months, he says.
Finkel, who says he was never late on a payment, says an Advanta customer-service representative told him his interest rate was raised "because they can, and the economic climate stinks."
Advanta, of Spring House, Pa., has spent the past few months raising the interest rates on some accounts, in some cases by almost 30 percentage points, after executives told investors last October it was taking steps to separate its customers into three groups according to profitability. "The last group will be segregated, sequestered and surrounded, and we expect our exposure to them will be reduced greatly in a variety of ways," Dennis Alter, Advanta's chief executive, said in a conference call then.
But while Advanta has been trying to "sequester" its less-desirable cardholders, it has been prominently supporting a Cezanne exhibit at the Philadelphia Museum of Art. In February, Advanta's name was emblazoned around Philadelphia's 30th Street train station as part of an ad campaign for the exhibit; in March it was prominently featured in a full-page ad for the same exhibit in The New Yorker.
Advanta would not discuss Finkel's account or its sponsorship of the exhibit. "We've increased the average rate of interest that we charge our customers in response to the worsening risk profile of many customers," a spokesperson said by e-mail. "Our practice is, and has been, to notify customers by mail of such increases to their rate and explain how the customer can opt out of this increase."
Angry consumer reactions illustrate a brewing backlash for issuers and other financial institutions that long have relied on arts sponsorships to help them build their reputations, observers say.
"It used to be that having your name, if you were a bank, associated with a major arts initiative that really was wonderful for the community would be one of the best things you could do. Flip of the coin, the world changes, and now it may not be," says Davia Temin, chief executive of the strategic marketing firm Temin & Co. and former head of corporate marketing at General Electric Co.'s GE Capital. "What could be good for your reputation on one day could be terrible a week later."
The price tags for arts sponsorships–even the most expensive ones–often are piddling compared with sports deals such as Citigroup Inc.'s $400 million purchase of the naming rights for the New York Mets' new Major League Baseball stadium.
William M. Chipps, senior editor of a sponsorship report published by the advertising firm WPP PLC's IEG division, says arts sponsorships can vary widely, though most cost "tens of thousands to hundreds of thousands" of dollars. "In a major market with a major venue with a major exhibition, it could easily go into high six figures, if not low seven." But even in large markets, "most such deals are in the six figures," he says.
And many of the most prominent arts deals involving financial-services companies were signed long before the recession, banking bailouts or the resulting taxpayer scrutiny of line-item spending. For example, Bank of America Corp. signed a three-year contract in late 2007 to give a reported $2.8 million to the Bridge Project, a theater collaboration between the Brooklyn Academy of Music and the Old Vic theatre in London.
TARP Complications
Participation in the Troubled Asset Relief Program has complicated matters for such large companies as BofA and AmEx and even for small institutions sponsoring anything from local museum exhibits to community picnics. (Advanta has not applied for TARP funds.)
"They definitely have to re-evaluate what the public perception of these investments is going to be, especially if you've received and taken even 5 cents of TARP money," says Ron Shevlin, senior analyst at Aite Group LLC and the author of a report published in March about banks' return on advertising spending.
More philanthropic sponsorships "definitely" could increase the negative feelings consumers have toward their financial-services providers, especially those that have cut back on consumer credit, Chipps says. "Obviously, the TARP thing is an issue," but a bigger consideration might be the souring of a direct relationship with a lender, he says. "If a credit card company is hiking up the fee on my credit card, and I see them throwing away money on these events, I would think, 'Am I paying for these events?' And in a way, I am."
Potential sponsorship recipients face their own funding concerns, especially as both corporate and individual donors cut spending. But they still might want to reconsider their association with lenders who have garnered negative reputations for tightening consumer credit, observers say.
"The reality is, if you are any of those financial institutions you have to look at this line item by line item and realize, even if you've put money in the film festival for the past 20 years, you may not want to do that this year," Shevlin says. "And if you're the film festival, you may want to say, 'Hey, I don't want your money this year.'"
The Brooklyn Academy of Music and the Philadelphia Museum of Art did not respond to requests for comment. But Jane Rosenthal, a co-founder of the Tribeca Film Festival, says, "We couldn't be prouder to be associated with American Express."
Despite these reputational concerns, some issuers are continuing–or even expanding–their arts sponsorships. Rena M. DeSisto, BofA senior vice president and arts and heritage executive, says the Charlotte, N.C.-based company bulked up its "Museums on Us" program in April. Under the program, BofA credit and debit cardholders gain free admission one weekend per month to 75 museums nationwide; in April BofA added 25 more museums to the program.
For the museums, which also can be potential BofA clients, "we're helping with audience development," DeSisto says. "We're giving them cash up front. It drives additional traffic in stores and for membership, and Bank of America customers know that this is a differentiator."
BofA executives are trying to communicate with both shareholders–including the government–and customers, DeSisto says. "The customers who know about what we're doing are thrilled that we're remaining steadfast," she says. "Thus far the response has been neutral to positive, nothing negative." CP
