Rights Negotiation
Negotiating value-in-kind
Value-in-kind, otherwise known as VIK, is the term used to refer to products or services that are sometimes provided by sponsors to properties as part of sponsorship contracts. Many inexperienced sponsors are not comfortable negotiating in-kind components because they do not know how to value the assets and don't understand their bargaining position when negotiating VIK as part of a contract.
Your counterparts on the property side will likely have a completely different view of the in-kind asset value. They will probably value the in-kind portion at a considerable discount from retail, perhaps at wholesale, or they might even estimate the value at your cost. Of course, the reason why properties tend to value in-kind assets at cost is because the products or services are useful for a defined period of time and then they either lose some or all of their value. In other words, the goods likely cannot be resold. On the flip side, sponsors receive assets in return for their in-kind sponsorship investments. Many of those assets include tickets, signage, and other inventory that have defined value and can be sold by the property to another sponsor for cash.
Everyone prefers to have cash, but properties sometimes have needs (other than the need for money) and they might not have enough attractive assets to exchange for cash plus in-kind products. It's obviously in a property's best interests to undervalue your in-kind assets so that it can provide you with fewer or lower-value saleable assets in return. That leaves the property with more tickets left to sell to fans or other sponsors for cash.
Another reason properties feel that in-kind assets should carry a lower value than retail is that properties are convinced that you have excess inventory sitting on a shelf somewhere that would otherwise go to waste. Or they might think that you have expert technical services personnel sitting around with nothing to do, so you might as well wave those billable hours and provide technical expertise as a free add-on or at a significant discount.
So how should you the sponsor value in-kind assets? In general, you should assign the retail value to the products or services, especially if you have to purchase those items internally before providing them to the property. Alternatively, if you have some control or flexibility, you can assign a value based on special pricing offered to your best customers, usually somewhere between wholesale and retail.
From a negotiation standpoint, you will find yourself at an advantage if you can properly identify the needs of the property. How critical are your products or services to the operation of the event or to the property's day-to-day business? The more dependent the property is on your company's products, services and expertise, and the larger the pool of products and services required, the higher the likelihood that you can command the retail value in exchangeable tangible assets.
There is one final recommendation you should keep in mind. If your products are absolutely critical to the staging of the property's event and you aren't entirely comfortable with the property personnel's skill in running or using your products, you should consider requiring that technical experts from your company operate the equipment or train the property's personnel. The results are twofold. There is less likelihood of a glitch occurring and the ensuing negative press for your company, and you can negotiate your technical staff's time as an in-kind asset.
