Many years ago now we wrote a blog post called Media. Value. Cabbage – on the subject of post event sponsorship valuation. (We use the term valuation to refer to the commercial value assigned to a sponsorship contract – and evaluation to refer to measurement of a sponsorship’s success). The tone of the title reflected our scepticism at the claimed science behind the methodology. Agencies go overboard to convince buyers this is an objective exercise whereas the truth is – it’s anything but.
The quantifiable part of the exercise consists of the meticulous detailing of brand exposure – which is genuinely meticulous and genuinely useful, as it documents the prominence and salience of all visual and aural branding delivered by the sponsorship. So far so good. But next a media value is assigned to every element, from perimeter signage to merchandise branding with a weighting assigned to each touchpoint to represent the strength of the impact. The total represents the value of the ‘tangibles’.
The ‘intangibles’ – including such things as brand strength and the status of any events – produce a quotient which is then applied to the value of the tangibles to produce the final figure. There’ll be minor variations from agency to agency, but as you can see in this example, the summary covers the basics.
What annoyed us at the time were the claims of objectivity in a process which contains so much subjectivity that margins of error are off the chart. In fact the main role of detailing the minutiae of brand exposure appeared to be to distract from the methodological flaws. So why raise it again here?
Well, because twice in the last quarter we’ve run into agencies reverse-selling the same service to clients, with the promise of allowing brands to determine exactly what they should be paying. Music to the ears of sponsorship procurement – but as you might imagine, there are a few snags.
First off, in many cases it’s the same agency selling the same service to both rightsholder and sponsor – the agency supporting rights holders by validating their value is charging sponsors to check said value.
Secondly, it’s the same lamentable methodology. While it looks great on paper, it’s paper thin – because the factoring that’s applied twice in this process is entirely subjective.
Media reach is of course incredibly important and the main determinant of sponsorship value. The history of sports sponsorship in particular can largely be seen as the story of audience aggregation – the attempts of the major players to grow their broadcast audience. Media offers reach, which delivers awareness and the familiarity which is so coveted by major brands.
And Nielsen has taken media valuation to new heights, with AI methodology which automates the calibration and measurement of logo exposure and allows Nielsen to grade brand exposure value against variables including duration, size, presence on screen, lines of vision and many more. This service has fantastic value in terms of monitoring the ongoing exposure and improving the management of messaging and logo placement – but only offers a broad correlation with sponsorship pricing.
But deflationary media values over the last few years have had no evident and consistent impact on sponsorship pricing. Sure, there’s been a lot of fluctuation, and some stagnation – but unrelated to media.
The major factors affecting price are :
Guaranteed broadcast media
Media we’ve covered above: it broadly sets the parameters and thresholds for price – without a direct and strong correlation between the two. Guaranteed broadcast however is the only meaningful component of media exposure – all the programme branding in the world won’t really move the needle.
The general health of the platform
F1 has been struggling for a few years as a result of post Bernie doldrums, the dominance of Mercedes, a general negative vibe around environmental impact and the pandemic – its general health was poor (now making a strong recovery). All of this conspired to dampen prices for F1 and its Teams at the same time as steady growth in broadcast audiences (except the pandemic hit 2020 season) and explosive growth in digital and social.
Performance is critical: taking the EPL as an example, there has historically been a staggering price differential between the top six Clubs and the rest of the league, with multiples of ten dividing the price of shirt sponsorship between teams at the top and at the bottom. In La Liga, this differential is larger still. Performance improves visibility, but more importantly popularity and brand value.
When we performed due diligence on Lloyds Development Capital’s investment in Virgin Racing, a decade ago now (controversial at the time as Lloyds Bank had been partly nationalised), the business plan pegged sponsorship levels based conservatively on on industry averages. We had the delicate task of helping the client understand that the learning and development cycle for F1 meant that performance was unlikely to deliver sponsorship value for a minimum of three years – and that the investment case figures dramatically overstated likely revenues.
Boom and bubbles
The impact of boom industries and sectors can’t be overstated and at the highest level have driven and maintained pricing. Sometimes it’s Mark Earls’ herd mentality which leads brands to compete for sponsorship real estate, at other times FOMO (if that’s not the same thing) and at other times simply the sheer commercial value on offer – but football has been buoyed by successive waves of inflationary investment – from beer to automotive, via dotcoms and banking, Korean and Chinese tech led by Samsung, LG and Huawei; and now gambling – seemingly a permanent presence barring regulation ; with QCommerce a recent arrival in the shape of Deliveroo, Just Eat and Uber Eats; and crypto just around the corner. The excellent Myfootballfacts.com offers a view of shirt sponsors from the 1992/93 season.
The vast reach and engagement potential of football offered by football in particular promises immediate and significant brand impact that is difficult to resist for an ambitious business. And the consequence of these successive waves is to drive prices upwards far beyond any influence of media. We haven’t done the math, but these categories must account for well over 60% of total sponsorship value and headline pricing, if not more.
Critical mass / stature
Other sports are not so directly impacted, but the success of football and the endemic American sports confirms and supports an upward trajectory for the pricing of sports and events which have achieved a critical mass in terms of broadcast reach, geographic spread and popularity – such as tennis and golf, the Majors and the Masters.
The last major factor is the tier of sponsorship, which is the good news.
Because, despite the sustained growth which sponsorship pricing has enjoyed for the last 30 years and which only a global pandemic has truly been able to disturb, supplier level partnerships, for example, behave very differently from the trophy sponsorship positions of jersey, title and naming.
Just four years ago, when we were advising Coca-Cola on its EPL sponsorship, we analysed the supplier status packages of nearly every EPL Club. Although there was a similar quantum of differential in the asking prices, the sums involved were single figure percentages of front of shirt deals.
For procurement teams, the main thing to appreciate is that sponsorship is an open market. At the top end, sponsorship fees are simply aggressive sales targets, driven by commercial pressure – and pride.
Daniel Levy is widely reported to have a set a sales target of £400 million for the naming rights to Spurs’ stunning new stadium on no other basis than a sense of what the market will bear and the impact it will have on both the brand and their other sponsorship assets. Of course, three years later the stadium is still without a sponsor but given the lengthy terms of naming rights deals, it makes sense to hold out for another three rather than drop the price.
The top European Clubs vie with each other for success on and off the pitch and the price-tag of the shirt sponsorship is the most emotive and visible signal.
For sponsorship procurement, there are a few take-outs:
- check and double check broadcast, OTT and social media figures and rights
- audit touchpoints to ensure campaign messaging can be delivered consistently and integrated across all the rightsholder’s owned media : by all means employ an agency, but your own audit should be good enough at this stage
- benchmark against comparable properties and against time: we benchmark (occasionally) against a deal base of 10,000 to allow us to establish a broad context – but intelligent approximation also works well
- define your needs as closely as possible to determine the relative value – to you – of the rights on offer
- be absolutely clear about (reasonable) success metrics and model commercial benefit to establish a use value for your business to yardstick against cost
- negotiate hard
Redmandarin will often step in as a buffer for negotiations to insulate the relationship from the knocks of hard negotiation when there is client commitment to a deal. But we’ve also seen businesses leverage their willingness to walk with insultingly demanding positions – and succeed. We generally look to establish a win-win position – but that’s a different story.
At the end of the day, sponsorship is an open market. The price you pay should be a function of your investment case, reasonable benchmarking and good negotiation.