SBJ/September 20 - 26, 2004/SBJ In Depth

Sending a clear signal

Nextel uses its relationship with NASCAR to showcase new technology and products, some of which have been incorporated into trackside operations.

It used to be there was the property and the sponsor. Sponsor paid money, got signage and hospitality, bought media if applicable, and used these assets to market its products the best it could. If the sponsor got the feeling the expenditure was worth it, it would renew the deal. If not, the property went out selling again.

Then things changed. Economic upheaval in the last several years has forced sponsors and properties to work together in strange new ways, ways that reflect both their need to grow their own businesses and their need for each other.

The result is that the divisions — even barriers — that characterized sponsorships in recent years are breaking down. The resulting philosophy and practice could be characterized as “We’re All In This Together.” And the results appear to be good: Sponsorship spending is on the increase, even as sponsors put much higher demands on the deals. A tough economy has made the business of sponsorship get smarter and better.

The best example of barriers breaking down is the greater level of involvement by both parties in working to meet the other’s needs. This is especially the case for properties, who have had to become real business partners with sponsors in order to keep sponsorship fees steady or rising. But it’s also true of sponsors, who are being asked to promote the property more vigorously in their promotions and ad campaigns.

Marketers keep calling this a partnership.

“What people are looking for is to make sure more than ever before that they are getting maximum value from their sponsorships in a marketplace that has become more fragmented than ever; so it is incumbent upon us to find ways to give our sponsors a closer connection,” said Gary Bettman, NHL commissioner.

In the past, according to Steve Lauletta, director of sports and event marketing at Miller Brewing, sponsors got a binder at season’s end that chronicled how the property met all the requirements of a deal. Now, that’s not always enough.

“I appreciate your taking the time to show me that it happened,” Lauletta said, “but if it didn’t, we’d have bigger issues.”

So in addition, Lauletta asks for meetings early in a relationship, where sponsor and property set out detailed plans for meeting their respective business goals. In the past, he said, any meetings were simply a time for Miller to declare what it wanted out of the signed deal and for the property to “fine tune” based on what it believed it could do.

Under the new model, “the property is much more invested in the business, and when you sit down to evaluate when the deal’s up, you all have a much better sense of the success,” Lauletta said.

Giving business back

Increasingly, this collaboration results in the property making significant use of the sponsor’s product, always for the sake of publicity for the sponsor but often, now, as part of a cash deal built into the sponsorship. This represents another barrier being eliminated.

Nextel’s products are already integrated into NASCAR’s operations, at its various offices and at tracks each week, often where television cameras can see. This will only continue, said Michael Robichaud, Nextel’s director of sports and entertainment marketing. “Just think of the logistics of tickets, concessions, security — things that go beyond trivia questions for fans [delivered via phone].”

Robichaud said the length of Nextel’s deal with NASCAR — 10 years — makes it both possible and imperative for the wireless company to use the racing circuit as a marketing platform and a proving ground for new technology.

Increasingly, the sponsor’s products are a cash item in the sponsorship agreement. To keep sponsorship fees up, properties are agreeing to give business back to sponsors. If it’s a service or good the property buys anyway — cellular service, banking, insurance — there’s little or no new expense, only new business for the sponsor.

Turnkey Sports Poll
Following are results from the Turnkey Sports Poll taken in August. The survey covered about 400 senior-level sports industry executives spanning professional and college sports.
 
Compared to five years ago, how much interest do sponsors have in the following sponsorship elements:
 
Hospitality
More interest
48.1%
Same
39.0%
Less interest
13.0%
Media
More interest
49.4%
Same
44.2%
Less interest
6.5%
Signage
More interest
24.7%
Same
47.4%
Less interest
27.9%
Player appearances
More interest
35.7%
Same
47.4%
Less interest
16.9%
Tickets
More interest
29.2%
Same
61.0%
Less interest
9.7%
 
Source: Turnkey Sports in conjunction with SportsBusiness Journal. Turnkey specializes in instant fan feedback (FanTrak) and custom market research for sports and entertainment. Visit www.turnkeysports.com.
“One thing we’re seeing is properties less and less enamored of ‘value in-kind,’” a non-cash exchange of resources, said Keith Bruce, CMO of the SportsMark event marketing and sponsorship agency, which is part of the Radiate Group.

“Cut it as a marketing deal, then agree to purchase product and services outright at a discounted rate. This is more popular, partly because it can be funded by three or four areas within a company, with each unit writing its own business,” Bruce said. An example of this: SportsMark client Avaya, the large communications technology company, has a deal to install comprehensive telecommunications products in Germany’s World Cup 2006 venues. Avaya is the “official convergence communication provider” for FIFA, which governs the World Cup.

Collaboration, integration of sponsor products into the property’s operations, sometimes through outright cash commitments — this adds up to another element of the new model: longer deals. “Now the long-term deal is back in vogue,” Bruce said.

NASCAR’s Nextel deal and the NCAA’s 11-year Coca-Cola deal are exceptions in their own right, but Bruce said short-term deals are now being rewritten at two and three years, “and the rationale is that as the deals become more sophisticated, based on operating cycles and learning curves, that’s how you get the most out of the program.”

A longer deal also makes it possible for more divisions of a sponsor’s company to be involved — via marketing, product development, sales and hospitality — which can spread out costs and increase a deal’s reach. It also makes it easier to bring in third-party companies, “not just as pass-throughs but as strategic partners,” Bruce said. Here again we see barriers being eliminated, this time within the sponsor itself.

Longer deals are good news for properties, but they’re coming with a catch. Some sponsors are balking at the “escalator” notion, which increased the cost of a deal by a few percentage points each year of the term.

“We refuse to play that game,” said Kevin Steele, vice president of marketing for 24 Hour Fitness, the huge health-club company that has deals with the U.S. Olympic Committee, eight U.S. Olympic national governing bodies and a huge array of professional and college teams.

“They say it’s based on their appreciating assets, but they may be playing .500 ball,” Steele said. “I say, ‘If you want that, it has to be based on performance, on the field or in attendance.’”

Crunching the numbers

With the new complexity and length of deals, there’s been an increase in the amount of money spent on research into the sponsorship at all phases — before the sale, during the execution and afterward. Sports properties still lag in this area, many consultants say, doing far less research for themselves and their potential customers than other businesses their size.

But sponsors, who may already be accustomed to spending on general market research, are now springing for data relating specifically to the sponsorship. “Analytics are driving decisions today and they will be a much bigger part of decision-making going forward,” said Ray Clark, CEO of Omnicom’s The Marketing Arm.

“It would be my view that a very high percentage of sponsorships are both overpriced and provide little benefit,” Clark said. “So if you agree with my assumption, then to be able to apply analytics to [the situation] is incredibly viable.”

Clark said his clients will pay from a few thousand dollars to $50,000 on research based on “custom ROI [return on investment] models” his company has developed and services offered by Omnicom companies such as Javelin and Rapp Collins.

“With [client] SBC, we’ve been able to show that people’s perceptions of the brand has been enhanced significantly through their affiliation with college football, when combining that with product demonstrations and offers,” Clark said.

The barriers between sponsors are coming down, too. Coors and Pepsi teamed up on a co-promotion in the Houston area around the Super Bowl last year, a case of the two No. 3 brands in the market joining forces to become larger than any single competitor. “It was a really huge win in terms of them growing their market share, and both had a tremendous increase in sales volume and really dominated that time period at retail,” said John Tatum, a partner at Genesco Sports Enterprises, which consults for Pepsi-Cola.

Tatum said the collaboration arose from the belief that Super Bowl sponsors compete so intensely for brand awareness that they end up canceling each other out. “Look at the sponsors of the big leagues — all these consumer products packaged goods who are trying to leverage [their deals] at retail. [Whichever sponsor] brings the property to the consumer first or biggest or best, dilutes the opportunity for other sponsors to leverage the property effectively.”

Brand integration

If sponsors are cozying up with properties more today, they’re also branching out, in some cases creating their own property with the assets of others.

Click image to enlarge
 
Continental Airlines’ OnePass Online Auction sells inventory from the airline’s sponsorships.
Continental Airlines’ OnePass Online Auction (auction.continental.com) has encouraged customers to “spend” more than 60 million OnePass miles in a little more than two years, much of it on things like vacation weekends, luxury suite tickets and backstage passes to Broadway musicals, all part of inventory from Continental’s sponsorships.

The program has lured “C-level” executives — CEOs, CFOs, etc. — online, said Tony Schiller, executive vice president of Paragon Marketing Group, which consults for the airline. “The top tier of sponsors are finding ways to create a new activity rather than signage and hospitality. To carve out their own sub-event that’s unique to their sponsorship.”

But as a trend, this isn’t as powerful as the effort to integrate a brand into the property’s product in more intimate ways — probably the most talked-about elimination of a barrier in today’s marketing world.

This has motivated some sponsors to branch further into entertainment sponsorship, which was projected by IEG to grow at nearly 22 percent this year, more than twice as fast as sports sponsorship (although, at just over $1 billion, it’s only about one-eighth the size of sports sponsorship).

With record labels on hard times today, artists’ tours are not as well funded, and sponsorship fees of tours have dropped dramatically, according to Jay Kenney, senior vice president of IMG Consulting.

A 40-city tour that cost a presenting sponsor $5 million five years ago is now in the $2 million to $3 million range. Although the tours are not yet as sophisticated in their marketing opportunities as major sports, they give a sponsor a large palette on which to develop a program — if the sponsor reaches out to the artist when he or she is still in the studio and there’s time to work ahead.

IMG client Verizon recently sponsored Elton John for five nights at Radio City Music Hall, and was quite

"The top tier of sponsors are finding ways to create a new activity rather than signage and hospitality."
Tony Schiller, Paragon Marketing Group
pleased with its sponsorship of the 30-city Ladies First tour with Beyonce Knowles, Alisha Keys and Missy Elliott earlier this year. “You can be a little more creative in the entertainment space today, and you can be more flexible in the wish list you bring,” said Kenney.

Back in the sports world, branded content within a game or a program is on everyone’s mind, especially in determining what’s acceptable. MLB dropped its plans to put “SpiderMan” images on bases this summer, but many marketers think it’s just a matter of time before this practice is accepted — as are rotating signs behind home plate and other intrusions that once shocked purists but now rarely raise eyebrows.

Integration is born of the sense that the consumer is growing immune to traditional pitches and now has the technology to erase them entirely.

“You go to a marketing or ad conference related to television and it’s kind of the language of fear,” said C.J. Olivares, senior vice president and assistant general manager for Fuel, Fox’s 24-hour action sports network. “But to me, what the circumstances have provided is one of the most challenging creative opportunities for networks and advertisers, because in researching the effect of TiVo, they have found that good creative still works and people will still watch those spots. It’s when it’s not good that people go away. So No. 1, there’s going to be a new emphasis on strong creative within the 30-second-spot world.”

But just in case, Fuel is developing programming that fosters — or even builds in — brand participation. Its “Word” property — actually a 30-second piece of “interstitial” programming wedged between regular programming and traditional ads that features action athletes speaking their minds on myriad topics — is close to landing a cellular phone sponsor after more than a year without sponsorship.

Another program, called “Final Cut” and set to launch this fall, couldn’t have a closer association with Apple Computer. Final Cut is the name of the editing software to be used by three amateur filmmakers each show as they compete to make the best action sports video in a day, combining Fuel footage, music and other material.

The program reflects a growing philosophy in action sports that is finding its way into other genres of sport: a shift in focus from the property (and how it allows for marketing) to the target market — and how it can be marketed to.

“Sponsorship is less about specific sports — or even sports at all. It’s less about music sponsorship or sponsorship of the arts or of charitable endeavors as a platform and more about the target market,” said Bill Carter, president of Fuse Marketing, which consults for clients such as Ford, Motorola and Pepsi.

Carter foresees sports properties increasingly partnering with other forms of entertainment — with limits. Recent cases of MLB teams having pregame action sports exhibitions aren’t the most efficient answer, he said. A better idea is music or technology.

“If you bring in another set of sports, it’s almost as if you’re saying, ‘I got you here by showing you an exhibition of a sport you more closely align with, and oh, here’s a baseball game.’ Focus instead on another component [like music or technology], and the 15-year-old baseball fan shows up and says, ‘I’m participating in these things AND I get to go to the game, the sport I love.’”

By Carter’s reasoning, events in the big traditional sports will increasingly become entertainment festivals with extra emphasis on target demographics. If this sounds strange, consider how many of the trends described above would have seemed strange 10 years ago.

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