Another Reason for Rights Holders and Brands to Think Beyond Media Value
November 18, 2024More than four years on, many aspects of life during the Covid pandemic have receded in our collective memory—a fact brought painfully home to me when circumstances dictated wearing a mask on a recent nine-hour return flight from Europe.
But for sports and entertainment properties and their brand partners, the memory of negotiating makegoods, extensions and other contract adjustments in the wake of cancelled events is forever burned into our consciousness. We are all much more attuned to the idea that things can go sideways in the live events space and that we should be better prepared to respond when they do.
And that is the additional rationale, especially for rights holders, for basing the value of partnerships on more than just the brand exposure generated among in-person and media viewers,
Sponsorship valuation firm Turnstile made this case in a recent report. Regardless of the fact that this was content marketing designed to demonstrate the company’s approach and secure more business, the argument Turnstile put forth is compelling.
Using information from valuations in the firm’s database, Turnstile estimated that “Tier 1” league or event sponsorships that use media equivalency as the primary metric in valuation assign 75 percent of the total deal value to brand exposure, with the remainder coming from use of/association with the property’s intellectual property and specific benefits in the package such as tickets, hospitality, player appearances, etc.
Alternatively, Turnstile reports that deals valued using the company’s proprietary methodology determine that only 35 percent of total value is due to brand exposure, while 45 percent stems from IP rights and 20 percent from additional benefits. This aligns with similar valuation methodologies I have worked with and supports the notion that sponsorship is not merely an advertising medium, but one where brands can make real connections with passionate fans and other stakeholders.
So what does this have to do with cancelled events and negotiating makegoods? Turnstile estimates that partnerships where the valuation is disproportionally weighted toward exposure will lose 43 percent of their value in the case of disruption to the broadcast or streaming of events. In other words, on a $1 million deal, the brand is going to look to recoup $430,000 from the rights holder.
In the Turnstile valuations, the same disruptions caused a loss of value of 28 percent, meaning that same property would only be “on the hook” for $280,000 to make the sponsor whole.
In my work with rights holders, I have often heard the sentiment expressed that if sponsors are happy to accept a deal valuation based on exposure, why should the property invest time and resources into developing a more robust valuation?
This latest insight into the impact of valuation on post-force-majeure negotiations is just one of many reasons why having a specific understanding of all of the drivers of sponsorship value can be critical to a rights holder’s bottom line.