Sponsorship value vs. market value: the art of the determining the price of assets

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On one hand, a precious tool in the sponsorship arsenal; on the other hand, a fundamental—and sometimes harsh—element of the reality of supply and demand.

In fact, sponsorship valuation is key to establishing a pricing strategy, estimating market value and managing your sponsorship portfolio.

Why do I need to evaluate sponsorship proposals?

For properties:

As each new proposal you build is customized to the sponsor’s specific objectives, you need the sounding board of evaluation every time. First, you do not want to put yourself in a bad place pitching a ridiculous amount to a brand: they will evaluate the true value of your sponsorship (read further)! Moreover, each package being different, you don’t want sponsors with similar levels to have a disproportionate amount of assets for the same rights fee. It’s a tool that will keep fairness, and maintain harmony between sponsors. As a general rule of thumb, you want the value of the proposal to be at least at par with the asking price. Sponsors are looking at a 2 to 1 or even 3 to 1 ratio, due to the uncertain nature of sponsorship. Evaluating your proposals will ensure that you get the right value for your proposal.

For sponsors:

Sponsorship valuation is an essential part of acquiring a new property. In this day and age, all marketing expenses can be under scrutiny. This is especially true for sponsorship because of its very nature: the presence of hospitality and the entertainment aspect attached to it might raise suspicions that the decision to sponsor was motivated by top managers’ appreciation of a particular sport more than by sound market insight. John Kerry, secretary of state, raised the issue in his now infamous quote about sponsorship being wasteful. He tried, to no avail, banning companies that received bailout money to pursue such a marketing strategy. In other words, the process of sponsorship selection and evaluation must be extremely thorough. A strong business case must be put in place because folks from the finance department, external controllers, or even stockholders will ask questions about the sponsorship value and how the decision to sponsor was made. After all, sponsorship is a marketing investment, not a donation; thus you need to assess the value of your buy as you would do with any media campaign.

How to gage market price?

As mentioned earlier, your value should be above the asked price of the sponsorship package. That being said, many factors affect pricing and your negotiation leverage:

  • How many similar properties are there in your market? (All properties compete for the same dollars.)
  • How do you measure up against them? (Are you a market leader?)
  • What size is the market? (Are you in a metropolis or a small town?)
  • Do you foster an emotional connexion with your audience that is unique to your market? Do you occupy that unique share of heart in consumers’ minds?
  • Do you foster a lot of fan interactions and participation?

If you said yes to at least one question you undoubtedly have some leverage, maybe the upper hand. In some market, top properties can go as far as signing 3 or 4 competing brands because for them, not being there is not an option. That is a rare occurrence. If you said no to all of the above, do not despair. You can work toward building and displaying a unique positioning which will give you a true competitive market advantage.

What if it doesn’t sell?

If a sponsorship level does not sell, keep in mind this advice before scaling down the price. You can still attract sponsors without lowering your price: it would affect the overall rate card, have a prolonged effect on your revenues, and generally, deal seeking sponsors will not be active partners that will contribute to the overall success of your property. You can offer a higher set of rights for an entry-level price to a prestigious sponsor for one year. This “evaluation” period will provide two benefits: 1- a well-known brand will help you to sign new sponsors (popularity fosters popularity) 2- the company will be able to sample the value of the benefits, and you will make sure to deliver and build a strong personal connexion. That will increase your chance of signing the real-deal the nest year. If you are a new property, do not accept the first sponsor that comes with cash. Be mindful of your property’s brand essence and try to attract partners with a natural fit, even if they don’t generate the income you would expect in the first year. The partner with the right fit will contribute to your property’s credibility, brand definition and will generate momentum to attract other partners.

Did you know?

  • The top 10 US sponsors in 2011 spent between $135 million and $345 million
  • Pepsi Co claims to have spent around $345 million
  • The London Olympics involved four different levels of sponsorship association:
    • 3 TOP sponsors (each paying $100 million);
    • 7 London 2012 Olympic Partners (each paying $63 million);
    • 7 London 2012 Olympic Supporters (each paying $31 million);
    • 28 London 2012 Providers and Suppliers (each paying $15 million).[1]
    • Collectively, these sponsors paid $2178 million in fees for their association with the London Olympics (The Guardian, 2012).

So, when building your sponsorship offering and going to market, sponsorship valuation and market value go hand in hand. Make sure to do your homework before knocking on doors! The Elevent report includes a market price range for events and organization similar to yours, allowing you to craft a relevant pricing strategy.

Source

[1] (Tony Meenaghan) « Measuring Sponsorship Performance: Challenge and Direction », Psychology and marketing, 2013.

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