John Nelson SLC 7031 Dr. Drayer Challenges in Sponsorship Evaluation The landscape of the American economy is rapidly changing. People are making less money, and generating a respectable amount of discretionary income is a hard thing to come by as prices continue to rise. Both corporations and people alike are feeling the constraints of the current economy landscape. Every cent counts, as America is currently experiencing its second recession in less than thirty years; and third in the last 100 years. America hasn’t seen a falling out of the market, and cuts in worldwide budgets like this in years. The American dollar isn’t backed by the same security it once was, thus making issues related to pricing and investments very sensitive. The scope of the economic landscape is changing, and efficiency is now valued as the most important commodity one can have; thus making the electronic transfer of money a very common practice.
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Transcript
John Nelson
SLC 7031
Dr. Drayer
Challenges in Sponsorship Evaluation
The landscape of the American economy is rapidly changing. People are making less
money, and generating a respectable amount of discretionary income is a hard thing to come by
as prices continue to rise. Both corporations and people alike are feeling the constraints of the
current economy landscape.
Every cent counts, as America is currently experiencing its second recession in less than
thirty years; and third in the last 100 years. America hasn’t seen a falling out of the market, and
cuts in worldwide budgets like this in years.
The American dollar isn’t backed by the same security it once was, thus making issues
related to pricing and investments very sensitive. The scope of the economic landscape is
changing, and efficiency is now valued as the most important commodity one can have; thus
making the electronic transfer of money a very common practice.
A rapid rise in electronic payment funds has been the norm in America for the past few
years. Not only does this lead to less face to face and personal interaction between people, but it
leads to a sense of false security and a lack of hands on knowledge about money transfer. John
D. Hawke states the following in regards to the growth of electronic funds in American society:
Debit cards accounted for nearly a third (31 percent) of in-store purchases in
2003, up from 21 percent only four years ago. Reliance on credit cards held
steady during that time, at about 21 percent. Cash and checks, which accounted
for 57 percent of in-store purchases in 1999, dropped to about 47 percent last year
(Hawke, 2004).
To further this point, consider the following facts about electronic funds in America:
Nearly 1 in every 3 customer purchases in the US is made with a payment card.
Of every $100 spent by consumers, nearly 40% of it is in a form other than cash or check.
US Visa cardholders conduct more than $1 trillion in annual volume. (Sage Payment
Solutions, para. 4)
The purpose of the essay is to identify the challenges associated with the evaluation
sports sponsorships. So how does the transition of the financial landscape in America relate to
sponsorships?
The connection between the two is very simple, and holds true as one of the most
foundational reasons there are so many challenges in sponsorship evaluations. As the pace of
American life continues to rise, people are less willing to commit time and energy to a situation.
More than ever, people evaluate every transaction they make with the upmost scrutiny as quickly
as they can, and exude a sense of personal and financial protection with their finances.
So not only are we less patient than we were twenty years, we are more paranoid and
cautious with our money than ever. When money is as tight as it is for people now days, there
has to be proper justification for every dollar spent by a business or family.
Sponsorships and advertising is a division of business in which many people consider
very flexible and expendable when it comes to their budgets. Because sponsorships and
advertising aren’t absolutely critical for the success of a business, the flexibility of a companies’
marketing budget is very comparable. The monetary circulation and stringent evaluation of
revenue generation is watched closer than ever, and the slightest negative sign that money isn’t
being spent wisely can be cut off at a moments notice. The following quote unfortunately shows
how important sponsorships are to companies.
“It is estimated that only about 40 percent of large companies even review sponsorships
at the board level (SponsorMap, 2009).”
With these rising trends in American finances, we are also seeing how “the rich are
becoming richer, and the poor becoming poorer.” America is growing into a massive corporately
owned entity, which is giving financial power to a relatively small percentage of people. We are
in the prime era of corporate development in America, and this can be seen as either a major
benefit for sponsorship properties, or can be a significant negative; it’s all a matter of approach.
Corporations are well structured, significantly large businesses that have already
developed a firm foundation upon which their business operates. These massive corporations are
also the businesses that have the discretionary income and marketing dollars to pay for high
priced sponsorships and advertising outlets. However, since most corporations are so firmly
established, they are also the companies that don’t necessarily need extra advertising and
sponsorship rights for the success of their business. Consider the following facts in regards to the
growing corporate trends in America:
The top 200 corporations’ sales are growing at a faster rate than overall global economic
activity. Between 1983 and 1999, their combined sales grew from the equivalent of 25%
to 27.5% of the world GDP.
While sales of the top 200 corporations are the equivalent of 27.5% of world economic
activity.
Between 1983 and 1999, the profits of the top 200 firms grew 362.4%, while the number
of people they employ grew by only 14.4% (Shal, 2002).
I personally believe we are seeing a trend in which companies that have the money to
activate large sponsorship packages are also the massive corporations of America. The problem
is: These companies are not as active in pursuing sponsorships as they probably once were;
simply because economic constraints don’t allow for that kind of spending. This in turn, leads
those that handle marketing budgets to perceive sports sponsorships as something that is easily
dismissible and not a requirement for their plans. The correlation here is very simply. As the rich
become richer (corporations such as banks, retail outlets, oil companies, etc), and the success
rates of these companies continue to compound, the need for these companies to invest in sports
sponsorships will continue to diminish for two reasons: the company is already successful, and
the justification of spending millions of dollars in a suppressed economy is hard to do.
In a report conducted by sponsorship evaluation giant IEG- in regards to the economy’s
effect on sponsorships - their research states the following:
51% of the survey’s respondents said their companies spending on sponsorship
fees will decrease this year from 2008 levels. Only 14% of sponsors plan to spend
more, while 36% said their budgets would stay the same as last year (IEG, 2009).
IEG’s studies also concluded the following:
47% of sponsors said they were seeking to get out of their current sponsorship,
even though those deals were not currently up for renewal […] the average
percentage of overall marketing budgets claimed by sponsorship fell -1.9% to
17.6%, while the average amount spent on activation relative to rights fees slipped
for the second straight year to $1.40 for every $1 spent on rights fees (IEG, 2009).
The graph below shows what companies spent on sports sponsorship in 2008. From the
quotes previously stated, one can get an idea the kind of money that is going to be lost over the
next few years in sponsorship sales (IEG, 2009).
In addition - to the increasing pace of American life; frugal spending of businesses; lack
of sponsorship relevance among companies; decreased personal connection due to increased
electronic fund transfers; and separation of rich and poor - there are a variety of other problems
associated with sports sponsorship on the horizon. Some of these problems include: lack of
proper evaluation by properties; play of a team; lack of community support; and lack of passion
by the figures that control marketing budgets.
Although there might be a vast amount of problems that seem to weigh heavily on the
sponsorship industry; it’s nothing more than any other industry faces. The bottom line is: many
of these issues can be attacked and resolved simply by getting back to basics. This means:
providing the company/client with what they don’t have; good customer service; time efficient
and appropriate information about their company; and information about what a sponsorship can
provide their FOR THEM.
Sponsorship properties can do nothing about the changes in American life or the
economy. What they can do is: get away from the “selling nature,” and provide a customer
service based approach that reaches budget holders on a personal level rather than just a business
level. An area of focus that I would like to attack in this process would be that of sponsorship
evaluation practices; not only year-end evaluation, but starting from the beginning.
Before delving into the actual issues, a sport manager needs to get a grasp on the reality
of the sporting industry and it’s affect on the American economy. According to Sports Business
Journal, it is estimated that the sports industry is roughly a $213 billion a year enterprise (SBJ,
2009). If the sporting industry was formally accepted as an “official economic industry in
American society,” it would rank as the 6th largest in the world.
In the sporting industry, there is roughly $5 billion spent annually on sponsorships.
However, this doesn’t include the advertising and endorsement categories. When marketing
leaders must allocate a budget into these three categories, a lot of factors need to be taken into
consideration.
For the sake of argument, if you combine: sponsorships, advertising, and endorsements;
this total would amount to $33.98 billion amount spent annually on marketing objectives in the
sporting industry. Converted, marketing objectives constitute roughly 15-16% percent of total
amount of revenue generation world-wide in sport. With sponsorship playing somewhat of a
minut role in the total marketing budget (roughly 15%) there are numerous challenges that
present themselves in order to gauge the effectiveness of the money spent on sports
sponsorships, and the justification for doing so.
Lesa Ukman cites three reasons for the difficulty in sponsorship evaluation.
The first difficulty in the evaluation process is: We are accustomed to relying on
impressions and media equivalencies (tangible and easily measurable facets) as the basis for
evaluations. This forces us into a trap of treating sponsorships as if they were goals in
themselves, thus disabling the ability to provide appropriate information on the sponsorship;
which should be the actual effect of the sponsorship had on its audience (Uhman, vii).
The second main difficulty is: The lack of a standard measurement formula or system.
Ms. Ukman states: “There is simply no escaping the fact that to measure anything of value, to tie
expenditures to business objectives, sponsors have to customize. Not all sponsorships are
structured the same, thus there isn’t a universally accepted formula for evaluational purposes
(Ukman, viii).”
For example: Company A wants to brand themselves with a sporting entity, but hasn’t
established any concernable or tangible measurement for how they evaluate their sponsorship.
However, Company B has objectives such as: driving traffic to certain locations through the
distribution of print material, and evaluates their partnership based on the percentage of coupons
redeemed at the location. These differences in sponsorship objectives lead to a non-unified
approach of measurement.
The graph below, provided by IEG, shows the purpose of activation for most
sponsorships (IEG, 2009).
The second difficulty directly correlates to the third difficulty, which is: The widespread
belief that there is no concernable way to measure sponsorships, so companies simply avoid it.
“Because sponsorship is almost never a company’s only marketing activity, isolating the results
of sponsorship is impossible […] even if perfect measurement is possible, by the time it is
achieved, the strategy will have changed (Ukman, viii). The following graph is a good example
of is common practice in terms of evaluating sponsorships (Irwin, 2008).
With the multi-layered shell that comprises sponsorships, there are two main parts that
make it up: tangible/visible elements, and non-tangible/non-visible elements. Throughout both of
these sectors, the major theme is the lack of a universal measurement tool for an accurate
consensus of the sponsorship as a whole. There is plenty of technology available for tangible
elements of a sponsorship; but the non-tangible elements are much more difficult to measure.
In a recent article Marcelo Cordeiro makes a great comment on the evaluation process of
the recent Olympics. He states:
The phenomenon of corporate sports sponsorship […] has since gradually evolved
into a discipline involving ever larger investments, and therefore research and
strategic planning to justify them. The core relationship involved in sports
sponsorships relies on the basic principle of exchange […] As part of the
development of sports sponsorship, the relationship between sponsor and rights
holder has also developed into much more of a multi-faceted, mutually beneficial
partnership rather than purely that of financial counterparts […] Sponsorship
evaluation is much more challenging due to the nature of sponsorship as a diffuse,
multi-layered and multi-element package. Corporate sponsorship objectives are
ever widening and vary […] further limiting the ability to reach a definitive
financial assessment of ROI, and necessitating a broader approach to assessing
return against sponsorship objectives (Corderio, 2009).
If a company isn’t receiving valuable information about their ROI and productivity of
their agreement, there should be no reason for them to spend in the first place. This is a tough
position for a sponsorship property to be in, because the one aspect that clients want the most
(accurate evaluation research) is the hardest aspect for a sponsorship company to provide. The
following graph, provided by IEG, shows the extent to which companies rely on sports properties
to measure their ROI (IEG, 2009).
It’s more important than ever for companies to provide their consumers with the
information they request. Customer service activation strategies need to be at an all time high,
now that spending is tighter than ever before. With the current economic pressures, it should be
assumed that sports properties (an entertainment organization) would do their diligence and
provide measurable ROI information on a regular basis. However, the graph below paints a
landscape that tells a completely different story (IEG, 2009):
It’s shocking to see that most sports properties are not making the necessary efforts to
fully satisfy (customer service) their clients; so doesn’t it seem reasonable that decreased
spending from rich (and poor) companies would be the current trend? Despite the fact that
companies are not meeting the expectations of their clients, it must be noted that the perceived
ROI for sports sponsorships is actually in somewhat decent shape, respectively. The following
graph shows that the perceived ROI from sponsorships within the past few years is actually very
good (IEG, 2009).
With evaluation being such a major facet of the sponsorship industry, and falling squarely
on the shoulders of sponsorship properties; there are many ways to cope with the challenges of
sponsorship evaluation and retain/gain clients in a failing economy. The following points
describe tactics to measure the more tangible and visible elements of a sponsorship. They
include:
Comparing sales for the time frame surrounding the sponsorship to the same time frame
in previous years.
Measuring sales in the event area against sales during the same time frame in other
markets of similar makeup without the event.
Comparing sales in participating retail or dealer outlets versus sales in retailers not
participating.
Comparing usage levels among fans of the sponsored property to usage among
consumers in same demographic who are unaware of the sponsorship.
Tying sales offers directly to the sponsored property and then tracking redemption rates
Coding new leads generated and then tracking conversation rate of those leads
Working with the sales force to track the value of new or incremental business generated
by clients who were entertained.
Calculating additional display orders and the volume generated by the displays
Calculating the value of new sales to cosponsors (Irwin, 2008, p 204).
The methods listed above are all great ways to help evaluate sponsorships; from a tangible
view. However, it only hits a small part of the total agreement. The chart below supplies the
greatest method and step by step instruction for how to combat the multi-faceted challenge list in
sponsorship evaluation (Uhman, 2007).
The first step of this model is: Setting Objectives and Baselines. This includes:
establishing sponsorship objectives; and identifying pre-sponsorship baseline levels for each
objective. One of the main problems managers deal with is: objective development. It is very
common to see sponsorship objectives as vague ideas, which will lead to complication in the
evaluation process down the road. The following steps should be utilized when developing