The pandemic certainly had a direct and immediate impact on the entertainment industry and, more broadly, on sponsorship agreements. As many anticipated (including us at Elevent), crowds returned in record numbers, and sponsorship has experienced a strong rebound. Certain sports are in high demand, such as Formula 1, with three races now scheduled in the US. Despite the crypto winter, there is still high interest in the communication medium from brands that recognize the limitations of being “digital first” or digital-only.
Here are the current trends that we observe in the market.
There is inherent risk involved in a sponsorship investment: sports teams may not perform well, cars displaying the sponsor’s logo can crash on the first lap, and bad weather can significantly impact attendance at an event. Sponsors bear the brunt of the risk by agreeing to pay pre-agreed rights fees, regardless of performance.
To counter this, brands are seeking sponsorship valuations skewed in their favour. While there is no standard, some companies are aiming for a marketing value-to-cost ratio of 1.5 to 2. In recent years, however, these ratios have seen a decline. This is due in part to changes in media investments by rights holders. Traditional media investments are decreasing in favour of digital outlets that have lower value.
A trend that originated in sports is making its way into various deals. It consists of a lower initial rights fee with escalators, or bonuses, if certain criteria—such as making the playoffs, investing a certain amount in advertising, or reaching an audience threshold—are met.
Professionalization of the sponsorship space
More than ever, sponsorship expertise is shifting from agencies and rights holders to brands. Big properties are now building dedicated sponsorship teams and developing niche expertise.
The next generation of marketers has been influenced by digital marketing, which allows for real-time measurement of key performance indicators, and they are applying this mindset to sponsorship. We expect to see an upswing in sponsorship valuation and measurement in the coming year, especially given the prospect of a looming recession.
Corporate social responsibility and partnerships
Corporate social responsibility (CSR) is a form of self-regulation that reflects a business’s commitment to contributing to the betterment of society in addition to generating profits. Companies that embrace CSR aim to maximize profits while also considering the impact of their actions on the environment, their employees, customers, and the wider community.
A recent Elevent survey conducted in the U.S. market revealed the impact of CSR on purchase intent. Of those surveyed, 26% said that they had stopped doing business with a company because they did not feel it contributed positively to society. Conversely, a quarter of respondents declared that the perceived CSR of a corporation was the main reason they did business with that company, and another quarter said that it was one of their purchasing criteria.
Pressure on companies to address CSR issues has led them to seek out cause-based partnerships to generate goodwill. Donations are now being redirected towards more structured programs backed by communication campaigns to ensure that consumers are aware of the causes a company supports. A number of organizations, for example, are investing in partnerships to promote diversity and inclusion.
Rejuvenation of century-old properties
While motorsports, golf, and baseball are known to draw an older demographic, all sports leagues are trying to renew their audiences to maintain viewership and commercial value.
Some of the bevy of initiatives they have introduced include updated, more open communication, improved digital platforms, streaming services, dedicated ad campaigns, sustainability initiatives popular with the younger cohort, and esports divisions.
None seems to have succeeded in turning the tide better than Formula 1’s Drive to Survive documentary series. Its content, focused on the personalities behind the helmets, resulted in a dramatic turnaround for the prestigious motor racing competition.
In addition to attracting younger viewers, Drive to Survive also helped increase F1’s overall viewing audience. According to Formula One Group’s then-CEO, Chase Carey, the series was a “game-changer” for the sport, with the 2019 season seeing a 10% increase in global viewership compared to the previous year.
In the wake of Formula 1’s success, many sports leagues and teams are planning to release similar series or content.
There is a trend among eventgoers to pay extra for a premium experience. In recent years, many events have started offering premium or VIP experiences that provide added benefits and exclusive access to certain areas or amenities.
According to a pre-pandemic report by Eventbrite, the number of VIP and premium ticket sales for events years increased significantly in recent years. The report found that 79% of event organizers offer VIP or premium ticket options for their events, up from 69% in 2017. Furthermore, premium ticket sales increased by 15% in 2019, while general admission ticket sales decreased by 3%. In addition, the report found that attendees are willing to pay more for premium experiences. The average price of a VIP or premium ticket is 2.4 times higher than the average price of a general admission ticket.
Other studies have also identified similar trends. Overall, the data suggests that there is a growing trend toward seeking high-end, exclusive experiences, and there is a willingness to pay for access to them.
These elite experiences and ticket pre-sales are now both being offered to credit card holders or clients of a service. Consolidation in the sector (Live Nation, AEG, Endeavour) has accelerated the trend. Today, ordinary ticket buyers who have a harder time coming by a regular ticket due to the limited number in circulation may be willing to sign up for a service or purchase a premium ticket to get better value for their money.
Growth opportunities in various categories and new technologies have long influenced sponsorship investments. While some new categories are on the way up, others may be reaching maturity and seeing lower marketing investments. Here is a brief overview of some of the ones to keep an eye on.
Online gambling and gaming
In May 2018, the U.S. Supreme Court struck down a federal law that had effectively banned sports betting in most states since 1992. Following the ruling, individual states were able to legalize sports betting if they chose to do so. As a result, the sector expanded rapidly, with many states legalizing and regulating the industry. As of February 2023, 32 U.S. states have legalized sports betting in some form or another.
This decision has had a major impact on the advertising spend of leading companies such as FanDuel and DraftKings (which previously focused on fantasy sports), as well as other established Vegas players, such as MGM Resorts and Caesars Entertainment.
While Canada is not directly affected, there has been a grey area in the sports betting and gambling market for years, with many companies either advertising in Canada or sponsoring events, such as The Stars Group (a Canadian company that operates several popular online gambling brands, including PokerStars and BetStars), Betway, and Bodog.
Although some leagues, teams, and properties have banned online gaming and gambling, many, including Major League Soccer (MLS), have reversed their decision.
The pandemic led to the widespread adoption of virtual meeting platforms such as Webex, Teams, and Zoom. But now that the rapid growth phase is over, companies are expanding into other territories. It’s worth noting that while Zoom is primarily known for its video conferencing software, the company has expanded its offerings in recent years to include other products and services, such as cloud storage and business phone systems. The company has signed sponsorship agreements with the NHL and Formula 1 racing. Over the years, Webex (Cisco) has sponsored a number of sports teams and events, including the San Francisco 49ers football team and the Golden State Warriors basketball team. It has also been involved in various sports technology partnerships and initiatives.
The buzz around the AI-powered chatbot ChatGPT could spark an ad war between Bing (Microsoft) and Google. In January 2023, Microsoft confirmed a major investment in OpenAI, the company behind the new service. This could revolutionize online searching and reboot the Bing brand, which currently holds around 9% market share compared to Google’s 85%.
- Amazon Web Services (AWS) sponsors multiple sports properties, including the NHL, the PGA Tour, Formula 1, NASCAR, MLB, and the NFL.
- Microsoft’s Azure has partnerships with the NHL and the Olympics.
- IBM Cloud supports the Wimbledon tennis tournament and the U.S. Open golf championship.
In his article “Behind The Scenes of The Blockbuster Crypto.com Arena Deal,” Ernest Baker, the editor-in-chief of Front Office Sports, writes, “For all of the promise cryptocurrency holds, it’s also a space rife with controversy — extremely volatile markets, fraud, and scandal.”
The year 2020 was characterized by a sharp rise in the adoption of cryptocurrencies, a speculative investment that experienced a staggering increase in value. Crypto trading platforms used this newfound wealth to aggressively advertise their brand.
Despite the massive crypto market correction a couple of years later, companies involved in the space are still using sponsorship to reach audiences and gain credibility. The result of the crypto drawdown, however, is that many large sponsorship agreements will not reach the end of their contract, as exemplified by the fate of the FTX arena (2021-2023), now known as the Miami-Dade Arena.
Crypto.com, which reportedly spent upwards of $20 million to acquire the naming rights of the inaugural Miami Formula 1 Grand Prix and $700 million for a 20-year agreement with the Crypto.com Arena in L.A., may turn out to be another example.
Crypto.com has entered into a long list of high-level partnerships:
- Exclusive cryptocurrency trading platform of FIFA World Cup Qatar 2022
- 10-year, $175 million sponsorship with UFC
- 5-year, $100 million deal with Formula 1
- Multi-year partnership with LeBron James and his non-profit foundation
- First innovation and technology partner of Serie A football
- Individual deals with the Philadelphia 76ers, Paris Saint-Germain, Montreal Canadiens, and Aston Martin’s F1 team.
In terms of the overall economy, the B2B market is generally larger than the B2C market. However, this sector is under-represented in sponsorship investment, despite enormous opportunities for rights holders.
We expect a larger portion of sponsorship spending to come from the B2B sector over the next decade. This trend is already being seen in some categories, such as major sports properties.
Examples of B2B companies investing in sponsorship can be seen in the consulting category (Deloitte, EY, Accenture), the financial sector (trading, financing, financial data platforms, payment platforms), supply chain and data management, and cloud platforms, to name just some.
Faced with labour shortages, companies are also relying on sponsorships to build their employer brand, increase awareness, and generate positive opinion.
While tobacco advertising is banned in most countries, major tobacco conglomerates have launched initiatives to diversify or develop healthier alternatives to traditional tobacco products. Sponsorship deals with various high-profile brands created to promote these initiatives have been secured.
A Better Tomorrow (British American Tobacco [BAT]) and Mission Winnow (Philip Morris International [PMI]) are two examples. The former signed an agreement with the McLaren F1 team, and the latter is involved with Scuderia Ferrari, Moto GP, and the Superbike World Championship.
With new research on the harmful effects of even low doses of alcohol, there may be a push to restrict or even ban advertising of alcoholic products to try to reduce related illnesses, as mass media—including out-of-home, TV advertising, and sponsorship—can attract underage consumers.
Since November 2020, two Central American countries, Costa Rica and Panama, have banned alcohol advertising during sports events. In the UK, alcoholic beverages companies cannot sponsor individuals, activities, teams, events, tournaments, competitions, bands, or celebrities that have a particular appeal to, or are primarily aimed at, under-18s. The country may extend this ban to prevent alcohol brands from sponsoring football team kits.
Similar rules are also being considered for sugary and/or energy drinks.
Both Coke and Pepsi have diversified their brand portfolios across multiple product categories, and spending on advertising for their key product has declined since the early 2000s to focus on distribution, pouring rights agreements, and promotions. We are now seeing companies such as Coca-Cola use their foundations to promote sustainability initiatives through various partnerships, especially in the area of drinking water.