Fixing Sponsorship Disruption Starts with Finding the Floor
If you’re a brand with a sponsorship portfolio, the confirmation of a return to sports from numerous professional leagues and associations has likely caused two equal and opposite reactions: excitement and anxiety. A spark of joy and excitement comes from major sports properties returning to play. Even if it is without fans or at a neutral site. The surge of anxiety is because it’s finally time to push through the complicated process to reconcile the value and costs associated with sponsorships.
According to estimates by IEG, there are 120,000 active sponsorship agreements in the U.S. that have been disrupted by cancellations and postponements of various properties — that’s over 5,000 brands faced with working through how they can recoup lost value. The result is a daunting undertaking made more challenging by the fact that sponsors and properties lack universally accepted and objective measures of value for what key sponsorship assets are worth.
How did we get here? A primary contributing factor is that contracts have historically been built around a baseline assumption of best-case scenarios: full attendance and significant fan engagement across myriad channels and touch points. As a result, we’re seeing painful implications on brands and properties that will not easily be solved — regardless of when, where and how sports restart.
Here are four steps for brand sponsors to follow immediately to address the sports gap challenge:
1. Decide on your objective. It’s important to establish a clear objective for resetting your sponsorships. Are you looking to maximize cost savings given the refunds, delayed payments or contract extensions? Or are you interested in recapturing value through new or altered assets and opportunities? Determining the objective priorities will inform each subsequent step.
2. Determine the level of disruption. Assess how much your partnerships have been affected. Start by giving a quick low/medium/high classification to each partnership in your portfolio and use that grouping to determine where to focus. It can be a large task to reset every sponsorship in a compressed amount of time. Do you start with the biggest investment with the largest disruption? The partnerships most tied to helping you drive near-term business results? Sponsorships most closely aligned with activating your brand purpose? Set a clear sequence of priority. This will help you optimize time and focus.
3. Start with the cancellations. The most straightforward part of resetting your sponsorships should be determining the value lost from cancellations. Either a cancellation of full events or from a partial season. This is the most objective part of the lost value equation and should help you quickly get to your baseline for the minimum value gap. Ideally, your sponsorship contracts directly address a formula for this, such as: Sponsorship fees x % of games canceled = sponsorship fee reduction.
4. Tackle the value impairment. Games with no attendance or in neutral site locations (also with no attendance) are variables that no one could have imagined a few months ago. However, this is the new calculus required to get through the reset process. The determination of the financial cost of value impairment (tied to lost or disrupted sponsorship assets) is the trickiest part of our current reality given the general lack of mutually agreed upon metrics for the scenarios that have unfolded. The important part of this step is to have a clear view of how you value the elements that have been impaired. Be able to share that data, and the associated rationale, with your property partners. Having a set — both a baseline of the minimum value gap and a clear objective for the outcome you are seeking — will help you focus during negotiation. A strong agency partner can be a key ally in working through this process, as well.
The current disruption should be used as an opportunity to set new standards and approaches for future transactions. For this to happen, it will take firm commitments from brands not to proceed on new sponsorships or accept renewals without applying the learnings we’ve experienced by this pandemic.
The sponsorship landscape can forever be changed in a way that benefits brands — regardless of how soon fans return. Like structuring sponsorships around results delivered, versus fees being committed in advance of meeting key deliverables and metrics. Building agreements from the floor up, with reduced fees for IP rights and clear criteria established for receiving payment in full (full season played, minimum attendance levels, etc.). Even tackling pandemics and epidemics in force majeure language. Remedies should be triggered more clearly by single cancellations, alternative venues and attendance restrictions, and not just through traditional disruptions such as labor strikes. If we have learned nothing else, future agreements need to have fewer references to "mutually agreed upon" solutions for resolving asset delivery issues and more defined rebates and offsets.
So, while the COVID-19 global pandemic has resulted in many unwanted and unfortunate events, the impact on sponsorships can be one that reimagines the future in a new and promising light. Brands can no longer accept the best case scenario from leagues or teams (the ceiling). They need to start with the floor. And build from that foundation.
Matt Pensinger is a senior vice president and managing director at Jack Morton and oversees sports marketing for clients such as the Molson Coors family of brands.