The year 1996 was a great one for Nike. The brand spent millions on its Summer Olympics campaign, plastering Atlanta with ads and erecting a majestic Nike building to overlook Olympic Park.

Olympic medalist Michael Johnson featured on Time magazine's August 12, 1996 cover.

Then, in an epic climax, American sprinter Michael Johnson broke a world record, crossing the finish line with a gleaming pair of golden Nikes strapped to his feet. He was later featured on the cover of Time magazine with those sneakers draped around his neck, along with his two gold medals.

Too bad Reebok spent $20 million to be the Games’ official sportswear sponsor.

Nike’s marketing victory proved an embarrassment for both Reebok and the event’s organizers. The incident prompted the International Olympic Committee (IOC) to clamp down on ambush marketing and ever since then such incidents have been kept to a minimum.

But that’s all about to change. With London 2012 being heralded as the first truly “social” Games, this year’s official Olympic sponsors are more vulnerable than ever.

The business of sponsorships

The London Olympics are expected to be the most regulated Games ever in terms of protecting brand sponsors, and a major reason for that is the proliferation of social media.

Sponsorship is big business. The IOC has already raised $957 million from the Olympic Partner programme (TOP), which is the organization’s second-largest money-maker after broadcasting rights.

A "brand exclusion zone" surrounding Olympic Park in London. The dotted green line represents the zone's border.

TOP includes 11 worldwide brand sponsors on its roster, each of which enjoys exclusive marketing rights for the duration of the four-year Olympic term. Another 14 brands are affiliated as official supporters and partners of the 2012 Olympic Games and are given similar privileges, including product category exclusivity.

The promise of sponsorship rights protection was one of the central reasons London won the bid for the Summer Games. The London Olympic Games and Paralympic Games Act, passed in the U.K. Parliament in 2006, allows for “brand exclusion zones” to be set up across the city for the duration of the Games.

Extending one kilometre around venues, the zones prevent any brands that aren’t sponsors from displaying ads or logos.

The strong measures have stirred up controversy. McCann Worldgroup attorney Marina Palomba told BusinessWeek, “it’s the most draconian law so far in advance of an Olympic Games ever.”

When sponsorship meets social

Making matters more complicated are the online restrictions. According to ticket purchase terms and conditions, fans could be punished for taking photos or videos at the events and uploading them onto public sites. Access to wireless networks might also be restricted, as well as the size of cameras spectators can use.

The IOC’s social media guidelines [PDF] also stipulate that athletes are not allowed to comment on the performances of their competitors, nor are they “permitted to promote any brand, product or service within a posting, blog or tweet or otherwise any social media platforms or on any websites.” Unless, of course, that brand is a sponsor.

In other words, Michael Phelps will be out of luck if he wants to tweet about the Subway sandwich that propelled him to victory. Too bad he didn’t eat a Big Mac instead.

These rules may have been easy to enforce four years ago (back then the IOC didn’t even bother with a social media policy), but with nearly a billion people on Facebook, 140 million on Twitter and 18 percent of the world owning smartphones (not to mention netbooks and tablets), the IOC’s efforts may be too little too late.

Brand exclusion: Helpful or harmful?

Nevertheless, the IOC remains enthusiastic about the engagement opportunities that social networks offer sponsors and fans.

The committee has created the Olympic Athletes’ Hub where fans can follow the online lives of their favourite sports stars. It funnels content from the various social media feeds of Olympic athletes into one platform, making monitoring easier for everyone – including the IOC, of course.

Sebastian Coe, chairman of the London 2012 organizing committee, told The Guardian that the need for regulation to prevent ambush marketing is more pressing than ever.

Of course, regulating and monitoring virtual spaces will be more of a challenge than at the physical venues. IOC Head of Social Media Alex Huot warns that mechanisms are in place in case of online copyright infringement but acknowledges the impossibility of monitoring every tweet and webpage.

“We don’t police but we’re working closely with all the platforms to make sure the trademark and (internet protocol) rights are respected,” he told The Guardian.

Is sponsorship worth it?

With social media making it easier than ever for unofficial brands to piggyback off the success of international events, it stands to be asked: Are sponsorships even worth it anymore?

London 2012 organizing committee chairman and former athlete, Sebastian Coe. Image by Global Sports Forum, via Flickr.

A 2010 case study published in the Journal of Managing and Marketing Research found that sponsor-event fit and brand equity were the most important factors when measuring the long-term financial success of brand sponsors, and that so long as those factors are in place, sports sponsorship remains lucrative.

That’s especially true for high-profile international events like the Olympics, which have long been considered the Holy Grail for brands. The event tends to have a “halo effect” and brand sponsors bask in those good-vibes associations.

But as Mary Lou Costa argues in a 2011 Marketing Week article, the halo effect can go both ways: People often assume popular brands are affiliated with international events.

And with social media making it easier to spread content, non-affiliated brands have the potential to practise online ambush marketing.

Meanwhile, the Olympics and their sponsors are getting a bad rap for the very regulations meant to protect them.

When tickets went on sale for London, Visa was the only method of payment available, causing a media uproar. Then, the company replaced the 27 existing cash machines at the main Olympic venue with 8 of its own, subsequently facing allegations that Visa is intentionally starving the venue of cash.

So how does one measure the value of building brand equity through sponsorships against the potential bad press that results from strict protections? One way is through dollars.

Local sponsor Adidas hopes to make more than $156 million in U.K. sales from the deal. Those earnings alone might be worth the investment.

But just like in 1996, main rival Nike is hoping to upset Adidas’ strategy with a plan of its own. The brand has opened a giant concept store at a shopping centre near the main venue, which nearly 70 percent of ticket holders are expected to pass through on their way to an event.

Nike has also found a clever way of bypassing the online restrictions with their #MakeItCount campaign, which pulls off the balancing act of referencing the Games without actually mentioning them.

The result? According to a study by BrandWatch, Nike is outpacing Adidas as the apparel brand most associated with London 2012.

Finally, in a recent online poll, The Guardian asked responders to vote whether Olympic sponsors should be protected with strict laws: 91 percent voted “No.”

So let the games begin and may the best brand win.