The Business Science of Sponsorship Valuation.
For over 20 years, the Sponsorship Marketing Council of Canada (SMCC) has driven advancements in the field, supporting brand marketers, agency partners and property-side sales teams in unleashing the power of the sponsorship discipline through education, collaboration and access to best practices in the industry. At their latest Breakfast Forum held on November 16 in Toronto, the topic was Valuation. Some fundamental questions were posed for exploration:
Alongside Norm O’Reilly (Fox Professor Management, Ohio University & Partner Consultant, T1) and Monique Giroux (Vice-President, Sponsorships & Strategic Partnerships, CIBC), we attempted to tackle these questions from different perspectives.
There are really two main ways that members of the sponsorship industry interact with valuations. The first are as “producers” of valuations. These are the brand people and their agencies who grind the numbers, tear apart proposals and attempt to put a value to each and every element. They are also the people on the selling side who are packaging saleable assets and putting a price on them. The second way members engage are as “users” of valuations. These are the senior managers who take this important decision-making tool and utilize it to determine the direction of their sponsorship strategy. I should mention a third cluster here which are those who are not engaging in valuation to any great degree. It is a risky proposition to make sponsorship investment decisions with less than optimal information. Don’t let this be you!
When you look at Norm’s 2015 Canadian Sponsorship Landscape Study, it shows us that the $2.57B industry investment is split 1/3 ($0.87B) in activation and 2/3 ($1.7B) in rights fees. Both sides of that investment split are driven by objectives. Brands determining the right level of spending to bring their sponsorships to life and make them directly relevant to their customers and prospects on the activation side. Having the best set of assets to be able to leverage on the rights fees side. However, the rights fee side (again, $1.7 billion, with a “b”) is also heavily influenced by the valuation process which amplifies the importance of doing it well.
What impacts sponsorship budgets just as it does all marketing communications is the 2016 CFO credo which includes:
With that as our base, let’s explore the distinctions we at Lumency use between Value, ROO and ROI. Starting with value, the basic premise is that a company pays a defined dollar amount in exchange for a suite of sponsorship assets. What brands seek to realize (qualified via valuation) and properties seek to deliver is a value equation of greater than 1:1 such that for every dollar of rights fees invested, a brand is receiving greater than a dollar’s worth of marketing exposure value. This is frequently referenced as return on investment within the industry. However, we believe this does not meet the standard of a true return on your investment because it has not yet impacted your business results. It simply is getting more for your money, aka, value. After all, it’s called VALUE-ation.
Turning to ROO, this is set up by regarding your sponsorship & activation spend holistically and summing up your performance validation. In the case of our client, Toyota, and their NHL partnerships with the Winnipeg Jets and Vancouver Canucks, we take a 360 approach to garner a return against a specific set of objectives season-over-season utilizing elements such as:
Ultimately, sponsorship and activation are tools to an end. True ROI is a function of outcomes – moving the needle on the business whereby a brand can quantify how sponsorship generated leads that can be personally marketed to, or drove direct volume.
Looking further at aspects of a valuation that are most relevant and compelling, a conversation that I continue to have on a regular basis with properties is about value drivers. Oftentimes I will see a proposal with the entry level package consisting of product experience via sampling, brand engagement via dedicated display space and a requisite amount of signage, tickets, static displays, etc. For a bigger investment, the property offers even more signage, tickets, statics displays and for a bigger investment, more signage…you get the idea. Mo’ logo, mo’ money? Not always.
When you consider Lumency’s two biggest client brands, Toyota and Budweiser, they enjoy 98% and 97% consumer awareness levels respectively. Sponsorship is not a logo play for these brands. Now before the property-side readers shut off, visibility assets do have value and for some brands, awareness may be an objective. But for those of us working with mature, established brands, the real value drivers are in engagement, engagement and more engagement. Provide ownable ways for the brand to add value to the guest experience. Help us tell our brand story on the back of our mutual affiliation.
The properties with whom we have experienced the most success are those willing and able to organize the partnership around shared objectives. I’m talking about those properties who know their customers and their expectations so well that they can slot partners in authentically and in relevant ways to exceed those expectations even more. This translates directly into sponsor value. For example, pair the offering of a world class guest experience from a property with exposing that guest to a technological innovation in a sponsor category that raises the level of presentation for all. Pair the desire for more revenue streams from a property with a sponsor’s product that is uniquely sold within the property’s space and wins new customers as a result.
Turning to determinants of how properties price and how brands decide to invest, flexibility to change factors in, especially when dealing with multi-year deals. To illustrate, rather than prescribing every hospitality or digital asset prior to signing a contract, create value buckets for those elements that can be specified year-to-year to answer evolving objectives. A property’s recognition that things change over a 5-year agreement and their willingness to pre-determine how to cope with such change can save a lot of headaches down the road (see: virtual rinkboards on World Cup of Hockey broadcasts – won’t be long until that’s in the NHL and team partners with rinkboards now will have a very different asset than what they started with).
As great as it is to customize a brand’s package with a property, a side-effect is that not everything fits an established rate. Program ads have rate cards, in-venue signage has media CPMs as a basis but what about access to sold out tickets? Or money-can’t-buy experiences? Whether you need to draw on comparables or essentially invent a valuation model for that asset (grounded in reasonable assumptions), everything gets a fair market value assigned because they are all part of the price tag.
If you get one takeaway out of reading this, let it be: valuation does not spit out a price tag.
Every brand’s strategy is unique:
In light of this, customized and weighted criteria give you a better valuation.
Valuation is business science applied to the art of sponsorship and at Lumency, it is a huge part of what we are all about. As much as it is used with more regularity, we are still surprised to see how many brands spending large amounts of money in sponsorship still haven’t fully bought in to the exercise. In sports nowadays, there is continuous debate between those who are pro-analytics versus those that prefer to “trust their eyes” when assembling their teams. As with many things, the right answer involves a bit of both. Translating that to valuation, take it for what it is – an important decision-making tool, exercised with a requisite dose of perspective.
Lindsay Rennie is Director, Sponsorship Practice at Lumency and represented Lumency on the SMCC Breakfast Forum panel discussion in Toronto.