Super Bowl: $7m for 30 seconds, and what it says about confidence

Thirty seconds of advertising during Super Bowl LVII, between the Philadelphia Eagles and the Kansas City Chiefs, cost a record $7 million. For forty-eight hours, chief marketing officers queued up to explain why the money was well spent on the brand. The spots are also a handy gauge of corporate mood. The list of Super Bowl advertisers shows who has cash to spare and how comfortable boardrooms feel late in the cycle.

Where the crypto money went

This year's list tells a story of rotation between sectors. The crypto platforms and speculative fintech unicorns that filled the 2022 broadcast, announcing a decentralised financial revolution, had vanished. In their place came packaged consumer goods, carmakers and brewers.

The absence needed no explanation. Last year's game was nicknamed the Crypto Bowl, with exchanges including FTX, Coinbase and Crypto.com paying for prime slots and celebrity endorsements. Within months bitcoin had lost roughly two-thirds of its value, and in November FTX collapsed into bankruptcy amid allegations that customer funds had been misused. The survivors have spent the past year cutting staff and courting regulators, and a celebrity commercial aimed at the biggest television audience of the year is the last thing they need.

Crypto out, beer and cars in

The change tracks the wider market's move away from speculative long-duration assets toward businesses that throw off cash. The companies paying $7 million for thirty seconds in 2023 are established consumer names trying to protect their pricing power while inflation runs hot, and few are spending venture money to buy unprofitable users.

The logic for these advertisers is defensive. Consumer-goods companies have pushed through several rounds of price increases over the past two years, and shoppers squeezed by inflation have been trading down to supermarket own-label products. A brand that wants to keep charging more than its generic rival has to remind customers why it is worth the premium, and the Super Bowl is still the one event that reaches most of the country at once.

Awkward questions at home

Spending that much on marketing while cutting jobs raises awkward questions for audit committees. A company that lays off thousands of back-office staff and then pays millions for a celebrity commercial should expect grumbling inside the building.

The contrast is sharper this year because lay-offs have spread well beyond technology. The biggest cuts announced in January came from Amazon, Alphabet and Microsoft, but banks, media groups and retailers have also been trimming staff. Boards defend advertising as an investment in a long-lived asset, the brand, and cuts in back offices as a matter of efficiency. Employees tend to see only that the company found $7 million for half a minute of television.

Big spending near the peak

History also suggests that the most lavish advertising tends to arrive when corporate profits are at their cyclical peak. A Super Bowl slot is the corporate luxury good, affordable only while margins look safe.

The classic example is the game played in January 2000, when more than a dozen internet start-ups paid for slots at the height of the dot-com boom. Pets.com, whose sock-puppet mascot became one of the most famous commercials of the era, was liquidated before the year was out, and several of its fellow advertisers did not last much longer. Last year's crypto advertisers repeated the pattern with remarkable fidelity. In both cases the roster of Super Bowl sponsors turned out to be a list of the sectors most exposed to a turn in the cycle.

This year's advertisers are sturdier businesses, but the timing still looks late. Profit margins at large American companies reached record highs during the recovery from the pandemic, helped by strong demand and the ability to raise prices faster than costs. That position is now eroding. Fourth-quarter earnings at S&P 500 companies are on course to fall from a year earlier, and wage bills and interest costs are still rising.

The consumers these brands are courting are under more strain than a year ago. The savings households built up during the pandemic are being run down, the personal saving rate is far below its pre-pandemic level, and credit-card balances have climbed sharply as higher prices eat into pay. Brands can defend their prices with advertising only for as long as customers can afford them.

The record price is welcome news for Fox, which broadcast the game, in a year when advertising elsewhere is weakening. Meta and Alphabet both reported lower advertising revenue in the fourth quarter than a year earlier, as marketers trimmed budgets for the online campaigns that are easiest to switch off.

Why the spend may still be rational

The strongest counterargument is that Super Bowl prices reflect scarcity rather than exuberance. Television audiences have fragmented across streaming services, and live sport is one of the few remaining ways to reach a mass audience in a single moment. As the audience for everything else shrinks, the value of the one broadcast everybody watches rises, and advertisers would pay more even in a sober economy. Marketers also argue, with some supporting evidence, that brands which keep advertising through downturns tend to gain share from rivals that cut back.

Both points have force, and they explain why the price has kept rising through booms and busts. Neither, though, explains the complacency in the rest of the budget that a $7 million slot usually signals. A company confident enough to buy the most expensive airtime in American television is usually confident about the year ahead, and that confidence has often proved misplaced when the cycle turns.

What next year's roster may show

As consumer savings shrink and borrowing costs rise, finance chiefs will look much harder at the return on these seven-million-dollar bets. The Super Bowl has shed the speculators of 2022, but the incumbents' splurge suggests boardrooms remain complacent. If margins tighten later this year, next year's roster may well be thinner. The first cuts are likely to come from the companies whose sales depend most on discretionary spending, such as carmakers and consumer-electronics brands, and marketing budgets are usually among the first lines trimmed when quarterly earnings disappoint.