5-1 Chapter 5 Sponsorship Commitment: Resources and Duration McGraw-Hill/Irwin©2007 The McGraw-Hill Companies, All Rights Reserved

5-2 Basic Decisions How Much Will the Sponsorship Cost? What Are the Key Timelines Involved? –Payment Schedules –Event Timing –When Can Sponsor Publicize Relationship? –When Does the Sponsorship Begin and End?

5-3 Cash Versus Value-in-Kind Cash Outlay Required Value-in-Kind (VIK) Represents the Value of Goods and Services Provided by the Sponsor in Lieu of a Cash Payment Many Contracts Use a Combination of Cash and Value-in-Kind as Payment

5-4Trends Rights Fees Escalating for Major Properties Not All Properties Exhibit This Inflation Many Sponsors Forgoing Long-Term Commitments in Favor of Property Hopping Many Cover a Defined Cycle –4 Years with IOC and FIFA

5-5 Factors That Provide Value By Providing Value, They Increase the Rights Fees Expected by the Sponsee Increased Cost Should Be Balanced by Increased Benefits for the Sponsee Two Preliminary Categories of Factors – Tangible Factors and Intangible Factors

5-6 Tangible Factors Easier to Estimate Economic Value Examples –Value of free tickets –Value of free advertising –Value of signage at venue –Value of distribution rights

5-7 Intangible Factors Difficult to Assign a Monetary Value to but Still Must Be Taken into Consideration Examples –Number of sponsors –Attendance at event –Fit between sponsor/sponsee target markets –Right to use property’s trademarks and logos

5-8 Geographic Reach More Reach Equates to Greater Value

5-9 Market Factors Cost of Similar Property in Other Markets Cost of Alternatives in the Same Market Demand for the Property Cost of Purchasing Advertising Time and Space in Traditional Media in that Market

5-10 Price Adjusters

5-11 Price Determination Make the Sponsor’s Investment and Benefits Measurable Prospect Will Likely Perform Some Type of Cost-Benefit Analysis Perceived Value Should Exceed the Price Charged by the Sponsee for Rights Fees

5-12 Establishing the Price for the Sponsorship Rights Fees Cost-Plus Approach Competitive Market Approach Equivalent Opportunity Approach Relative Value Approach

5-13 Cost-Plus Approach The Cost Incurred by the Sponsee in the Delivery of the Sponsorship Components PLUS a Pre-Determined Fee. The Pre-Determined Fee May Be: –Fixed monetary amount –A fixed percentage based on the cost

5-14 Competitive Market Approach Determined by Assessing Supply and Demand for Sponsorship Opportunities within the Market(s) Reached by the Sponsorship in Question Focus on Value Rather than Costs Considers Disparate Properties –For example, sports event vs. an art exhibit

5-15 Equivalent Opportunity Approach Establish Cost of Sponsorship Based on the Cost of Attaining Similar Promotional Value through Traditional Media Advertising versus Sponsorship

5-16 Relative Value Approach Comparable Value of Anticipated Exposure for the Sponsor Based on Forecasts of Exposure If Average Sponsor Has Its Logo on TV for 6 Minutes, What is that Exposure Worth?

5-17 Methods of Payment Cash Value-in-Kind (VIK) Combination of Cash and VIK

5-18 Sponsorship Level Many Sponsees Have Different Levels of Sponsorship that Have Varying Rights Fees Different Plan Components at Each Level Can Use to Overcome Price Resistance

5-19 Sponsorship Level Illustrated

5-20 Timing Issues Duration of the Sponsorship Agreement –Once-off versus ongoing serial sponsorships –Variety of terms from one day to lifetime Timelines for Sponsorship Designation –Prior to Event –After Completion of the Event

5-21 Timing Issues (Cont’d) Projected Schedule of Sponsee Activities that Identify Sponsors –When will ads be run –When will the sponsee’s Web site reflect the relationship with the sponsors –When will signage be erected & dismantled –When will press releases be disseminated

5-22 Timing of Payments to Sponsee Date of Initial Payment Date of Interim Payments Date of Final Payment Date of Any Required Lump Sum Payment

5-23 Closing Capsule Sponsorship Requires a Commitment of Resources by Both the Sponsor and the Sponsee Both Parties Seek A Fair Return on the Resources that They Commit Sponsors Will Re-evaluate the Value They Received at the End of the Sponsorship