Covid-19 And The UK Sponsorship Industry - Tackling The Current Crisis And Preparing For The Future

In a recent report, analysts at IEG estimated that around 120,000 US sponsorship agreements were in limbo as a result of measures to prevent the spread of Covid-19. All told, more than 5,000 brands were faced with decisions on how to recoup lost value, said IEG. No similar analysis exists for the rest of the world, but it’s safe to assume that the global sponsorship industry is experiencing a similar impact.

In the short-term, the situation doesn’t look like it’s going to get much better. While many companies and individuals have displayed innovation, resilience and a spirit of solidarity, recent rises in infections have seen several territories start to re-impose tougher restrictions on their population’s movements and activities – with inevitable knock-on consequences for the sponsorship sector. At time of writing, for example, the UK’s new ‘rule of six’ was seen as a potential threat to the proposed reopening of sports stadia.

Sadly, many companies and events will not survive the economic carnage inflicted by Covid-19. But for those that do, there are two main areas of concern. Firstly, what are the best options if they are currently in the midst of sponsorship-based partnerships? Secondly, what are the key lessons for those that are lucky enough to come out the other side? Over the coming weeks, we’ll explore both issues –from the point of view of both brands and rights holders. This week we start by looking at the immediate implications of Covid-19.

Cut and run or stay the course? It’s inevitable that many sponsorship contracts will have been breached as a result of Covid-19. So the first question for brands is whether to terminate and seek remedies or reach some kind of understanding with rights holders. The decision about what to do will depend on the specific challenges faced by a brand and the level of importance they ascribe to the sponsorship. Companies that are well-positioned to survive the Covid-19 storm and which generate significant business value from the partnership are most likely to seek some kind of accommodation. The risk of pulling out prematurely is that a) the brand damages its reputation with the target audience it was seeking to engage with and b) it opens the way for a rival with a longer term vision to takes its place instead. A classic example of a brand standing up and being counted was Visa’s decision to extend its relationship with its roster of Olympic athletes – a proactive decision that will likely translate into brand benefits. Of course, many big brands have multiple sponsorship partnerships – so there is an evaluation job to be done during Covid-19. While some rights holders might suffer as a result, now is an opportunity for brands to review and rationalise sponsorship portfolios – dispensing with partnerships that haven’t been delivering strong enough returns. There’s some good guidance from SponsorshipX about the discussions brands should have with their agencies about their inventory.

Revisit rights fees: Assuming the brand decides to stay the course, there is a whole discussion to be had about the potential for rights fees adjustments. If, for example, a sports rights holder can’t deliver live events or television exposure, there is clearly a tangible reduction in the financial value of their offering. How much exactly will be the subject of tricky negotiations, so KPMG advises going into discussions well-prepared. “Going into negotiations equipped with a strong fact base ad being able to articulate losses is crucial,” says the accounting/ consultancy giant. That said, the current situation should not be an excuse for brands to play hardball with struggling rights holders. Brands that squeeze their partners too much in the short-term may pay a reputational price further down the line. There are excellent insights into how to go about renegotiating a Covid-19 impacted sponsorship contract in this article by law firm Taylor Wessing.

Explore alternative ways to extract value from the partnership: For brands that are not compelled to terminate a sponsorship for financial reasons, this really should be seen as an opportunity to explore new ways to connect with audiences. Yes, there are limits to what can be achieved if a festival is cancelled or a venue is shut, but as Mediacom Sport & Entertainment points out there are other forms of activation that can be explored. One area it cites is gaming & esports. In a recent blog it noted that: “There is an audience that craves sport and sees gaming as an alternative. Brands associated with competitions that are suspended are showing agility and hosting esports versions. And the numbers have not disappointed. Santander, the title sponsor of La Liga, headlined a FIFA 20 tournament comprising players from each club team. The Santander Challenge, livestreamed on Twitch, drew 1 million viewers and gave fans a more intimate and personal experience with their favourite players than they are used to.”

Forms of digital expressions extend much wider than esports, of course. Online or mobile performances, educational outreach, virtual tours, social/influencer driven branded content are just a few of the avenues that brands and rights holders can explore in partnership.

Become a force for good: A recurrent theme throughout Covid-19 has been whether companies have gone the extra mile to support people at this difficult time. For the most part, supermarkets have seen their reputation enhanced, by keeping us fed and watered in such a calm and rational way (without imposing manipulative price rises). For similar reasons, the pharma industry (often much maligned) has seen its overall brand image improve. Some companies that have been called out for ill-judged decisions during Covid-19 include Sports Direct, Wetherspoons and Virgin Atlantic. So what does this have to do with sponsorship? Well clearly there is an opportunity to leverage partnerships with rights holders and individuals to support people who are struggling. For example, one of the personalities of 2020 has been Manchester United striker Marcus Rashford, with his powerful interventions on the issue of food poverty. Brands should be asking how they can support this kind of high-impact positive messaging within the context of the existing partnerships with teams/events etc.

The rights holder POV: The cancellation of an event is challenging for a sponsor – but at least they still have their core business. For rights holders, the current pandemic can mean the total destruction of their revenue base. Eventbrite offers some good advice to rights holders at this challenging time, centred around the importance of transparency and communication. It also shares guidance on how to generate sponsorship revenues for rights holders that hold virtual events. For brands that want to see the return of a healthy events-based industry, the best short-term response will be to remain patient and supportive.

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