Sports marketing: Headline deals and half-truths

Inflated figures have made the true value of sponsorships hard to gauge, says Simon Rines, author of Driving Business Through Sport, published by International Marketing Reports.

The value of many of Britain's biggest sports sponsorship deals has been hugely exaggerated, according to industry experts. Tim Crow, director of agency Karen Earl Sponsorship, points to deals that are worth only 20% of the figure announced.

"When a sponsorship is announced, the real value is usually massively inflated," he says. "This is sometimes down to the media, particularly when the sponsor and rights owner agree not to talk about the fee and just love their 'Brand X in multi-million-pound deal' headlines.

"But more often than not, the deception - because, frankly, that's what it is - is the creation of rights owners and their sales agencies," Crow adds. "They contrive to use any measure they can to trumpet their latest big deal and convey to the marketplace a false and, for them, highly flattering impression."

Crow believes this is damaging to the industry, partly because the lack of transparency makes sponsors suspicious and partly because he has encountered several big potential sponsors who were put off by the supposed high-entry costs.

There are several reasons behind rights holders' desire to inflate the size of deals. The most obvious is that two years down the line, when the rights holder is seeking a new sponsor, the previous high figure can be used as a benchmark for negotiations.

Another is that most rights holders sell a myriad of rights, such as secondary sponsorship, kit sponsorship and a range of official partnerships from soft drinks to computer systems. If the primary deal is seen to be high, it has a knock-on effect on the perceived value of the remaining packages.

Agencies selling on behalf of rights holders also have a vested interest in wanting the market to appear buoyant if they receive a percentage-based commission. If acquisition budgets are high, sponsors tend to spend more on leveraging the deal, which means agencies can pick up bigger consultancy fees.

Although sponsorship offers a platform that can be used to address nearly any business objective, it is becoming even more closely tied to the advertising industry - with inevitable cost comparisons.

"In many respects, sponsorship is beginning to be seen as a media buying exercise," says Richard Berry, managing director of sponsorship research specialist S:Comm.

"This makes things slightly difficult for sponsors, because sales figures are published for TV advertising. But with so many sponsorship rights fees being misreported, the picture here is, at best, confusing."

So why do brand owners go along with misleading fee reports? Crow believes it is mainly down to ambivalence, but Nic Gault, acting director of sponsorship at Barclays, thinks there are other reasons.

"It could be that in some cases there is an element of corporate ego. They might also believe that having big numbers reported raises the profile of the sponsorship," he says.

Barclays has just made Britain's biggest-ever sponsorship announcement, a three-year £57m deal for football's Premiership rights. This is one figure that everyone agrees is accurate, partly because the Premier League decided that its dealings would be transparent, but also, as Gault points out, because Barclays takes a similar line.

"Unless the commercial imperative dictates otherwise, we will reveal what sponsorship costs. The issue for us is that, being a bank, we have to be honest about money," he says.

The justification for inflated reports can be down to several factors, such as suggesting that the fee for the deal duration is the annual fee, or including the exploitation budget in the deal total.

Perhaps the most common reason, and the easiest to justify, is that many sponsorship deals now have incentive clauses. These contracts comprise a basic fee, but if the rights holder performs above the expected level, the sponsorship payments rise accordingly. In such instances, the maximum possible fees are reported.

Misleading figures have made it difficult to estimate the true size of the UK market and, for many sponsors, the true value of a property.

Sponsorship research specialist Ipsos publishes an annual survey, Sportscan, which suggests that the UK market last year was worth £442m, a 5% rise on 2001.

Crow says the top end of the market is holding up and concedes that Ipsos is in a difficult position. But he believes the true market figure is closer to £200m, and questions the 5% increase in a depressed market.

David Vincent, associate director at Ipsos, doesn't disagree with the premise that some deals are inflated, but defends the Sportscan report.

"We calculate market size based on collating media reports, because we are not privy to negotiations," says Vincent. "Obviously, we get a feel about what might be paid and can sniff out when reports are over-inflated. But we can only collate what's reported to come up with the overall figure.

"We have collated the reports using the same methods since 1981, so even if elements are not entirely accurate, we believe the trends are."

Ipsos also points out that strong demand for premium properties has offset falling spend in general. The Barclays deal, for example, represents a rise of about 20% on the previous Premiership contract.

Gault admits Barclays' higher fee is partly because the top properties are still rare. "They offer so much potential for brand exposure and represent a powerful platform for new product ranges, promotions, hospitality and internal communications," he says.

The increased fee is also a reflection of the wider rights that Barclays negotiated compared with the existing contract. These include exclusive rights internationally, which were previously shared by sponsor Barclaycard with the British Tourist Authority, and branding rights across the entire Barclays group.

Despite attempts to create false impressions about the size of the market, it is an open secret that many medium-sized properties are struggling to achieve the sums attained two or three years ago. Some lower-profile Premiership clubs, for example, have concluded deals worth a few hundred thousand pounds at most, where previously about £1m a season was a realistic target.

The trigger for the decline in sponsorship values is partly down to a general drop in confidence, following the financial disasters at sports marketing or media companies such as ISL, Kirch and ITV Digital. The biggest impact, however, is widely accepted as being made by the recession in the advertising industry.

Angus Buchanan, head of sponsorship for the Volvo Ocean Race, believes that playing second fiddle to advertising is damaging the industry.

"The usual method for sponsorship value measurement is to analyse brand exposure, compare it with advertising rate card and apply a discount," says Buchanan. "At a time when advertising is in a slump, we are having to value our product by their standards, even though sponsorship programmes are performing very well.

"We need to make a distinction between advertising and sponsorship; even as a media buy, the two are very different. This is an age of fragmented media, and consumers are beginning to switch off from standard advertising messages. At this point, an integral association with sport becomes much more effective. "

Ben Pincus, managing director of agency The Works, agrees that the overall market is depressed, and he sees reasons other than the fall in advertising rates.

"There is no question that fee levels are coming down," says Pincus. "Most sports teams and governing bodies have to rationalise their costs as part of a more businesslike approach, at a time when companies are making budgets work harder.

"Some marketers are becoming aware of the alternatives to traditional sponsorship vehicles. This means working less costly properties to better effect. However, the take-up threshold of good workable sponsorship opportunities is nowhere near being reached."

Pincus' view is echoed by at least one rights holder at the lower end of the market. Peter Miller, chief executive of Football League Division Three's Northampton Town Football Club, for one, has not seen a catastrophic fall in revenues.

"We have noticed that a lot of sponsors are actually keen to play down the rights fees they have paid," he says. "They don't want to be constantly pestered by people who think they have a huge pot that is there for the taking, so in many cases the rights fees are reported on the low side. At the lower end of the scale, in football at least, there has been little shift, because the base levels have been very low anyway."

In terms of fees achieved, Miller believes there is a great deal of scope for market expansion if all parties take a more professional approach to the discipline.

"The key point is that the best way to achieve higher sponsorship income is to understand what the sponsors are looking for and to tailor packages accordingly," says Miller.

"Over the close season, we undertook a major research project to demonstrate to sponsors the value of the media rights and the demographic, lifestyle and attitudinal characteristics of our fan base. We made sure we had people who really understand what the sponsors were looking for to sell our rights.

As a result, we have seen a significant growth in our sponsorship income, and our sponsors are happy to pay more because they are getting better value for money."

Value for money is, of course, the ultimate issue for sponsors, but a very difficult one for rights sellers because, ultimately, they don't determine it.

Vincent points out: "You can't simply put a value on rights because one property might be worth twice as much to one sponsor as it is to another. It depends on brand fit between the property and the sponsor, and whether the platform provided fits the objectives of the sponsor. The big mistake is to assume the value is totally in the media exposure figures."

The lesson appears to be that the sponsorship industry still has work to do to improve its image. As a platform, sponsorship is now proven to be highly effective, but the lack of transparency regarding fees is undermining this positive message.

The issue of inflated rights fees should, however, be a red herring to sponsors. They need to analyse what a property is worth to them in terms of their objectives, the value they place on meeting those objectives and whether the property on offer can provide the right platform. Armed with this information, media reports about what other people pay become irrelevant at the negotiating table.

THE EXPERTS' VIEWS

PETER GANDOLFI, Head of sports marketing, Nationwide

Nationwide primarily uses sport sponsorship as a brand communication tool. From the advent of our sponsorship programme in 1996, we tracked the exposure generated by our associations within the major media. We use this information to judge the return on investment at equivalent advertising prices, and to understand where and how exposure is generated. This is blended with traditional consumer awareness research to refine our approach to sponsorship support.

Brand perception carries equal weight in our football sponsorship. We use evaluation to better understand our sponsorships' performance, but we acknowledge it is only one measure.

We don't believe this evaluation is a mere volumetric exercise. Successful sponsorships take time to meet objectives, and there is usually a need to renegotiate terms. Being aware of our sponsorships' market value and our media profile gives us an advantage in negotiation. This contributes to a sponsorship's overall success.

ANTONELLA SOCCI, European head of sponsorship, Visa

Rights holders have historically set fees based on their needs or on the fee paid by the previous sponsor. But the value to a potential sponsor can vary dramatically, depending on their objectives. At Visa, we try to establish what any potential sponsorship might deliver for the brand.

Proposals are evaluated to assess key factors including brand and demographic fit, leverage possibilities, risks, potential interest for member banks and the ability to meet objectives. If the signs are encouraging, Visa EU's consultancy, MEC:Sponsorship, then undertakes a more detailed evaluation.

By analysing the level and quality of exposure and audience delivery, we can work out a potential ROI based on media values. We can then negotiate from a position of strength and set benchmarks across the terms of the deal.

We also track brand awareness to establish the impact of the sponsorship alongside other communication. But the real measure of success will be whether the sponsorship can drive card use for Visa.

DAVID HAINES, Global marketing director, Vodafone

Our starting point is to have a clear strategy, so that before even analysing costs of a potential property, we can determine what it might bring to our business goals.

To do this, we work through the elements of a deal we want to include, such as media, retail, content, PR and advertising. This indicates the size of the opportunity, which in turn creates a value for us - it is science, not an art.

To evaluate performance, we use a standard evaluation tool for every sponsorship. For major properties this is run every quarter and for others, annually. Each is given a performance benchmark with a required ROI ratio.

The tool covers the elements of the rights, such as revenues from services sold as a result of the deal. We also analyse print and broadcast exposure and the value of promotions in stores. Next is analytical tracking, which can tell us whether a strategy designed to change perceptions achieved its aim.

But I think such studies represent the weaker end of analysis; we prefer to deal in hard facts.

THE REAL VALUE

Property Sponsor Length Reported Actual

value value(est)

pounds pounds

FA Premiership Barclays 3 yrs 57m 57m

Man Utd Vodafone 4 yrs 30m 30m

Chelsea Emirates 4 yrs 24m 24m

Liverpool Carlsberg 3 yrs 15m 15m

Athletics Norwich Union 5 yrs 20m 12m

Rugby Union Zurich 3 yrs 15m 10m

Premier League Insurance

Arsenal O2 2 yrs 10m 5m

FA Pillars McDonald's, Nationwide (up to) 8m 3m or

Carlsberg, Pepsi, Umbro 4 yrs each less

Medium-profile Various - 1m a 300,000

Premiership clubs year a year

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