“Have you completed a valuation?” In today’s industry, this question has become inevitable but remains confusing and somewhat daunting for many rights-holders. As a rights holder, the importance of sponsorship valuation cannot be overlooked. You may have heard it mentioned at conferences or asked about in discussions with clients; however, more often than not, rights-holders have not undertaken a valuation because the process is unclear, intimidating, or both. Consequently, the asking price for sponsorship packages is frequently higher or lower than it should be.
Equally important, brands or potential sponsors of a property may, too, be curious or confused about sponsorship valuations. Who does them? Why are they important? Should a sponsor request a rights-holder conduct a proper sponsorship valuation of the assets offered? What are the expectations?
This post is intended to provide insight sponsorship valuations: what they are, what they require, and why they are increasingly important in this growing industry.
WHAT IS A SPONSORSHIP VALUATION?
A sponsorship valuation is an assessment of assets in order to determine the true worth of a sponsorship package. A valuation should yield a solid and accurate understanding of the fair market value of sponsorship assets, individually and collectively.
A well-rounded, accurate valuation is created using a combination of science and art, formulas and experience, and data and judgement. Specifically, the best valuations take into account the measured accuracy of the numbers and values. These valuations also consider and utilize market comps, uniqueness of the offerings, and inherent industry knowledge.
WHY ARE VALUATIONS IMPORTANT?
As a rights-holder, you do not want to overprice your assets, but you do not want to undersell either. "Estimated" fees are obvious to sponsors. It is also not sustainable long-term. Valuations also provide sales teams with greater confidence in what they are offering and selling. As a brand or sponsor, valuations yield trust in the rights-holder and trust in the accuracy of the offering’s value. Valuations also give sponsors confidence in what they are buying. Proper valuations can help support deal-makers getting approval from senior leadership when entering into a partnership.
WHAT DO VALUATIONS REQUIRE?
Valuations require an intense study of both tangible (or physical) assets and intangible assets (often referenced as association benefits or brand value). In addition to tangible and intangible assets, a valuation also takes several other factors into consideration. These factors include the level of category exclusivity, market comps, and return on investment (or ROI) to ensure a cost-benefit ratio of at least 1-to-1.5.
- Tangible assets are the quantitative benefits in a sponsorship package. Examples are inclusion in on-site signage, recognition on a property’s website, or promotion on social media platforms. Values for these benefits are typically based on quantity of assets, impression rates, and visibility.
Intangible Benefits / Brand Value
- Intangible benefits are the qualitative benefits unique to a brand, organization, or property. Examples of intangible sponsorship benefits are brand awareness and favorability, openness to new opportunities, and potential limitations in sponsorship experience. When a company enters into a sponsorship, it is often interested in the intangible benefits and brand alignment that come with the partnership. The brand value is added as a multiplier to the complete value of tangible benefits. The final multiplier places extra value on top of the base assets to credit the brand for its unique position in the market and as a partner.
- Developing a strong sponsorship program and leveraging competitive brands will often encourage sponsors to move into exclusive status. Official category exclusivity is generally offered with an additional 20% added value to the overall package. Sponsors may receive de facto exclusivity due to lack of competition in the category. Rights holders may also be wishing to reduce clutter and increase sponsor satisfaction, resulting in de facto exclusivity. For some categories, such as Carbonated Soft Drink (CSD), exclusivity has traditionally been a core component of sponsorship (e.g., Coca-Cola versus PepsiCo). For others like beer, banking, or auto, exclusivity continues to be important, but not topping the needs list. These categories have seen more flexibility with subcategories such as “official luxury vehicle” or “official craft beer.”
Cost-Benefit Ratio / ROI
- The industry standard, according to ESP Properties, dictates that sponsors should receive approximately 1.5 times the value of their sponsorship fee in assets. Excepting hard costs (e.g. space rentals, tickets), the overall sponsor package is divided by 1.5 to determine the cost to the sponsor. Media-heavy packages often offer a higher value to sponsors (generally a 1:2 ratio). This factor will not necessarily apply to many brands without heavy media coverage.
Market Competition / Market Rate
- Even valuations created with the most accurate data and knowledge must consider market rates and competition. If the math tells us that a package is worth $10,000, but similar packages at similar properties have been selling for $5,000, the seller must take this into consideration. Without an assessment, potential sponsors may be turned off by market inconsistency. Likewise, if the calculations tell us a package is worth $5,000, but similar packages at similar properties have been selling for $10,000, the seller must also consider increasing its asking price so as to not devalue the assets and integrity of the property.
REQUIRED DATA AND INFORMATION
In order to analyze and value the tangible and intangible assets, and other factors mentioned, there are many data points and elements required:
- Total audience: the total number of possible impressions based on attendees and frequency
- Percentage of impressions: the percentage of total impressions likely to see a given asset
- This varies by location (both placement of the asset and placement of the logo/brand within the asset)
- Number of units: the number of each asset within a property or event; these may be treated individually or as one larger asset or promotion (if multiples of the same asset)
- Value of the asset: the dollar value placed on each asset
- This varies by size and type of asset
- Values typically range from $.0025 at the very low end, up to $.05 for high impact signage; social media values may be as high as $1 per impression depending on engagement levels and other factors
- An analysis of a rights-holder’s brand and identity, including, but not limited to, research and interviews on the following categories:
- Name recognition
- Prestige of property
- Openness to new partnership and promotional opportunities
- Experience with sponsorship
- Sponsor clutter and competition
- Business, hospitality, and networking opportunities
- Potential media coverage
- Additional factors deemed relevant by the property, client, and/or agency
- Time, focus, and attention to detail
- A solid and accurate understanding of the market, the competition, and the industry
ADDITIONAL FACTORS AND CONSIDERATIONS
It is important to remember that sponsorship pricing should always be based on value and not on need. In other words, sponsorship packages should be valued by worth, not rights holder budgetary needs. Additionally, as alluded to above, a valuation is only as good as the mind and experience preparing it. Put differently, the math only goes so far; valuations require experience, understanding, and knowledge of the industry, the competition, and the offering. Finally, remain cognizant a valuation is a “live” document. Impressions and values change over time, so, too, should the price tag on assets and overall packages. Consequently, it is imperative that rights-holders monitor and update both visitor statistics and market competition as needed in order to continuously and consistently deliver accurate valuation results.
In closing, let’s take a look at the importance of valuation as it relates to the upcoming FIFA World Cup. On the surface, benefits and opportunities are roughly the same every four years. Advertising, television, social media, and other assets are generally considered consistent from one event to the next – especially since much of the visibility stems from mediums that are not geo-specific (i.e., television and social carry more weight than local print advertising). Despite this, the upcoming 2018 World Cup in Russia and 2022 World Cup in Qatar are both facing tremendous challenges obtaining sponsor commitments. Why is this?
Photo by Fauzan Saari on Unsplash
Given the political uncertainty surrounding Russia and its relationship with the west, there may be concerns about the overall support and number of impressions a sponsor will receive in the upcoming World Cup. Furthermore, as pointed out by Marketing Week last month, additional logistical challenges for both the tournament, itself, as well as sponsors, include Russia’s 11 – that’s right, 11 – time zones, along with its sheer size. Up to 40% of the world’s population may be asleep during regular game hours, affecting viewership and overall impressions for sponsors.
The recent issues surrounding FIFA itself might have the greatest impact on the attraction of sponsors – or lack thereof. According to the New York Times, the tournaments roster of sponsors remained relatively unsubscribed until recently, with several of the top-tier sponsors from 2014 opting out. This, they say, is a “reflection of how much the reputational damage from a much-publicized 2015 corruption crisis continues to hurt FIFA’s bottom line.”
We will continue to follow the difference it both the sponsorship market and activation strategies between the most recent and two upcoming FIFA World Cups.
Photo by Pedro Menezes on Unsplash
With a tainted brand, the intangible ranking typically added to a valuation may be significantly less than previous years. Brand reputability and prestige can add substantial value to a sponsorship package, but only with considerable desire for alignment. In the case of FIFA and its recent corruption scandal, both local and global brands are showing hesitation to partner with this entity. The same New York Times article said the following:
“…an apparent lack of interest among Russian businesses is hurting FIFA. Currently there are only two sponsors from the 2018 host country: the energy giant Gazprom is a top-tier partner, and Alfa Bank is FIFA’s only regional partner, the lowest designation of three categories of sponsorship. Local partners are crucial not just in financing the event but also in building excitement among fans in the host country, something that has been distinctly absent in Russia so far.”
With smaller local events like a festival or race in a low-middle market, the intangible ranking or brand value may only add several thousand dollars to a package; however, global events with nine-figure price tags have a lot to gain – or lose – when considering brand value and alignment. As is the case with FIFA, it appears this financial loss may be quite significant.
* Tandem has developed its own methodology. It is based in part on information promoted by industry leaders and in part on Tandem’s extensive experience and industry knowledge.