Sponsors and rights holders need to factor in expected or actual economic downturns to their strategies. Right now, consumer confidence is low and there's global uncertainty affecting markets, so we should all be preparing for a downturn. Having worked for Sydney's Olympic Stadium during the global financial crisis and having seen the impact different strategies (or having no strategy) had on venues and sports at that time, I have some tips for rights holders and sponsors:
Be aware of optics
Downturns affect the sponsorship market for a number of reasons but they aren't all negative. Some companies do not want to be seen sponsoring a team or venue when they are making staff redundant and/or cutting services. Companies have less money to spend on sponsorship. Consumers spend less which affects attendances and sponsorship value. However, there is often more sponsorship activity during a downturn, not less, it's just the prices, deals and players that tend to change.
Lock in certainty with your contracts
The best protection for rights holders against economic downturn is to have long-term agreements in place. It's best to renew deals before the downturn bites, even if it means locking in a lower sponsorship fee for a longer term. Most sponsorship budgets I've seen have an increase every year regardless of predicted economic conditions. The clever rights holders will lower their fee expectations and lock in certainty. The other benefit of long term deals is the positive effect on the valuation of the rights holder’s business, which is critical during refinancing or a sale.
Have an exit strategy in place
Be prepared to negotiate exits. It may simply be unacceptable for a blue chip corporate to continue to sponsor during a downturn and if that directive comes down to negotiate an exit, the rights holder is better served by being prepared than simply enforcing the contract. Rights holders should always have a relationship with other companies in each category and have a sponsor ready to step in. Done properly, there is an opportunity for a windfall gain as the departing sponsor pays a termination fee but the priority must be to avoid having no sponsor or one that doesn't want to be there. Be flexible and consider accepting a lower fee from a new sponsor with the departing sponsor paying the difference.
Protect against non-performance
Guard against non-performance due to economic downturn. If attendances, pourage or audiences fall off the back of a recession, always try and negotiate a variation to the deal before arguing over non-performance and potential termination. Consider extending the deal for no fee to compensate for falling short in other deliverables.
Consider the upsides
A sponsor's customers may appreciate the sponsorship more than ever. It is well known consumers continue to spend on gratifying experiences such as gambling and alcohol during a recession. In my experience, sport is no less attractive during a downturn. In fact, when times are tough, it is a welcome distraction. Sponsors should leverage their sponsorship more than ever and look after the fans who are their consumers or potential consumers. Free tickets, parking or upgrades will be more welcome than ever and endear your brand to consumers.
Be aware of potential PR pitfalls
Sponsors should be offered privacy. Rightly or wrongly, in the digital age a picture of an executive enjoying a corporate suite at an event whilst their company is struggling is a potential PR nightmare. Rights holders and sponsorship managers should be prepared to be discreet about the benefits of sponsorship. Perhaps you can take down the branding outside the suite, keep guest lists secure or keep the CEO away from ceremonial duties. Ask yourself, what would the customers think and exercise discretion.
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