Five key pointers in structuring sponsorship investments

Amrut Joshi

It is now a well known fact that the global economy is in the midst of turmoil and most predictions point towards a prolonged recessionary/slowdown phase. Instinctively, during such phases, organizations tend to reduce spending, particularly in any areas that may be construed as discretionary. Many would argue that any form of entertainment would not be a necessity. Consequently, sponsorships could be categorized as being a discretionary spend as well. Equally, there is another school of thought, which believes that in a recessionary phase, people turn to various forms of entertainment to brighten their spirits and that the entertainment industry is actually recession-proof. The truth perhaps lies somewhere in between.

Recent research has demonstrated that organizations that consistently advertise even during recessionary phases perform better in the long run. However, to demonstrate such results, the key is to tailor brand communications in a manner that can emphasise the value of the underlying product or service to end-consumers. The key to structuring economically viable sponsorship investments in a recessionary phase lies in the ability of sponsors and property rights holders to create a congenial environment for implementation of sponsorships. Both parties need to a sponsorship deal need to develop processes which will enable them to validate their sponsorship propositions.

As more and more corporates evaluate potential sponsorship investments, it is essential for such corporates to examine the objectives of sponsorship, benefits of sponsorship, importance of sponsorship activation platforms to deliver their messages to target markets, and the measurement of return on investment (“ROI”) on a sponsorship property.

This article discusses five key pointers in structuring sponsorship investments (from a commercial and legal perspective):

 

• Understanding and Championing the Property
• Due Diligence is Critical
• Well begun is half done- Structure Effective Sponsorship Agreements
• Activate, Activate, Activate!
• Utilisation of measurement tools to determine ROI

UNDERSTANDING AND CHAMPIONING THE PROPERTY

Before a corporate decides to associate itself or partner with an entertainment or sports property, it has to understand the property to determine whether such property can be a natural or a logical fit. There is no substitute to this rather simple principle! The target market has to experience a strong connect between the sponsor and the property at every level. A successful sponsor understands the dynamics associated with the property. For example, if a sponsor intends to use sport to promote its product or service, a successful sponsor would have researched the key skillsets associated with a particular sport, challenges involved, players involved in the sport, key pinnacles associated with a particular sport and the demographic profiles of the sport’s spectators.

For example, if an automobile brand intends to be associated with cricket, then it would need to understand various properties through which it could engage with cricketing audiences. If this automobile brand’s intent is to market its latest sports car, it may make business sense for such a brand to explore sponsoring a T20 property (cricket’s fastest version) as, logically, such property offers the automobile brand, an opportunity to (a) showcase speed (the parallel in T20 would be high strike rate), (b) maneuverability (the parallel in T20 would be the ability of a team to change course in a very short span of time), and (c) reach out to the youth segment (who form the largest audience segment for T20 cricket), who would also be the most likely segment to purchase a sports car.

Simply put, if a sponsor determines that a particular property can offer it significant benefits, it ought to champion the property through various means in its sponsorship program, on a sustained basis.

DUE DILIGENCE IS CRITICAL

It is essential for sponsors and property rights holders to do a due diligence on each other, and understand what is on offer in a sponsorship package. From a sponsor’s perspective, it is not enough to merely know the costs associated with obtaining a sponsorship package. A sponsor also needs to ascertain the ability of a property rights holder to produce an event, which can be leveraged heavily by such sponsor.

A sponsor needs to determine the following in its due diligence exercise:

• the property rights holder’s past track record;
• past audiences drawn by the property (including attendances at the venue and viewership figures (if such event has been telecast);
• experience of key personnel of the property rights holder in delivering high quality events;
• restrictions sought to be imposed on the sponsor’s rights to use the property’s marks, logos, images;
• exclusivity rights provided and the scope and extent of such exclusivity;
• activation platforms offered/permitted to be developed; and
• licensing and merchandising opportunities presented by the property.

On the other hand, a property rights holder needs to determine the following in its due diligence exercise:

• the sponsor’s past track record in sponsoring similar such properties;
• the price offered by the sponsor; and
• the value addition offered by the sponsor, which would make it attractive for the property rights holder to provide the sponsor with a bundle of exclusivity rights.

A well structured due diligence exercise enables both sponsors and property rights holders to set realistic expectations (in terms of ROI) and, accordingly a sponsorship proposal can be taken forward or dropped. If the sponsor and property rights holder agree to take forward the proposal based on the due diligence, a sponsorship contract will need to be designed, to appropriately reflect commercial, legal and practical considerations.

WELL BEGUN IS HALF DONE- STRUCTURE EFFECTIVE SPONSORSHIP AGREEMENTS

Once a sponsor and a property rights holder have determined that they would like to work together, both parties need to outline a clear process and negotiation timeline to ensure that they get the best deal. This would entail the following basic steps:

• The sponsor needs to procure a formal sponsorship proposal from the property rights holder (which broadly outlines the sponsorship package that is being provided).
• The sponsor needs to examine rights on offer i.e. naming rights; design/use of property logo; sponsor branding opportunities provided by the event; television coverage of the event and event promos; access to various venues for promo purposes; sampling/selling products at venues etc.
• Structuring a sponsorship agreement that reflects the commercials appropriately. Remember, the devil is in the detail!
• A properly structured sponsorship agreement should provide, inter alia, for:
• Protection of both the sponsor’s and the property rights holder’s intellectual property rights;
• Clear demarcation of the rights and responsibilities of both parties; and
• Continuous interaction between the sponsor and property rights holder, to speedily address any issues in the execution of an event, without the parties needing to escalate matters within their organizational structure.

As the old adage goes, well begun is half done. Signing a sponsorship agreement is only the beginning of the sponsor-property rights holder relationship. The more significant challenge to both parties lies in leveraging the sponsorship on ground.

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