Episode 2 - Preemptively Mitigate Sponsorship Risk

(The following is a continuation of "The 9 Steps to Successfully Execute a Sponsorship" series.)

Pre-Deal Overview 

The trajectory for a sponsorship’s success is set before it goes live. It is where you have the greatest ability to align and aim your resources to hit your objectives. Sponsors that devote the proper thought and consideration before a deal goes live will experience more effortless success. Sponsors that fail to mitigate their risk will likely face on-going adjustments to their asset package and activation strategy while grappling with inefficient exposure. 

The following are three-key areas sponsors should consider when trying to mitigate unnecessary risk and avoid potential losses in value before a partnership is set to go live.

Sponsorship has many unique benefits that differentiate it from advertising, but it also comes with inherent risks. These risks primarily stem from volatile audience levels, properties continuously pushing the envelope to capture fans' attention, and the threat of competitors entering the space to dilute your potential ROI. While risk in sponsorship investments cannot be fully eradicated, we can put guards in place to limit the threat of disappointing returns. The following risk management tactics should be seen as critical given the premium price that often comes with sponsorship. 

Only Evaluate Based on Expected Exposure 

Most sponsorship value resides in its ability to attract large audiences. And much of that attraction is predicated on factors that are unpredictable (e.g. team performance, rival events, promotional efforts, weather, performer availability, etc.). When audience levels peak, it is very impressive and provides a massive windfall of exposure to sponsors that are lucky enough to be in the right place at the right time. 

However, this is rarely the case. There are two universal truths to remember: 1) It is impossible to predict the future and 2) All performance regresses to the mean. 

When sponsors are evaluating opportunities, it is important to make sure the property focuses on what can be expected, rather than best-case scenarios. Sponsors should assume audience levels that are an average of the past five years at best and the past three years at the very least. If a property is completely new with no historical levels, they should offer audience levels they are most likely to deliver. Unlike advertising, sponsorship does not offer makegoods to ensure expected audiences levels are delivered. Sponsors should proceed with caution. 

Beware of Your Surroundings 

So often, and rightfully so, sponsors are hyper-focused on their own brand, the assets and rights they will be receiving in a deal, and whether they received favorable terms in their agreement. It can be very challenging to think defensively when sponsorship is very much an offensive-minded game. It is very important to remember the psychological capacity of fans when they are being targeted by multiple brands. The more sponsor clutter there is in an environment, the more challenging it is going to be for a sponsor to be recognized as a partner, let alone be noticed at all. This only becomes more challenging as properties continuously push to create more lucrative inventory that can grow sponsorship revenue. 

To help mitigate the risk of going unnoticed among other partners, sponsors should first understand how many other sponsors a property has, as well as how many sponsors are paying more than you. If you are worried you will be washed out, consider other opportunities where you can achieve a higher share of voice. Second, if you do want to proceed, build in protections that stipulate both the amount and proximity of other sponsors that are allowed to present around its more prominent touchpoints. 

Consider Building a Moat 

Chances are if you see potential for ROI in a sponsorship investment, your competitors will as well. Once two or more competitors become sponsors, the property becomes a battleground to be the most prominent and memorable partner. 

 This is because there is a finite number of fans that are potential customers and winning their business is a zero-sum game. There are two different ways for sponsors to create a moat and protect their investments from the threat of competitors siphoning away their potential ROI: 1) They can receive exclusivity rights to block competitors from being sponsors, which often comes at a premium that accounts for the opportunity cost the properties are sacrificing. 2) They do not opt for exclusivity, but then they must rely on their incremental activation resources to gain most of the share of voice and show up in the most relevant and captivating ways. This can include additional spending on supporting advertising, engaging content, or compelling experiential that includes the likeness of the property's IP to form the influential association. Each tactic is not foolproof, but it helps mitigate the risk of competitors winning more business among fans. 

The combination of sponsorship's immense demand and its flexibility to integrate partners provides significant revenue upside for properties, but it can inadvertently put sponsors' potential for success in jeopardy. It's important for sponsors to consider these external factors to better position themselves to minimize unnecessary risks to their ROI.