The man responsible for transforming the Olympic movement into a multi-billion-pound enterprise has criticised London 2012 organisers for "going too far" to protect sponsors.

Michael Payne, a former marketing director at the International Olympic Committee, said London's over-zealous enforcement of brand protection risked damaging the Games. The rules were "never intended to shut down the flower shop that put its flowers in Olympic rings in the window, or the local butcher who has put out his meat in an Olympic display", he told The Independent.

His comments came after London's Olympics chief, Lord Coe, told BBC Radio 4's Today programme that ticket-holders "probably wouldn't be able to [walk in] in a Pepsi T-shirt".

When Michael Payne, a British sports-marketing executive, was hired by the International Olympic Committee (IOC) in 1983, things were looking rather bleak. The US had boycotted the Moscow Games, the Soviet Union was about to do the same to Los Angeles and the movement was on the verge of bankruptcy."Most journalists were writing the obituary of the Olympics movement," he says. "You know, 'They were nice, they were good fun for the last 80 years, but they've evolved, they've become too costly, too political, and they won't continue'."

His big idea was the Olympic Partner, or TOP, programme, which brought in big sponsors like Coca-Cola and McDonald's, which paid vast sums to sponsor several Games. These payments were shared between host cities and divided among almost every country in the world, to cover their costs of sending athletes to the Games.

In return, the companies were given exclusive rights to the Olympics trademarks and guarantees that only their products would be sold at Olympic venues. As the architect of restrictions that have proved so controversial in London, you might expect Mr Payne to mount a stern defence of these rules. But he is far from impressed.

London 2012 organisers have, he says, applied these exclusivity rights far more aggressively than in previous Games, to the point where it is bad news even for the sponsors themselves. "I have said to Locog and to the IOC, 'I think you're scoring an own goal here.' If I were a sponsor I would be saying to the IOC after the closing ceremony: 'Were the rules allowed to be applied so strictly that is has come back to bite us?' There is no question in my view that the controls and protections have gone too far when it is starting to suffocate local street traders and I don't think that is necessarily what the Olympic sponsors are looking for.

"The public do get it. They do understand that Coca-Cola has paid, Pepsi hasn't, so Coca-Cola should be entitled to provide the soft drinks, but what's that got to do with a flaming torch baguette in a café?"

As the world's media descend on London for the Games, several international outlets have pointed out that London does not seem in a party mood. And it's not only down to the weather. For the Diamond Jubilee the streets and shop windows were covered in Union Jacks, Will and Kate mugs, tea towels and the like. This time round "you don't see any references to the Games in shop windows or on the streets – people are too scared", one small business owner was reported as saying by The New York Times.

Mr Payne, who left the IOC in 2004 and is now involved in sports marketing for Formula One, does warn of the dangers of going too far the other way: "At the 1996 Games in Atlanta, the image of the Olympic movement was practically destroyed because the commercial agenda got totally out of control, not because of the sponsors but because the Mayor turned the streets into a third-world flea market. Every snake-oil seller [in] the US descended on Atlanta. It destroyed the image of the city.

"We [now] have very tough legislation to prevent a repeat of that, but equally it needed to be applied with balance and common sense."

Stories of the overzealous behaviour of the Locog's brand-protection team have dogged the torch relay and created much ill feeling towards the Games. In Plymouth a café was told to take its "flaming torch breakfast baguette" off the menu. A florist in Stoke-on-Trent was told to remove an Olympic rings window display made from tissue paper, or risk a £20,000 fine, under laws set out in the Olympic Games Act of 2006.

Yesterday, Evan Davis, presenter of the BBC Radio 4 Today programme, challenged Lord Coe, the Olympics supremo, on whether he would be allowed to turn up to an event in a Pepsi T-shirt. Lord Coe told him: "No, you probably wouldn't be walking in with a Pepsi T-shirt because Coca-Cola are our sponsors and they have put millions of pounds into this project but also millions of pounds into grassroots sport.

A Locog spokesman said: "Our approach is sensible and pragmatic. We have always preferred education [to] litigation, and we work with organisations to ensure they can celebrate the Games, without breaching the 2006 Act."

Olympic shorts

Sandwich maker seeks slice of fame

From making sandwiches to chasing a gold medal – a Greggs employee will become the first Sri Lankan to compete in the men's marathon, to the surprise of colleagues who thought he was just the local running enthusiast.

Anuradha Cooray, who runs 17 miles to work in the Aylesbury branch of Greggs every day, automatically qualified for the Olympics in April when he finished the London Marathon within 10 seconds of the qualifying standard.

Colleagues at the branch in Buckinghamshire had no idea how good the 34-year-old runner was until he told them he had qualified for the Olympics and was featured on a BBC news bulletin.

Mr Cooray won the gold medal at the South Asian Games in Pakistan in 2004 with a personal best of 2hr 16min but hopes to achieve 2hr 13min at the London Games.

Custard demo spills over

Police officers swooped to break up a theatrical performance highlighting concerns about corporate sponsorship at the Games, arresting six people on suspicion of causing criminal damage for spilling custard on the pavement. Yesterday's performance in Trafalgar Square was in protest at sponsorship by companies including BP and Rio Tinto.

Teen tries to take torch