Sponsorship: Gathering The Pieces With COVID 19

Sports and entertainment were the most severely hit following the cancellation of mass gatherings which was one of the earliest measures implemented to combat the spread of COVID-19 .

This painful effects would soon be reinforced with the second wave of the pandemic forcing a more severe round of lockdown in many parts of Europe, Asia and America as we move towards the end of 2020.

This uncomfortable trend has left rights holders picking up their scattered pieces as they contend with the financial implications of large and possibly complete reductions in revenue streams through decreased earnings in broadcast rights, sponsorship payments and match day operations. The financial sponsors that supply them are also faced with their own reduced revenues and an increased focus on conserving cash.

As a result, the typical ‘partnership’ between rights holders and sponsoring brands is now under increased friction. While one struggles with the ceasing of matches and events, the other is hit by a lack of brand exposure otherwise expected in return for its payments. In Europe, what stands at stake for rights holders is the €30.7 billion (European Sponsorship Association. “ESA Sponsorship Market Overview 2020”) paid by corporates for sponsorship rights on an annual basis. But for sponsors, the loss of return on this payment is potentially far greater.

Recent industry surveys have highlighted the potential differences in opinion between rights holders and sponsors concerning loss mitigation measures. A US-based survey conducted in April established that 31 per cent of sponsors expect pro-rated agreements and refunds, whereas only 11 per cent of rights holders saw the same. Additionally, 64 per cent of rights holders believe [sponsors] will make up all lost exposure but only 45 per cent of sponsors agree (IEG. “IEG Outlook 2020: Forecasting the Future of the Sponsorship Industry”).

It’s safe to say that the sports marketing industry is living through unprecedented times. Never before has sport come to a complete halt across the world (with a few minor exceptions like Belarus), depriving billions of people of a much-loved emotional outlet and daily passion point.

Brands, which were predicted to spend £37.5 billion on sports sponsorship in 2020, are facing some tough choices. What do they do now that nearly every event has been postponed or suspended? How can they continue to engage in passionate sports audiences?

Questions have been raised about the merits of ‘hibernation’ style strategies – freezing all activity in order to protect budgets and wait out the storm. Such strategies offer a false sense of security and threaten to undermine brands’ hard-earned relationships with sports fans. Instead, a new playbook is required that offers brands alternative strategies for how to continue leveraging those relationships and sustain growth.

In what is undoubtedly a very challenging situation, it’s crucial that brands look at ways in which they can provide value to fans. Sponsorship is at its most powerful when it enhances the fan experience – and it’s more important than ever for brands to do that now.

The first and most common response so far has been a hold on all pending sponsorships as brands try to find their footing and anticipate the economic impact they will face. This can be hard when you are trying to meet sales goals but try to think of this as a positive. Most of the holds have been 4 to 6 weeks. This lull gives event organizers time to refine contracts, get the creative juices flowing, and prepare for a very busy fall.

Some brands are even cancelling their sponsorship agreements. There are several reasons- this might happen prematurely from the cancellation of an event. It could also be cancelled if the target and age group is considered vulnerable so sponsors would not want to be portrayed as irresponsible in organising a live event at this pandemic period. It might be that they have taken a huge financial hit and are trying to cut expenses everywhere.

Thankfully most of the sponsors that signed agreements want to continue in their commitment. Remaining positive is key right now. While it can feel like everything is coming to a screeching halt, the sponsorship industry as a whole is simply taking a break.

Even till the first quarter of 2021, things will not be operating as normal. There will be a pause in new deals as many brands wait to see what the future holds. Everyone is waiting to see how these restrictions will affect schedules for the live event space. This also means that when things do finally start to normalize again that there will be many trying to make up for lost times and rebuild.

This is also an excellent opportunity to explore new innovations. During this break, experiential players and brands can research new technology that can help their team or activation run more smoothly. They can also take the time to really get in the creative flow and delve into those blue-sky ideas they’ve never had the time to truly think about.

The only thing certain right now is that the sponsorship landscape in the wake of COVID-19 is changing. Now maybe the time to carry out a detailed analysis of the value and effectiveness of sponsorship properties. Existing budget previously allocated for activations, agencies and people might be repurposed or remixed to differing mediums.

An opportunity exists for the industry to modernise and enhance its partnerships in mutually beneficial ways by moving to a model supported by return-based metrics. Both parties stand to benefit under this approach, as an increase in sponsorship effectiveness for the sponsor would lead to more significant payments for the rights holder.

As sports continue in empty stadiums and arenas, sponsors will have an opportunity to play a major part in the way people access and experience sports events in the absence of a physical presence. Now is the time for brand sponsors to start thinking about the role they want to play when sport eventually resumes.

This is an unprecedented time, but brands must see this as a chance to play a bigger role in consumers’ lives, rather than a time to scale back. How they react to this crisis could dictate their relationship with consumers for years to come. There is still light at the end of the tunnel here though. Global sport is very resilient and there will be a recovery, that recovery might take some time but maybe some of the future-gazing that we’ve done in recent years will now start to become reality. Technology could play a really important role for some people in how they reengage with sport which might create new opportunities both from a playing and a viewing perspective. No doubt we will still be discussing the impact for months and even years to come.

Sources

-johancruyffinstitute.com/

-wpp.com/wpp-iq

-home.kpmg/uk

-blerter.com/blog