• by Darren Marshall , November 12, 2007

Ever wonder how companies make multimillion-dollar decisions on buying sponsorships? For most, it's actually a lot like buying a house. Why does a primary sponsorship on a Nascar team cost close to $20 million today when it cost half that less than 10 years ago? Mainly for the same reasons that a condo in New York costs $2 million now vs. $1 million a few years ago. Because that's how much you can get for it.

Teams in Nascar pay very close attention to what their neighbors in the pit lane get for their real estate on their 200-mph billboards. If team A manages to get $17 million this year for their title sponsor deal and team B was already getting that, their price goes to ... $18 million! Is it worth $18 million? Who knows? But that's what they think they can get for it and, more often than not, they're right.

Imagine how much fun it is to know how much the real estate is really worth to you. That's been a challenge facing the research industry for 25 years now since the first surveys started to be done to measure basics like fan demographics and awareness of the sponsor.

A few years ago while I was at Knowledge Networks, we were given a challenge by the head of sports marketing at one of the leading beverage companies in the country: "I need to be able to tell our CEO how many extra cases we sell through each of our sponsorships."

Sounds simple, but it took two years and a lot of dollars to pilot and refine the methodology to the point where we addressed that challenge to the satisfaction of our client and his research team. Since then we've used it on more than a dozen of their sponsorships and a similar number of sponsorship for other clients representing some of the biggest names in the sponsorship business.

Basically, the Knowledge Networks ROI model is a very complex test and control survey technique which isolates fans aware of the sponsorship and compares them to an otherwise identical group of fans who aren't aware on an unaided basis. By comparing brand share among the two groups, we see what difference the sponsorship makes and then once we know the total market size, and number of aware fans we can estimate the volume differential.

By comparing the cost to the profit on the additional volume we can see if the investment is paying off or not. The method we use allows us to compare different sports with different fans bases -- apples to apples - even those with a regional vs. national base. For sponsors with their fingers in multiple pies, it's a great tool that they can get used to and use as a yardstick for everything they do. Several of them actually set goals for their departments based on the ROI projections we make.

The more of these we do, the more we see the different outcomes from different strategies. The more of those we see, the better our ability to answer "what if?" questions from clients.

For example, the great majority of awareness of any Nascar sponsor is based on the car, not your activation. Our usual advice for those sponsors with limited budgets is to take your budget and buy the biggest position you can with the biggest name available, even if it is in the Nationwide (née Busch) Series - the AAA of Nascar (fans mainly don't care if you're a key sponsor of their guy in the Cup Series or Nationwide). One of the best Nascar sponsorships we ever tested from an ROI perspective was in the Nationwide Series using a big name driver.

We can also give more tactical advice based on the data. We had a client a couple of years ago who was a consumer packaged goods brand and spending a bunch of money behind their sponsorship on coupons in free standing inserts. Coupons are primarily clipped by women in a lower demographic whereas Nascar fans are primarily male and view clipping coupons in a similar vein to manicures for the most part.

On the other hand, I witnessed a few years ago that having a Tide Nascar Showcar with a PlayStation racing game inside can lead grown men who've never bought detergent in their lives to dash through the aisles of Kroger, buy the first Tide product they find, pay for it, remove the proof of purchase, discard the product and run to the simulator (two or three times in some cases).

We've also been able to address questions such as "do we need to be an official sponsor of Nascar and a driver sponsor?," with the answer often being that you don't need to but it's a great insurance policy if your guy breaks a leg or has an otherwise bad year. However, if the premium on that insurance policy gets to be too expensive (which it might if that particular area of sports marketing real estate gets hot) then it's time to think again.

However, sometimes sponsors truly don't care about how consumers are impacted. This may be because the CEO is just a huge fan of the sport (there's at least one top-level Nascar sponsorship of which this is true). You can usually tell those guys by the number of pictures of them with famous drivers in their office. Three or more and they're just a fan and they don't want to know.

On the other hand, it may be because the deal pays for itself. I remember presenting a terrific research program to an oil company years ago which was a global sponsor of a Formula One team. They said it was a great program but they didn't care. Through the sponsorship, the car company which backed the team had agreed to use their oil in all the oil changes in all its dealerships globally. It was a no-brainer.

However, for the most part sponsors do want to know and they need to know. Gut feel only goes so far. Sometimes the research confirms what your gut told you - just as often it doesn't. As my first boss told me, "Research is like a lamppost to a drunken man - it's just as vital for support as illumination."

REvolution is an independent and fully integrated sports marketing and media services agency. Darren Marshall, SVP of rEvolution, leads rEvolution's Research Group. Contact Darren at (312) 528-5838 or at dmarshall@revolutionworld.com.