Proving The Financial Contribution Of Sponsorships To The Business

Investment in sports, entertainment, and arts sponsorships is growing because they deliver unique value and reach in a world where media is fragmented, customer attention scarce, and differentiation is hard to come by. Marque sponsorship properties like the Oscars, Super Bowl, and Olympics offer brands the ability to surprise and delight customers and partners with “first time, never-been-done-before , and live” programs. This year brands will invest over $68 Billion in sports, entertainment, cause, and event sponsorship properties. The total dollars invested are much larger because those estimates don’t reflect the cost of the associated loyalty programs, promotions, channel integration, and activations needed to unlock the full financial value from sponsorships.

Despite these obvious benefits, sponsorship accountability – defined as measuring and growing the financial contribution of sponsorship investments and assets to the business – has emerged as a hot button issues with CEOs and CFOs.

78% of brands report the pressure to validate the financial results of sponsorship initiatives has increased in the past two years according to research conducted by Forbes and the Marketing Accountability Standards Board (MASB). 60% of CMOs are under increased pressure from the CEO to communicate, measure, and grow the financial impact of their long-term sponsorship portfolio investments on shareholder value and financial performance. 

This begs the question: if sponsorship investments and assets are so valuable, why are the majority of CMOs under growing pressure to prove it?

There is a simple answer it’s very hard to measure the financial value of sponsorship investments. CMOs fairly argue they lack the financial vocabulary and KPIs to properly measure these complex investments that require a blend of art, science, and commercialism to execute. 

The bigger issue marketers face as they defend their multi-million-dollar sponsorship budgets is they fail to quantify and communicate how these investments create financial value beyond their equivalent media value. CMOs are less adept at quantifying the financial value of sponsorships in terms of growing brand equity, improving customer loyalty, reducing customer acquistion costs, and improving cultural relevancy.  The ultimate problem is CEOs and Chief Financial Officers complain the marketing industry lacks agreed upon measurements and financial standards for evaluating sponsorship ROI set by FASB, ISO or the marketing industry that compares golfers with singers with stadiums and bowl games on financially valid and apples-to-apples basis. According to MASB and ANA research, 60% of major marketers report they do not have a standardized sponsorship measurement process. 40% don’t even try to measure. Only a third adequately budget for the market research needed to evaluate the financial return on sponsorship.

Until these problems are solved, CFOs will continue to treat sponsorship as a discretionary expense rather than a growth asset. And CEOs will struggle to optimally allocate growth resources to these powerful programs relative to innovation, digital marketing, and sales.

Asking who “won the Super Bowl?” on Monday morning in terms of popular ads and Nielsen ratings is the wrong question. These short term media measures completely miss the significant value these events create in terms of long term firm value and financial performance,  according to Tony Pace, CEO of MASB. “In the marketing world, the real Super Bowl winner won’t be determined until the fourth quarter. Of the calendar year. From a financial standpoint, the associative value in terms of prominence and popularity of sponsoring the Super Bowl, Academy Awards, or Grammy Awards has a very long tail that can last nine months. More importantly, the financial impact these sponsorship assets can have on brand preference, customer activation and loyalty have a huge multiplier effect. Firms that use financial discipline and get the brand, activation and loyalty aspects of their programs right can get a 10X return on sponsorship investments.”

As evidence of this point, O2 telecommunications generated a 6X return on their entertainment sponsorship investment in the O2 Dome venue by maximizing the unique brand, activation, and customer loyalty economics the music venue offered them. They generated outsized returns by finding creative but financially powerful ways to leverage the unique assets of the O2 property – cultural relevance, excitement, influence – to improve brand preference, perceptions, cultural relevancy, differentiation, and awareness. They leveraged proprietary assets of the property – tickets, seating and artist access - to gain #1 market share by improving customer loyalty 10%, willingness to refer 25%, and new customer activations by over 10%.

The lack of consistent, comparable, and financially valid standards for measuring value of sponsorships leads to three common problems:

1. Brands rely too much on measures of media equivalency without quantifying the strategic, amplification and creative aspects of a sponsorship audience can deliver relative to a traditional media buy;

2. They ignore the non-media factors like brand value, relationship equity, acquisition economics, and engagement with partners, distributors and employees that create significant financial value because they are too hard to measure;

3. Finally, CFOs tend to treat sponsorships like expenses instead of assets – even though they involve large long-term investments (3 years on average) in rights, media, and talent assets that have real financial value and will generate returns over years, not weeks.

This explains why in the wake of the Grammys, Super Bowl and Oscars, all the talk is about the size of the media audience and the popularity of the ads. In an era of media fragmentation, a Super Bowl audience of 102 million “live eyeballs” is certainly a unique marketing asset. But media equivalency fails to describe the full value these properties deliver in terms of brand building, activation, customer loyalty and cultural relevancy. Brands that understand and leverage these value levers create value that dramatically exceeds their investment. Brands that don’t may be having conversations with their CFOs about reallocating these growth resources elsewhere.

It’s not that greater financial scrutiny is perceived as a bad thing. On the contrary, there is near consensus across the marketing industry that improved sponsorship accountability will protect, unlock and grow the value realized from these long-term investments and growth assets for all participants – brands, partners, and property owners. Brand sponsors and media, sport and entertainment property owners universally agree on the media, brand and non-media value brands create. They just need common financial standards that communicate, quantify and grow that value.

Unfortunately, with current budget setting processes, financial reporting standards, and measurement practices - less than a third of brands are able to measure their financial return on these strategic objectives according to the MASB research.

Brand Impact – sponsorships can strengthen preference for brands, build awareness for new brands, and relevance to established brands through prominence and popularity. Yet only 57% of brands are measuring the financial impact of sponsorships on brand strength, value and awareness.                                                                               

Activation Economics – most brands rely on the financial impact of customer activation promotions and acquisition economics to justify their sponsorship investment. But less than a third (28%) are actively measuring sponsor related promotion results.

Customer Loyalty – Many brands rely on the relationship equity with distributors, partners and customers and loyalty with consumers as a major component.  Unfortunately, only 55% of brands report they are actively measuring the financial impact of customer premiums, loyalty and retention.

Media Equivalency – Brands value the audience sponsorships deliver at the venue, and in local and national media. And properly managed, sponsorships can offer superior value relative to straight media buying by taking advantage of the live audiences, preferred inventory, media amplification in social media, and the ability to drive activations to web properties. Even with all this focus on the exposure value of sponsorship, only 57% of brands are actively measuring the total media exposure financial return in their sponsorship ROI calculations.

Sponsorship Asset Valuation - Compounding matters, there is currently no consensus way to price, compare, or calculate the value of sponsorship assets. 96% of brands want to compare sponsorship investment performance to other marketing programs on an apples-to-apples basis. But the market is relatively illiquid and value is subjective. There is no Bloomberg terminal or NASDAQ exchange to provide external benchmarks of the value of sponsorship assets. And there are few accounting standards or valuation models that brands can use to determine the fair financial value of a team, stadium, or athlete.

This inability to connect upstream exposure, activations and experiences at events to downstream sales and brand preference causes marketers to shy away from doing things that create real value like extending the consideration set in new ways and offering highly differentiated customer experiences. To properly allocate resources and focus management attention on making sponsorship investments that will grow firm value, marketers and their partners in finance must arrive at a common framework for communicating, quantifying, measuring and optimizing the financial contribution of sponsorship strategies and investments to growing profits, revenues and firm value.

To help the marketing industry work with financial stakeholders to arrive at a common financial framework for evaluating sponsorship value, a team of industry experts, academics and marketing scientists are leading an industry-wide research effort to:

1. Build a consensus on how to best communicate, quantify, and measure the financial contribution of sponsorship strategies and investments to the entire organization – from the board to customer facing employees;

2. Create financially valid method to align sponsorship business objectives with a growth strategy that will grow firm profits;

3. Develop research, KPIs and measures to track the key changes in customer behavior, price sensitivity and retention that will impact margin, share and revenue growth in the eyes of the CEO and CFO.

Reach out to me to learn more.