What Sponsors Need to Know at the Negotiating Table

How do you know if you have succeeded in a negotiation?

Whatever way you look at it, it is impossible to answer this question without understanding value and what you are willing to pay. Imagine Facebook sitting at the negotiating table with WhatsApp with nothing but gut instinct saying they want to pay $19.4bn. What if WhatsApp wanted $20bn, $25bn, or $30bn? Clearly, Facebook will have done their research (strictly speaking, an investment bank will have done their research for them in the form of thousands of pages of analysis). But can we honestly say that the sponsorship industry takes the same approach?

Before entering any negotiation, sponsors should know their:

• target price and terms (what you’re hoping for)
• walkaway price and terms (what you will reject)

Often sponsors go into negotiations with one or the other. Often these conditions are based on a gut feeling; not an understanding of sponsorship effectiveness and expected value.

So how do we know when to walk and what to target? It’s critical to do early research based on firm inputs and assumptions, especially to ensure you don’t overpay for the asset in question. By knowing your own range, better sponsorship decisions will be made.

However, the impact of understanding value doesn’t stop there. Even if a sponsorship represents good value – that is to say the deal price on offer is below the walkaway price – there might be better alternatives. A sponsor should generally not accept a worse resolution than it’s best alternative. So, if you want to be sure you’ve succeeded in a negotiation, you need to understand the value of the rights on the table and what else your money can buy.

The current “here’s the package; here’s the price; and then we arm-wrestle a bit based on gut instinct” approach to sponsorship negotiation has to change. That does not mean every deal must be preceded by thousands of pages of analysis, but it does mean brands must spend more time thinking about value, and what they will pay before walking away.