Event Sponsorship – Blame It On ’60s… and Golf

Written By Chris Thompson, Founder & President, Sponsority LLC
Edited By Yixue (Shirley) Qu, Medill IMC Class Of 2015

Published on 10/21/2015

 

Imagine a $15 billion industry with no prices. That’s event sponsorship…at least in North America. Try to find out the price of anything in event sponsorship. The first time you see a price of a single item is in a contract…maybe. How did it get this way? And what is event sponsorship? Blame it on those whacky ’60s…and golf.

When lawyer cum agent Mark McCormack shook hands with telegenic golfer Arnold Palmer in 1960, marketing moved from association with created content to a focus on personality. Athletes and performers had long been brand endorsers — “ambassadors” in new age lexicon. Now, they were the brands, and companies wanted to associate with them not just as pitchmen in the TV studio, but as brand icons performing on TV.

Remember that word “associate,” or in new age speak, “engagement.” If “associating” with one (performer) is good, a bunch is even better. In 1968, an itinerant east coast tournament hosting a bunch of PGA golfers became the Kemper (Insurance) Open: the first corporately entitled, regularly scheduled sporting event in America. To ensure that corporate sports entitlement was here to stay, the marketing gods arranged to have Arnold Palmer win the inaugural edition…naturally.

And, when Ted Turner changed the TV game by sending reruns of ’60s TV shows by satellite to cable providers around the country, it foretold a media landscape of infinite choice and insatiable programming possibilities.

What emerged from this big bang fallout of content and telecom expansion would become known as “event marketing”…and pave the way for the likes of Nathan’s Famous Coney Island Hot Dog Eating Contest and Joey Chestnut becoming as famous on the Fourth of July as Yankee Doodle Dandy.

Event marketing (eventually called “sponsorship”), simply defined, is the exercise of traditional marketing disciplines — advertising, sales promotion, public relations and direct marketing — through the medium of live events.

Whereas other media — TV shows, web postings, radio broadcasts, written articles — are not dependent upon persons bearing live witness to its creation, the event is dependent upon its medium — persons gathering — for its creation, sustainability and most certainly its marketability.

Make no mistake, media exposure is a critical adjunct to live events: whether that be in the form of print, radio, web or TV — particularly TV. An example of this symbiosis: if the Rose Bowl Game were televised before 100,000 empty seats, would there still be the Rose Bowl Game? If the seats were filled but the event not televised, would there still be the Rose Bowl Game?

Before proceeding with explaining why there are no published prices for event sponsorship, it is important to understand the difference between the terms price, cost and value.

Price is what the seller asks; cost is what the buyer pays or considers paying; and value is an objective, an authoritative measure of market worth. Think of a diamond. The jeweler asks a price of X; a buyer pays a cost of Y; and an appraiser suggests a value of Z. In sponsorship, the buyer and seller always know the price and cost, but no one knows the value. The analogy to a diamond is appropriate: sponsorship devotees preach no two events are the same.

A couple more things: the event itself in its marketing incarnation, seeking sponsors, is called a “property.” When facing the inevitable disparity between the property’s price assertion and the buyer’s estimate of cost, determining value becomes critical to closing the gap. The practice of estimating value is called valuation.

Valuation in event sponsorship comprises three different types of marketing benefits called assets: 1) Hospitality; 2) Media; and 3) Signage. All three asset categories have established resources for determining value.

  • In Hospitality, anyone who’s planned a wedding and hired a band knows how to value hospitality.
  • In Media, there are thousands of media agencies placing millions of dollars in paid media every day that estimate the value of every single media audience known to bandwidth.
  • In Signage, every credible sponsorship valuation resource has their own guidelines, with the basic principles of out-of-home advertising easily rendering themselves to an app or wizard to ensure some consistency at least.1

Therefore, the value estimates of all the assets in a property sponsorship proposal are easily computed from known, or invented resources. Add them all up and what do you have? A total cost that’s anywhere from five percent to 70 percent less than the asking price. Really? Yes, really. Figure 1 depicts this disparity.

Figure 1
Figure 1
Figure 2
Figure 2

Why? Remember that word “associate?” There’s a fourth asset category: Property Association. It’s why sponsors pay considerably more than the sum total of what they are buying.

But how does anyone value the medium of Arnold Palmer at The Masters, Itzhak Perlman at Avery Fisher Hall, Pollock at MOMA, the Yankees in Yankee Stadium, or anyone’s favorite muse experienced in their favorite setting? This is the central issue still today confounding sponsorship of all types: “What to pay for this association?” The answer for Mark McCormack and the incipient athlete representation industry in the ’60s became simple: The amount when the client finally said, “Yes.” Nothing’s changed.

From its inception, there has been a disparity between event marketing price (and usually its cost) and any assessment of its value.2 Why? Short of neuroscience capturing brain activity favorable to the sponsor when their name and/or logo appears in association with the property, there is no way to know. Corporations have long been perfectly willing to live by the longtime adage: “Half the money I spend onadvertising is wasted; the trouble is I don’t know which half.” There is great corporate comfort in not knowing. “How high can we go?” remains the pricing model on the selling side. “How high must we go?” remains the model on the buyer side.

So, the central issue in sponsorship valuation becomes twofold: 

  1. Determining a fair, objective and data-driven basis for estimating the fourth sponsorship asset category: Property Association, or IP (Intellectual Property) 
  2. Once estimated, accounting for it consistently in one of two ways:
    A. Either as a stand-alone asset, or…
    B. Amortizing its value across all assets on a pro rata share basis 

Accounting method A begins to monetize the IP of an event property and has definite balance sheet utility for the property. 

However, there are two problems: 

  1. It makes the CPA a partner in event marketing valuation. No good. 
  2. It misrepresents individual asset value, because no sponsor pays any itemized asset price without also paying a surcharge for buying into the IP value of the property. 

Accounting Method B makes more sense. Consider this example: 

  • Property Association value is hypothetically estimated at $100,000 
  • Asset A is $50,000 of the $250,000 valuation for all assets, or 20 percent 
  • Therefore, Asset A’s share of amortized value for Property Association is 20 percent of $100,000, or $20,000 
  • The adjusted gross value of Asset A is $70,000 ($50,000 base value + $20,000 for its share of IP value) 

However, there are two problems with this approach: 

  1. The value of Property Association depends upon sponsor category dollar demand and number of property sponsors in the category. There would be different asset prices for different product and service categories. Hardly workable. 
  2. The asset prices with amortized share of IP value are always higher than comparable assets outside of event sponsorship and confound comparability to alternatives when evaluated in a mix. Consider this example: how does a marketing analyst compare a 30-second TV ad cost in a sports sponsorship to a 30-second ad airing simultaneously on a news station with similar audience size and composition?

Now, one can begin to understand why there are no prices for event sponsorship assets, and why properties with sponsorship revenue integral to its operation and profitability rarely publicize prices, and continue to have meetings, and more meetings, until someone says “Yes.” The cynic would suggest if you see sponsorship prices publicly mentioned, the property must really need the money for its assets…like priced-to-go, so buy now.

However, the trend in sponsorship pricing opacity runs counter to increasing transparency in business enabled through inexorable gains in information technology. In this paradox, technology inevitably triumphs. With greater transparency, the emphasis in sponsorship negotiation would shift from price to content and performance, thereby expediting the selling cycle and shifting the dialogue from haggling about the “Investment” in ROI to improving metrics to measure the “Return.” 

The next installment about event sponsorship will explain how the used car market may serve as the model for the way out of the current dark ages of event marketing…if you consider the ’60s the dark ages. Spoiler alert: Sponsorship devotees claim no two properties are exactly the same. Neither are cars. Yet Kelley Blue Book has a site where buyers and sellers mutually contribute to establishing the price range of any car based on the options offered. 

More will be revealed. [END]


Footnotes:

  1. Much to my surprise, I once found a client using a teaser app I created on my former company’s website (SponsorAid) called Signage Wizard to base millions of dollars in sponsorship decisions for the second largest bank in the country.

  2. I once had a client who rationalized the difference between the sum total asset value and asking price was the “right to (use) marks,” which is the property name and logo trademark—the IP of the property. Despite this simplification, he wasn’t far from the truth.

 

ShirleyQ_Chris.Thompson.JPEG Chris Thompson is a 1979 Medill graduate of the advertising program, and a 30-plus year participant in the Chicago marketing industry. He is the author of three patents for the migration of marketing analytics to online applications, including SponsorAidSM — the world’s first sponsorship valuation capability. Today, Chris remains at the industry forefront of valuing “non-linear” marketing assets and also bridges media analytics with content creation in his consulting business, Sponsority.
shirley2 Shirley Qu worked as a marketing specialist in a hi-tech company in China for a year prior to graduate school. She holds two bachelor’s degrees, one in economics from Sun Yat-sen University in China and another in general management from the University of Victoria in Canada.

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