How we buy and sell sponsorship is changing and we’ve been talking about it for a while now.
What we’ve haven’t spent a lot of time on is what the financial aspect of these deals will start to look like. As an industry, we’ve come to automatically accept a traditional way of financial modelling around sponsorship deals where a brand pays a fixed fee and the rights holder gives them access to a suite of benefits. If it’s a top-tier sporting team, event, or attraction, then it is highly likely there is a standardized bonus scheme for the rights holder if certain milestones are reached.
No doubt, it sounds familiar. But what if we flipped it?
What if the ‘milestones’ were the linchpin of the deal?
Rather than paying a fixed fee, what if Brands only paid for results?
INCENTIVSED SPONSORSHIP ISN’T NEW
The concept of incentivised sponsorship deals is not new so why is it only now that we’re starting to see brands take this approach seriously?
ABinBev is a notable big brand example of late to completely reinvigorate how they negotiate and structure sponsorship deals. Rather than paying a fixed fee year-on-year, regardless of how the rights holder performs in delivering benefits, their deals have begun moving toward investment levels being determined by the outcomes achieved WITH the rights holder.
Coca-Cola have also suggested they have an eye on this approach and will be starting to do the same.
If two of the world’s biggest sponsoring brands are taking this seriously, the snowball effect shouldn’t take too long to kick in.
HOW DOES THIS AFFECT BOTH SIDES OF THE DEAL?
It’s the old saying, ‘You get what you pay for’.
An incentive-based approach to your sponsorship is likely to de-risk the investment to a certain degree. With that said, you also need to be prepared to pay for results. That’s where finance are likely to go on a roller coaster of emotions!
Regardless of your size, budget, or general brand presence, you’re involved in sponsorship for the exact same reason as any other brand; to achieve objectives.
If you were to adopt this approach then you’d able to immediately begin aligning your sponsorship deals with very specific and unique objectives. That allows you, therefore, to evaluate and analyse every aspect of the deal at any given time.
On a strategic level, and if you’re not doing it already, you can also start to analyse both ROI and ROO side-by-side due to an ability to view objectives, costs, and results next to one another. This not only looks great in an executive or board report but also helps you take full control of your sponsorship reporting and budgeting.
If you’re asking either of the following questions, maybe it’s time you considered giving this approach a go.
- We’re getting great results from our current sponsorship but should we be doing more?
- Why should we continue to pay a fixed fee when our rights holder isn’t performing?
If you’re a rights holder and still reading this; chances are there’s alarm bells going off in the background.
Don’t panic though!
Discard the thought of having to work even harder to achieve that dollar figure in the budget the Board have set because this new approach works both ways. If you sell sponsorship on the premise that a brand will achieve certain objectives, you effectively position yourself to scale the deal without any major limits.
With that said, you do also leave yourself vulnerable. If your assets perform the way you sell them, you shouldn’t have any issues. But if your assets don’t achieve the desired results then it allows you to learn, review, and make changes accordingly.
This will be a challenging notion for a board to understand because it doesn’t mean fixed dollars every year. Your challenge is to educate them on the potential to scale the deal should everyone work together effectively.
If you are going to trial it, start with a base fee that covers the costs of the assets you need to deliver. If you do put a margin on it, try and keep it to a minimum.
SO HOW DO WE MAKE THIS WORK?
Regardless of which side of the deal you sit on it can be done really easily. Here’s an example:
During negotiations, Rights Holder A proposes a deal for $15,000. The deal includes digital and activation benefits.
Brand B suggest they want to achieve the below objectives and will measure them through specific success metrics.
Awareness - 100,000 impressions.
Engagement - Increase time spent on a specific page by 30 seconds.
Awareness - 50% of foot traffic to move past the activation.
Engagement - 100 x participants to participate while also wearing branded merchandise. Rather than charging a fixed fee of $15,000, why not try this …Base Fee = $10,000
Access to digital and activation benefits
$1,000 incentive for every 20,000 impressions above the minimum threshold.
$1,000 incentive for every additional 10 seconds someone spends on a specific pace above a minimum threshold.
$1,000 incentive for every 10 participants above minimum threshold.
$1,000 incentive for every 10% of foot traffic that move past the activation.
If you consider the above closely, you will see how this actually benefits both sides because the rights holder is able to scale the deal if they achieve the added objectives while the brand pays more but they also achieve above their own expectations.
There is no room for hiding or bluffing in this kind of deal or negotiation.
I wonder how long it’ll be until we start to see the snowball gaining critical mass?
Daniel Ferguson-Hill // Commercial Manager - Australasia
Daniel is a big believer in being genuine and authentic and brings those traits to each relationship. He has experience in national partnerships and business development across the sporting and not-for-profit landscape. He’s led national commercial teams and developed commercial, engagement, and membership strategies with concrete outcomes.
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