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Ten Factors That Will Change The Face Of Sports Sponsorship

July 2, 2018

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5 Trends that Will Impact Sports Sponsorship Deals in '18

January 18, 2018

 

With the new year upon us, it’s time to take a look at five key trends that will affect sports sponsorship pricing and terms in 2018.

 

On the positive side, sports sponsorships remain an attractive and important marketing tool. But accelerating changes in technology, viewing preferences and social trends are making it harder to pick the winners and losers, placing downward pressure on some asset prices and increasing the risk to brands of entering into longer-term contracts.  Brands that ignore these trends will do so at their peril.

 

Changing Viewing Habits

 

Three points here, all of them happening faster than we realize.

 

Increased Choices. The exponential growth of over-the-top video and multi-screen viewing habits is having a dramatic impact not only on where we get our sports content but also on the diversity of what we watch and when we watch it. We have more options and we are interested in more of them than ever before.

 

Reduced Attention Spans. The Internet in general and social media in particular are shortening our attention spans. Whether we are millennials or baby boomers, we are moving into a world where short-term activities are replacing longer-term activities.

 

Increased Interest in Exceptional Experiences. On-site events are increasingly being fueled by experiential opportunities and relationship-focused guest experiences—the rich real-world alternatives to short term highlights on the Internet.

 

Increasing Activation Expenses

 

Driven in part by the experiential movement, the average-activation-cost-to-rights-fee ratio continues to grow. This will place increased pressure on the prices of asset rights and drive other asset allocation shifts necessary to keep brand budgets in line. On the other hand, the increased demand for the best experiences will allow the prices of those rights to continue to grow. The rich will get richer.

 

The Political Factor

 

Brand affinity is one of the strongest value factors supporting the investments that brands make in sports sponsorships. The politicization of sporting events is a slippery slope for sponsors and properties that could quickly become far worse in today’s politically-charged environment.  Mid-term Congressional elections will not help the grandstanding. We don’t believe brands will spend millions of dollars on sports sponsorships if their return depends on how the public assesses the in-venue political statements of the owners and the athletes playing the game. They will spend their dollars on other sponsorships that do not include this risk. For brands and properties that get caught up in politicization, the costs will be enormous.

 

Shifting Views of Sports

 

Among the social changes we are seeing are changes in the popularity of various sports. The rise of e-sports has happened faster than many expected. The decline of NASCAR has created new lows in team and Cup sponsorship prices. Despite the public reassurances that NFL viewership is intact if all the new streams are properly measured, it’s hard to ignore the adverse factors that the League is trying to overcome.

 

But changing views of individual sports are not the only risk. Studies are showing declining participation rates across youth sports generally. Whether these declines are being driven by smartphone use, concussion fears, increased participation costs or other factors, the reality is that participation is declining. If the kids lose interest in participating in sports, will they also lose interest in watching sports? (See also the changes in viewing habits, above.) And if the answer is yes, how will that affect Mom-and-Dad’s interest and the value of sports sponsorships?

 

The Accelerating Pace of Change

 

In his acclaimed book Thank You for Being Late, Pulitzer Prize winning author Thomas Friedman vividly shows how simultaneous accelerations in the rate of change of technology, globalization and climate are transforming the workplace, politics, ethics and community. One of Friedman’s key points is that most of us do not even begin to understand the speed and pervasiveness of these impacts across our society. Technology changes are easier to see—just think about the impact of the iPhone since 2007. We have a harder time grasping the accelerating rate of change in our social and political outlooks—until we think about the speed at which our society has adopted changes like same-sex marriage, #MeToo and #TimesUp that in years’ past took far longer to become mainstream. Regardless of who we are, what we believe and what we like to do, we have far less time today to identify, assess and react to changes.

 

What does all this mean for sports sponsorship pricing and terms?

 

  1. Brands will think harder about the risk-reward ratio of longer-term sponsorship contracts. Longer contract terms will carry greater risk for brands. Opt outs (based on time, performance and triggering events) and shorter terms can reduce this risk. Lower rights prices can compensate for accepting increased risks over a longer term.

  2. Changes in supply and demand will affect pricing, altering the landscape of winners and losers. While the most important properties and events may become even more valuable, properties and events in the middle and lower sectors will face increasing price pressure from new sponsorship options and viewing alternatives.

  3. Analytics will be important. But custom multi-factor analytics tailored to the needs of a specific sponsor will be even more important in optimizing returns and heading off precipitous changes in ROI. Algorithms that count how many times a logo appears on a screen have their place, but understanding the impact of changing brand affinity and social trends may be even more important.

  4. Because of the accelerating rate of change in technology, viewing preferences and social trends, 24/7 online access to sponsorship information will become essential for brands and their agencies.

  5. Continued interest in experiential assets will increase the prices of these assets (particularly for the most exciting events) and make activation management even more important. The combined rights and activation costs of experiential assets will increase focus on delivering and documenting exceptional event experiences to event guests.

     

     

     

     

     

     

     

     

     

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