How to Value a Sponsorship
By Martin Kihn | February 28, 2017 | 1 Comment
It’s a truth universally acknowledged that some marketing tactics are harder to measure than others. Among the most difficult are sponsorships, which succeed in combining channels that are squiffy to value anyway (out of home placements, television and radio) with eccentric ad units (signs on stadiums, cap logos) and that fiendishly ephemeral quantity known as the “brand halo,” associated with the partner itself.
In general, sponsorships do not perform as well as other channels in media mix models — at least in terms of measurable ROI. I saw a mix model recently where Direct Mail had an ROI of 1.5x, TV was about 1.3X and Sponsorships (a single deal that cost millions) were negative.
Which brings us to our second spoiler: Most sponsorship deals are largely made for the associated “intangibles” — access to the Owner’s Box on opening day, meet-and-greets with Famous Pros, free tickets to the Grammy Awards. Such things are not worthless, of course, but they should be bought with open eyes.
What follows is one approach to thinking through a potential sponsorship’s value. It is based on a hypothetical scenario that might happen to you when you least expect it. Preparation is nine-tenths of anything.
SCENARIO: YOU ARE A MARKETER …
The Bernese Mountain Dog Association of America (BMDAA) approaches you, a well-known breed fanatic. They have a once-in-a-woof-time proposition. For only $650K they will let you be Official Sponsor of the 2017 National Specialty in Portland, Oregon.
Should you bow-wow or turn tail?
First, do a gut check based on fit with your own brand. The pitfall here is that you — as we’ve said, a ridiculous Berner-maniac — are tempted to let personal whiffles interfere with sound analytics. But set aside your own emotions for a moment and think about your business.
Let’s say you operate a chain of dog accessories boutiques. Many of your clients own large breeds. It seems like a fit. In less obvious situations, you can ask your marketing team to do a rough assessment of overlap between your prospect group and the BMDAA’s core audience. As part of their pitch, the BMDAA will make a case for total overlap, but your marketing team should validate it using a market research tool like MRI or Simmons.
If it’s a sane possibility, ask the BMDAA for a detailed breakdown of what they’re offering in return for your $650K. They will provide you a document that is heavy on the puppy pictures. It’s important to stare them down here. More detail serves you more than it serves them, but fair is fair.
Let’s say after a couple of rounds, the BMDAA spells out their offer like this:
- $150K — “Official Sponsor” status, event tickets, parties, merchandise
- $125K — Co-branded TV spots on ABC’s popular “BMDs Today!” show
- $125K — special “Digital Kennel” on BMDAA.org breed site
- $100K — right to put brand mark in the event venue
- $50K — production of TV spots and website video by BMD’s team
- $50K — est. deal with celebrity dog breeder (TBD)
- $50K — coupons in doggie bags, event sweepstakes and prizes
What’s it worth? The key questions are:
What is the estimated return for this investment? And is there a better alternative use for the funds?
To answer, do this:
- Separate out the working media from everything else (what I call “intangibles” but you can call “other”). Working media is defined as media that you could buy on the open market. In this case, it’s:
- $125K — TV spots on ABC
- $100K — Brand mark in the venue (equivalent to out-of-home media)
- Pull out the things that are clearly below-the-line costs:
- $125K — microsite on BMDAA.org (basically web development and hosting)
- $50K – production of TV spots/site
- Identify “shopper marketing” opportunities:
- $50K — coupons, sweeps, prizes
These three are pulled out first because they are the easiest to equivalate — a word I invented that means “find an objective value.” In the case of the working media, you can have your media team or agency do a cost basis comparison. The brand mark will need to be estimated in terms of OOH, remembering that it’s in a focused area. At best, value it like a large billboard or two in a heavily trafficked retail area. How heavily? Look at attendance numbers for last year’s show.
- TV Spots: When you look at TV spots, you will find that they’ve been marked up. You are being charged a premium for what’s known as the “brand halo.” The question you need to ask yourself is: What’s the halo? As a benchmark, a well-known sports franchise regularly claims a brand message with such an official halo performs about 50% better than the brand message alone. We can assume this is a rosy benchmark. So calculate the media value with a halo of 30-40% (if you believe it).
- Production Costs: You could contract for these services yourself for less. Of course, major sponsors often have excellent production teams, but some don’t. Assess your own appetite to shop this out and manage it.
- Coupons & Sweeps: These items are often left rather vague in the proposal. How many coupons? What’s the prize? And most important: How will they be distributed? Remember that any marketing message (including a coupon) without media or distribution is likely worthless. If the sweeps is happening at the event, estimate the number of people involved and do a quick estimate of their likelihood to convert and potential value (assuming your average LTV if you lack better info).
SO WHAT’S LEFT?
4. $50K — celebrity deals. The equivalent here is approaching the celebrity’s agent yourself. Many have a more or less public quote that you can easily get. You usually don’t need the organization’s help to stencil a meeting with a celebrity agent or manager. (In some cases, you may.) The larger question is: What will the celebrity (physically) do for you? Often you can use them in your spots or have them attend your convention — but there are additional fees here too (SAG rates, T&E). The question to ask is: What is the additional “halo” you get from using this trainer vs. an unknown actor (or unknown trainer)? The answer is a formula: (awareness to target %) x (mojo). Hollywood has its equivalent celebrity “Q Score,” which is (awareness %) x (likeability).
5. $150K — “Official Sponsor” status. Now for the bad news. The most expensive item has the least real value. Be dispassionate here. Do the VIP events have any value to your business? You or I can be a proud “Official Sponsor” of anything but without media or other exposure, that status is equivalent to sitting in your basement, admiring your socks. Go back to the discussion of “brand halo” above and consider it thus.
So, at the end of this exercise, you might end up with something like:
- Cost = $650K
- Value =
- $125K TV spots + 30% halo = $160K equivalent
- $20K OOH in venue + 40% halo (more involved audience) = $28K
- $100K worth of production
- $20K coupons and sweeps
- $20K celebrity trainer + 50% halo (high awareness) = $30K
- Total value = $340K
So your equivalent value is about $300K short of the cost. You can negotiate the cost down, of course. If that doesn’t work, you have to ask yourself this question:
“Are the “intangibles” like parties and passes worth $300K to my business?”
The answer could well be: Arf.