Sponsorship Valuation: 4 Challenges Facing the Industry Today

It’s 8am. Coffee in hand, a CMO commences her Monday morning inbox clear-out when an enthused Head of Marketing Strategy appears, asking for a budget boost to accommodate a new sponsorship opportunity. The CMO makes clear that she’ll give approval upon proof that it’ll drive "measurable profitable growth".

So what now? How does one prove the potential for “measurable profitable growth”? And what challenges might be faced along the way?

The good news is that measurement is a hot topic, with the Synergy Decisions white paper the latest piece of literature to put sponsorship valuation under the microscope. It appears that the challenges in sponsorship valuation are better understood today than ever before.Since an ANA survey revealed 65% of client-side marketers are not taking the necessary steps to determine the results of sponsorship and event marketing programs, the ‘holy grail’ that is sponsorship measurement has been in the spotlight. McKinsey & Company, the management consultancy, outlined five metrics crucial to scoring sponsorship in any marketing ROI program. Self-proclaimed “industry leaders” have gone one step further with the launch of evaluative measurement tools which are starting to plug the measurement deficit. Indeed, over the past year, Synergy has been implementing this approach with clients to drive quantifiably better outcomes, in one case saving a client around £400k during negotiations for a new property by identifying which rights would (and would not) drive maximum value.

However, the headroom for improvement is vast. In the aforementioned article, McKinsey & Company also highlight that executives who implement a comprehensive approach to gauge the impact of their sponsorship can increase returns by as much as 30%.

To do so, sponsors need to apply a rigorous and credible measurement system which answers the (largely unaddressed) challenges facing the industry today:

1. Making Measurement Value-Based

Using cost-based measures like media exposure equivalency, most tools on the market today only hint at understanding sponsorship value. Calculating equivalent advertising spend for elements such as hospitality, access to talent, the use of a logo and exhibition space is a cost – not value – based approach.

Effective sponsorship measurement cannot use cost-based measures to calculate value. Instead, models must isolate the value of incremental sales, profitability and overall net present sponsorship value.

2. Understanding Sponsorship Value is Contextual

A sponsorship property's value is entirely contextual; not inherent or intrinsic. Most people are asking the wrong question. For them, it’s about "What is this sponsorship property worth?" rather than "What is this sponsorship property worth to my business if I use it in this way?". The fact is, the exact same property would be worth £A to Aviva, £B to Budweiser and £C to Cisco. And it goes without saying that the exact same property would be worth a lot less if you did nothing with it, as opposed to if you activated it heavily through all available channels.

Effective sponsorship measurement cannot value a menu of “stuff” including IP, naming, branding and hospitality. To truly understand the value of rights on offer brands must understand how those rights enhance their ability to create a brilliant campaign and tell their brand story through all available Pathways to Value (the different ways that a company is using sponsorship to create value).

3. Capturing and Comparing the Ways Sponsorship Creates Value 

Sponsorship is not a channel in its own right, like advertising, PR, digital, mobile or experiential; rather, sponsorship is an asset that is used to make all those channels more effective. It creates value across a multitude of channels for which there is no common measurement mechanism. This is a challenge, since not all Pathways to Value are obvious and different channels have different accepted principles and measurement metrics.

Effective sponsorship measurement cannot compare and aggregate the value of sponsorship based on different channel metrics. To reach an apples to apples comparison across different channels requires knowledge of the key channel KPIs (e.g. accounting for the impact of passion and engagement, identifying true awareness uplift in the target audience as opposed to general population) and a sophisticated approach to bringing them together in a single value-based metric.

4. Focusing on the Process and Not Just a Number

There is no magic number or foolproof formula which can, with certainty, tell a brand whether to invest in a sponsorship asset or not, yet the market approach to sponsorship measurement today is more ‘black box’ than ‘open book’.

Effective sponsorship measurement cannot take place in a ‘black box’. It must instead be used to stimulate strategic discussion with flexible inputs and assumptions displayed in a user-friendly way.

The race is on to close the measurement gap. Industry challenges are being addressed and deals are being done with a better understanding of sponsorship effectiveness than ever before. That said, a material measurement gap remains.

Watch this space.

Should Sponsors Resist Contractual Activation Guarantees?

In modern sponsorship, success is most frequently characterised as being about win-win partnerships, where both sponsor and rights holder benefit from the shared value created - in other words, the synergies - by activation at scale. When this happens in the UK, it's usually the result of the sponsor delivering on a generally non-contractual commitment to activate.

However, at Synergy, we work on sponsorship contracts with rights holders around the world, and it's not uncommon to see contractual activation guarantees, particularly in the US. These can take several forms, including guaranteed activation spends, 'activation pots' (where the brand can choose from a menu of items provided by the rights holder) and/or  activation commitments, such as leveraging on-pack to a minimum scale or dictating mandatory markets to activate within.

There is further complexity when rights holders dictate the channels that sponsors must use as part of their media buy. This typically takes the form of minimum media spend with the official broadcast partner, as part of a wider deal between the broadcaster and the rights holder. And in the latest potential evolution, the NBA is exploring mandating jersey sponsors, as part of any deals brokered in the future, to spending guarantees with its broadcast partners Turner and ESPN. Although terms of this are still very much under consideration, it is in response to fears from the broadcasters that brands with jersey sponsorships won't need to buy as much of their media.  Of course it is not directly comparable, but imagine if Chevrolet, Emirates, Standard Chartered or Samsung were contractually obliged to buy a minimum number of commercial spots on Sky as part of their Premier League shirt sponsorship deals.

We are now beginning to see more and more of these type of clauses creep into contracts in the UK. So, what are the benefits and disadvantages to rights holder and sponsor?

It is easy to see the benefit to rights holders of being contractually guaranteed an active sponsor, who will take on the financial burden of promoting the asset, thereby increasing its visibility and value.

Contractual terms also protect rights holders at the end of longer deals, when it is not unusual for sponsors' interest in activation to wane.

It is less easy to see the wins from the sponsors' perspective. By being forced down certain paths, sponsors have less choice and flexibility on how they activate their sponsorship.

A minimum spend in itself could also be construed as counterproductive, as spend levels are not necessarily a proxy for reach or efficiency of messaging. Digital and Social in particular, can be highly targeted, with less wastage than channels such as Out of Home or TV, and are generally considered to be more cost efficient. If activated smartly, sponsorships can be leveraged on a tight budget.

Dictating a minimum spend in broadcast can also limit a brand's ability to activate creatively across other channels, with budget tied up in costly media buys. It can also be strongly argued that brands know their own audiences and how to interact with them better than anyone, so are best placed to select their media strategy.

As Tim Crow suggested recently in his blog on the IOC’s Agenda 2020, imposing geographical obligations is equally unpalatable for sponsors. The IOC is contemplating this to stimulate local activation by TOPs, and whilst National Organising Committees naturally want to see these global brands activate at scale in their territories, sponsors have their business priorities across the globe, which demand the focus of their marketing budgets.

In truth, it is a very fine line between ensuring that partners are, and remain, active and simply trusting them to activate effectively. Rights holders will argue that they are simply safeguarding themselves against being used as a media buy, with little incremental benefit to themselves. The balance needs to be found where clauses are included with contracts to ensure that this doesn’t unduly restrict sponsors' freedom of choice.