The current Covid-19 crisis has put so many aspects of the sports and entertainment industry into a state of uncertainty. The trickledown effect will last for quite some time. At Lumency, how we approach our business and how we advise clients hasn’t changed. We are going about our work in the very same way we always have—proactive and solutions-oriented (albeit working while at home).
We anticipate a seismic shift across the sponsorship landscape starting with the ongoing conversations between sponsors and rightsholders around making good on terms.
We would caution clients about being too aggressive with rightsholders early in this process because these are mostly long-term partnerships, and everyone is being impacted in some way.
Rightsholders have so many challenges at the moment. If a sponsor came to them wanting to discuss contractual obligations, seeking immediate refunds and make-goods, it may be viewed as opportunistic. As such, this would not be an effective way to achieve desired results.
We are advising our clients and helping them calculate and track lost value on an ongoing basis. Our intent is not to enable them in many cases for claiming right now, but to help them quantify to inform constructive dialogue now and later.
This analysis will also facilitate the development of mitigation strategies to assess how losses will be offset. The amortization of these rights and benefits over the remainder of a contract term can be a mutually agreeable solution that’s relatively easier to achieve, but many additional factors must be taken into consideration.
We are in uncharted territory so more creative and proactive approaches will be required to address both expiring deals and continued, ongoing support of rightsholders. Having effective value assessment in hand now will be critical to achieve these results.
Beyond value loss, our advice for right now is to take the time to effectively assess where you’ve been and where you want to go.
Marketing budgets have and certainly will continue to be impacted during and as we move past the Covid-19 crises. Brands will have to materially alter how they invest in marketing for an extended period of time. With that comes greater scrutiny of sponsorship investments. Expect this increased scrutiny to extend long past the crisis as new habits within your organization take hold.
A recent SponsorshipX study predicts a decrease in sponsorship rights fees by upwards of 45% and a parallel decrease of almost 48% in live activation through the end of 2020.
Source: SponsorshipX – COVID-19 survey, April 2020
The near-term response is to reduce activation spend to address more immediate budget constraints. Rights fees can be reduced in the mid to longer term with broader portfolio optimization driving efficiency and effectiveness.
Our recommendation to clients: if you want to reallocate or reduce spending later, it’s imperative to do the work now.
We view the crisis as a trigger for looking at portfolios differently and re-evaluating spending. Use this time to conduct core strategic work like comprehensive sponsorship portfolio assessments and value analysis to drive efficiency and effectiveness. This type of work tends to be an afterthought, but this is the time for preparation when contracts expire, and sponsors can begin to adjust those rights fees and optimize deals.
Validating performance of partnerships to prove out investments will enable you to develop a plan to course correct where needed and ensure properties will support evolving business and brand objectives.
Lumency can help brands confidently build a roadmap for what to renew, remove or rebuild—with the measurement, data and analysis to back it up.
For more info, see our Sponsorship Portfolio Healthcheck™ tool.