The Great Information Gap: Why Rookie Sponsors Need Their Own Realtors
Imagine you were trying to buy your first home (not a pleasant prospect at the moment, I know, but bear with me). However, the people who own the house at the moment refuse to tell you how much they paid for it three years ago. You also have no way of knowing what similar homes in the neighborhood sold for, other than a few rumors (that you have no way of verifying). Because you’ve never bought a home, you don’t know whether it really is quite normal for you to have to pay for the closing costs and a vacation on Cape Cod for the sellers. Lacking any better information, you have to rely on what the seller is telling you (i.e., “termite infestations really aren’t that bad...”).
You, dear readers (hope you’re both well, by the way), would never do this. Unfortunately, time and again rookie sponsors agree to deals in this exact manner. These rookies have no idea what the previous sponsor in their category was paying, or what the other sponsors are paying, or even what it costs to sponsor similar events, teams or leagues. They don’t know if it is usual or not for them to receive a percentage of licensed merchandise sales, and whether a 10-year term with 5% increments annually is indeed quite normal.
As a result, time and time again rookie sponsors get totally and utterly taken advantage of by the team, league or event for which they sign a deal. I have seen companies pay two to three times fair market value and get locked into deals of 10 or more years with huge buyout penalties, just because they were not familiar with the ins-and-outs of sponsorship deals. They had no idea they were getting into a bad deal (just as our new, uneducated homeowners may get into a bad house deal). Several companies have thrown their whole budget into the rights fee for the sponsorship and left themselves no money to activate it, resulting in an underperforming deal.
So why does this happen?
First, there is a high correlation between the passion of the C-level executives for the aforementioned events, teams or leagues and a type of “head-in-the-sand” behavior. They don’t want to ask too many questions, because if it did turn out to be a genuinely bad deal (after doing their homework) they would be forced to pass on it (along with that lovely suite on the 50-yard line).
Secondly, these sponsor companies do not know who to ask for help. Because they’re rookies, they typically do not have a sports marketing agency, so if they do ask for help, it is often their ad agency, which usually has no clue how to evaluate a sponsorship beyond its media component. Often the deal is brought to the rookie sponsor by a sports marketing agency representing the sponsor-seeker, who then offers to represent the new sponsor as well, through their “independent” consulting or research group. You wouldn’t normally think of having the same realtor represent the seller and you, but this is exactly what often happens to rookie sponsor companies.
So, my plea is this. Before investing millions of dollars for multiple years in a sponsorship, hire a sponsorship realtor/agency. Make sure they don’t sell sponsorships, as well (otherwise you are highly likely to end up sponsoring one of their clients), and ask if they have been around similar deals before. Talk to some of their existing clients and make sure they can deliver what they promise.
If you have a sponsorship realtor who is exclusively looking out for your interests, you’ll know if you are being offered a reasonably priced deal or being hosed. You’ll know if the terms of the deal are normal and fair or skewed heavily to the seller. You’ll know of all the research the seller is giving you is honest or highly biased. In some cases, your realtor will also be able to give you a projection of potential ROI from the deal and tell you how much budget you’ll need to hold in reserve to activate it properly.
I’m a huge “Animal House” fan, so I’ll leave you with the sage words of Emil Faber, the founder of Faber College – “Knowledge is good.”