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Implementation Planning

• Identifying Appropriate Athlete Endorsers
• Expecting Proper Levels of Sponsorship Service
• Implementing Effective Hospitality Strategies
• Integrating Community Relations into Sponsorship
• Planning And Scheduling Around A Sponsorship
• Rethinking The Effectiveness Of Promotional Giveaways
• Using Intangible Assets
• Using Sponsorship to Market Luxury Brands
• Activating Sponsorship through the Web
• Falling For Price Escalators
• Generating Direct Revenue From Sponsorships
• Activating Golf Sponsorship Successfully

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Falling For Price Escalators

Over time, sponsors have become indifferent to properties' insistence on inserting price escalators into contracts. It's almost as if a marketer announces during negotiations, "OK, feel free to insert a lame, unjustifiable excuse to increase the rights fee over the life of the contract!" Here's to hoping that more sponsors become conscientious about negotiating lower rights fees (refusing annual escalators is a start) and funding activation efforts properly.

Sometimes, I imagine a few property-side salespeople sitting around a conference room table cheerfully discussing the extra $305,000 they're going to collect over the life of a three-year deal - that begins with a payment of $2 million - because the sponsor didn't bother to question and then refuse to accept the five-percent escalator. Don't forget that the principal increases each year. We're talking annual compounding, folks!

The alternative method of looking at the aforementioned deal is to acknowledge that the property is collecting the escalator fee up front, and not upon fulfillment of its contractual obligations for years two and three. To be precise, that large sum of money will go into the property's coiffeurs only after two years and one day of the sponsorship - kind of like a bonus for services to be rendered, instead of for services already delivered. The structure of the deal provides no incentive for the property to service the client appropriately in year three. In fact, one can interpret the contract terms in a way that treats the quality of service in year three with mere triviality. Here are a few things to keep in mind regarding price escalators and payment schedules:

If the property tells you to take a walk if you refuse to accept an escalator, there's some likelihood that they're bluffing. Counter their hard-line position with some hardball of your own. Offer a performance bonus based on a rate lower than the proposed escalator, with the bonus paid out after the completion of each year or defined period of the contract. On the other hand, you should add a clause stating that failure to deliver any assets or services in a timely manner will result in fractional fee withholding. Remind the property that if they expect to be rewarded for simply doing their job, they should be penalized for not doing so!

If you are delivering the entire annual fee up-front, you are being taken for a ride. Why should the property be earning interest on money it has not yet earned and for services still unfulfilled? Instead, stagger your payments according to a quarterly schedule.

You should strive to make the news for crafting an innovative naming rights payment schedule, not for being suckered into an initial payment in the $10-15 million range. Just remember that 20 years from now, your company may have no use for building entitlement. And that's with 10 years still remaining on the deal! Oops. So why front load the payments when the last 10 years will likely provide your company with few benefits? Instead, evenly spread the payments out, or even better, increase the payments over time when the value of those installments will be significantly less. Whatever you do, run the numbers in different combinations, figure out the net present value of different payment schedules using your company's cost of capital, and then negotiate based on the payment schedule with the lowest NPV.

Ignore the argument that the property is just covering for the rate of inflation - which is actually somewhere around 2.3% in the U.S., NOT 5%+. The property will also tell you that their costs have increased, so they're just passing those costs along to sponsors in the name of being a good supporter and contributing to the team's competitiveness on the court. Sorry, but you've done your part by paying for assets the property is offering. You are not in this to subsidize a sports franchise! Also, by investing in a multiyear deal, you are freeing up the property's sales staff to focus on other sponsor prospects. So, maybe you should receive a bonus for indirectly assisting in their increased sales production.