Looking at the anger surrounding Edinburgh comedy this year, you’d be forgiven for thinking that there will be nothing much to laugh about when the festival opens on Sunday. The source of the stink? The Fringe’s four big comedy venues have joined up to call themselves the Edinburgh Comedy Festival (ECF). They are not, they insist, abandoning the Fringe – simply rebranding to appeal to sponsors. This will pay for marketing, which will help pull in new audiences for comedy and theatre alike.

Well, the sponsorship hasn’t arrived yet, but the arguments have. Smaller Fringe rivals resent the way the new name makes explicit what was only implicit before – that Fringe comedy is a two-tier system. Locals and comedians have accused them of high-handedness – not least Fringe mainstay Stewart Lee, co-creator of Jerry Springer the Opera, who has vowed never to work with the big four again. And, for a punch-line, last week it emerged that one of the ECF shows, Pot Noodle the Musical, is financed by Pot Noodle’s manufacturers, Unilever. The spirit of the Fringe is a tricky notion to pin down. But it’s not something to be written off against tax by an Anglo-Dutch food corporation. Is it?

The ECF supremos – William Burdett-Coutts of the Assembly Rooms, Karen Koren of the Gilded Balloon, Anthony Alderson of the Pleasance and Ed Bartlam and Charlie Wood of the Underbelly– decided last September that Fringe comedy was undervaluing itself as a brand. They decided to take the iniative. And the idea that comedy should fly free of such worldly concerns? “Romantic rubbish, I’m afraid,” Burdett-Coutts says. “The financial reality of running these venues is fraught. You see crowds of people at the front of the building and it looks like we’re doing incredibly well. But behind the scenes things are always incredibly tight.”

To Tommy Sheppard, who runs the city’s Stand comedy club, as well as the Glasgow Comedy Festival in March, his rivals are guilty of “breathtaking arrogance”. He doesn’t so much object to their cartel – after all, before the Underbelly became a major player in 2003, the other three shared a brochure in the late Nineties as the Lighten Up festival, sponsored by Marlboro cigarettes. Which was controversial too. “But at least then they were the brand-name comedy festival,” says Sheppard. “It’s when they appropriate the name of the city that I operate in 365 days a year that I object. The Edinburgh Fringe Festival is the world’s largest and best-known arts festival; nobody can say it’s a weak brand that needs a helping hand.”

Sheppard agrees that more nationwide marketing is needed, but insists that it should be a Fringe-wide initiative. Nice idea, Alderson says, but there’s simply too much red tape involved for that to happen in a hurry. “The Fringe has to be all things to all people,” Alderson says, “so in a way its hands are tied. I always complain that it’s not a festival about jugglers.”

The big four insist that Sheppard is welcome to join them next year, as is any venue willing to pony up its share of the joint marketing costs. “Let them come and be part of the festival,” Alderson says. “But we’ve put up a massive budget and they’ve got to do their bit.”

Stewart Lee is dubious of such largesse. “They’re saying to people, next year you can be part of it too. When blatantly some of the acts out there just can’t! That’s not an invitation, that’s assimilate or die.”

He expressed his doubts about the ECF when it was announced in late March. “After I did that, the Underbelly mentioned how much I earned last year to a newspaper and told me I shouldn’t bite the hand that feeds me. The one year that I made a really decent profit. That bodes very badly for the future of this festival.”

Lee is playing at the Stand this year to try out material for his new BBC Two series. But he also has a play on at the Underbelly. He’s angry that the venue didn’t tell acts what they were signing up for. “They’ve incorporated all the performers as assets, then used them to promote their brand. The Edinburgh Comedy Festival, like it or not, comes with a contentious profile. So it’s taking money under false pretences.”

Ed Bartram of the Underbelly denies this. “I think Stewart would have grounds to say that if we were leaving the Fringe,” he argues, “but that’s not what we’re doing at all.”

Not every comedian feels as strongly as Lee. The Australian comedian Jim Jeffries, appearing at the Underbelly, has his doubts. But he feels more aggrieved at venues pleading penury – “What a load of rubbish! I know what I pay for my room!” – than he does at the rebranding. “We should have been told, but then again I’m a comedian. I’m too busy writing c*** jokes to worry about that kind of stuff too much.”

The Irish comedian Andrew Maxwell, appearing at the Pleasance, is also ambivalent. But he points out that every other comedy festival in the British Isles is sponsored, almost invariably by a drinks company. “The irony of our business,” he says, “is that most of us are leftwing, but the actual system that we’re in is pure Adam Smith free market economics. Pure market forces. The funnier you get the more you get paid. So I find it quite ironic when someone who has profited quite well from free market capitalism then wants to throw some leftwing spanner into the capitalist works.”

Will the ECF make it harder for new talent to break through? Maxwell doubts it. “Every venue is desperate for new people.”

And there’s still the Free Fringe. This year, the comedian Peter Buckley Hill has curated 114 shows, all of which are free. He sees himself in opposition to a comedy establishment in danger of sinking under its own ambition. “The Fringe is not a means to an end,” he says, “it’s an end in itself.”

The American comedian Doug Stanhope’s new show is not only not an end in itself, he doesn’t even want you to come and see it. A Day With Doug, scheduled to run on August 23, is priced at a surprisingly unaffordable £7,349. Much to Stanhope’s relief, nobody has come forward to buy the one available ticket. “I think we’re pretty much out of the woods on that one,” he chuckles. “Anyone who’d pay that much money would have to have some almighty ego on them. What would they want for that dough? ‘Do you have cancer? I can heal you!’ ”

A Day With Doug is listed in the Fringe brochure but it’s more satirical statement than show – “though if someone pays for it, I will go and get f***ed up with them,” Stanhope threatens. Stanhope and his sort-of manager Brian Hennigan – Stanhope says he’s his manager, Hennigan insists he isn’t – see the ECF as the acme of overcommercialism. The ticket price was cooked up, using fag-packet maths, as the average amount of money a comedian loses at the Fringe. Stanhope, who will play some guerrilla gigs outside the auspices of the Fringe during the month, says he has never lost money at the festival.

Hennigan is a former marketing man who used to run the Edinburgh Comedy Rooms. He thinks there is too much interference at the Fringe “from people you wouldn’t consult on a knock-knock joke”. He admires the ECF commercially, hates it artistically. “It’s a dead end to articulate what the point of the Fringe is,” he says. “That’s like trying to say what freedom is. What you can say is what it’s not. When they set up the Fringe in 1947 the aim was not to create another huge bureaucracy.”

Nor, you’d imagine, could the Fringe fathers have envisioned Pot Noodle the Musical – a show, surely, that only Nostradamus might have foreseen. It was thought up by the advertising agency Mother as an extension of its TV ad campaign. “We had such fun writing the ads,” says the co-creator Stuart Outhwaite, “we thought the natural progression was to tell more of the two main characters’ story.” He and the show’s director David Sant (from the comedy theatre trio Peepolykus) sound sincere about a show whose only agenda, they claim, is to be funny for an hour. “Unilever want their audience to be entertained,” says Outhwaite. “They are not the big bad evil client.”

But whatever the post-post-modern gameplan here, there is a line being crossed, isn’t there? They have created a new genre – advertainment. “The fact that it’s been funded by a company should be neither here nor there,” says Outhwaite, “but it’s a murky area.”

Next month, potential sponsors will arrive to see whether the ECF suits their profiles. If Virgin, Nokia or the like don’t take the bait, suggests Tommy Sheppard, “then I don’t think the alliance will stay together past September”.

Should we worry? Will a multi-nation-al’s logo on an awning – which already exist on venues such as, well, the Smirnoff Underbelly – undermine the spirit of the Fringe? Or will it pay that spirit’s way in the big bad world?

“Things have become more commercialised,” admits Karen Koren of the Gilded Balloon, who – unlike the other venue managers – lives in Edinburgh. “In many ways that’s a shame. I look back at how it all started out in the Eighties, Late and Live, hanging out with all the comedians, and I miss some of that. But, you know, I have the biggest mortgage in the world. We have to survive.”

Comedy by numbers - The figures behind the Fringe

2,088 - shows at the Edinburgh Fringe
1.7 million - Fringe tickets sold in 2007
253 - shows at the Edinburgh Comedy Festival
£8.98 - average ticket price 2007
£289 - cost of an entry in the Edinburgh Fringe brochure
£585 - cost of an entry in the ECF brochure

— The Edinburgh Fringe Festival opens on Sunday. www.edfringe.com