SPORTS MARKETING: Headline Deals and Half-Truths
Inflated figures have made the true value of sponsorships hard to gauge.
The value of many of Britain's biggest sports sponsorship deals has been hugely exaggerated, according to industry experts. Tim Crow, director of agency Karen Earl Sponsorship, points to deals that are worth only 20% of the figure announced.
'When a sponsorship is announced, the real value is usually massively inflated,' he says. 'This is sometimes down to the media, particularly when the sponsor and rights owner agree not to talk about the fee and just love their 'Brand X in multi-million-pound deal' headlines.
'But more often than not, the deception - because, frankly, that's what it is - is the creation of rights owners and their sales agencies,' Crow adds. 'They contrive to use any measure they can to trumpet their latest big deal and convey to the marketplace a false and, for them, highly flattering impression.'
Crow believes this is damaging to the industry, partly because the lack of transparency makes sponsors suspicious and partly because he has encountered several big potential sponsors who were put off by the supposed high-entry costs.
There are several reasons behind rights holders' desire to inflate the size of deals. The most obvious is that two years down the line, when the rights holder is seeking a new sponsor, the previous high figure can be used as a benchmark for negotiations.
Another is that most rights holders sell a myriad of rights, such as secondary sponsorship, kit sponsorship and a range of official partnerships from soft drinks to computer systems. If the primary deal is seen to be high, it has a knock-on effect on the perceived value of the remaining packages.
Agencies selling on behalf of rights holders also have a vested interest in wanting the market to appear buoyant if they receive a percentage-based commission. If acquisition budgets are high, sponsors tend to spend more on leveraging the deal, which means agencies can pick up bigger consultancy fees.
Although sponsorship offers a platform that can be used to address nearly any business objective, it is becoming even more closely tied to the advertising industry - with inevitable cost comparisons.
'In many respects, sponsorship is beginning to be seen as a media buying exercise,' says Richard Berry, managing director of sponsorship research specialist S:Comm.
'This makes things slightly difficult for sponsors, because sales figures are published for TV advertising. But with so many sponsorship rights fees being misreported, the picture here is, at best, confusing.'
So why do brand owners go along with misleading fee reports? Crow believes it is mainly down to ambivalence, but Nic Gault, acting director of sponsorship at Barclays, thinks there are other reasons.
'It could be that in some cases there is an element of corporate ego. They might also believe that having big numbers reported raises the profile of the sponsorship,' he says.
Barclays has just made Britain's biggest-ever sponsorship announcement, a three-year pounds 57m deal for football's Premiership rights. This is one figure that everyone agrees is accurate, partly because the Premier League decided that its dealings would be transparent, but also, as Gault points out, because Barclays takes a similar line.
'Unless the commercial imperative dictates otherwise, we will reveal what sponsorship costs. The issue for us is that, being a bank, we have to be honest about money,' he says.
The justification for inflated reports can be down to several factors, such as suggesting that the fee for the deal duration is the annual fee, or including the exploitation budget in the deal total.
Perhaps the most common reason, and the easiest to justify, is that many sponsorship deals now have incentive clauses. These contracts comprise a basic fee, but if the rights holder performs above the expected level, the sponsorship payments rise accordingly. …