With the recent announcement from the 6 Nations that, following a exhaustive search to find a replacement, they have finally renewed the RBS sponsorship (under the Nat West brand) for a single season, this blog investigates the underlying challenges currently facing the sponsorship industry and how its stakeholders need to deliver solutions.
The sponsorship industry is struggling. The 6 Nations are not the only rights holders who have had great difficulty in finding a new title sponsor. Premiership Rugby announced a similar one-year renewal with Aviva during the summer after having been unable to persuade any brands into longer term more lucrative agreements. This is by no means solely a rugby issue, there are many properties in a variety of territories which are currently looking for brand sponsorships. We believe that there are four primary reasons for this trend.
The first reason is that fees are currently overvalued by rights holders. As an example, it is understood that the 6 Nations turned down a multiyear renewal offer with a 40% increase in fees from RBS at the beginning of 2017. As much as the Six Nations is a great tournament with high viewing figures, in essence, it only provides significant value in three markets. As much as the Six Nations committee will argue to the contrary, this is not a tournament with global reach. The money initially offered by RBS is astronomical and the 6 Nations should have grabbed it while they could, instead one of the [smaller] competing nations vetoed the offer and they’ve ultimately had to settle for a 20% drop in fees for a one tournament deal. We are increasingly seeing a similar trend from other rights holders, where they are struggling to find sponsors and/or are having to settle for shorter term agreements at lower fee levels.
The second reason for the challenging sponsorship environment is Brexit (which is linked to the first point). We are going to caveat this by saying that this blog isn’t suddenly going to turn political (before you stop reading). However, the reality is that with a divided and unstable government, seemingly little progress on Brexit negotiations and rising interest rates, business confidence is low. Businesses don’t know what conditions they are going to be trading in during the next 18 months, let alone in 3/4/5 years (which is usual term for sponsorships). Therefore, it is unsurprising that sponsors are taking more conservative short-term decisions.
Thirdly, the continued digital expansion is impacting on the sponsorship industry. We read every day about the ever-increasing money being allocated into digital budgets to the detriment of other marketing channels. The predictions of the ‘death of TV advertising’ are all to frequent. Whilst many of these stories are written to grab headlines or raise the author’s LinkedIn profile, the reality is that digital platforms are seemingly offering more efficient targeting for potential advertisers, therefore there is less money in marketing pots for ‘traditional’ channels.
Finally, due to the ever-increasing competitive nature of the TV broadcast market, TV rights fees are escalating at a faster rate than sponsorship fees. Therefore, sponsorship is less of an important component in rights holder revenues than it once was. As a result, rights holders have taken their eye off the importance of delivering to their sponsors which leads to a devaluation of their rights
Whilst this may seem like doom and gloom, we believe that it offers opportunity to the industry. It offers the chance to evolve and discard some of the past negative perceptions, maturing into a robust and full-proof marketing solution. In the short term, rights holders need to be more realistic about the economic and business environments that we live in. Brexit is breeding uncertainty; marketing budgets are being scrutinised more than ever before and media platforms are proliferating. A more realistic understanding of rights fees will be a positive step forward for rights holders.
Additionally, stakeholders need to continually reinforce the role of sponsorship. The industry needs to focus on what this communications channels does most effectively; sponsorship credibly aligns brands with consumers passions points and communicates shared values and interests. When executed correctly, other channels cannot rival this offering.
And finally, rights holders need to be more creative in how they approach and deliver for their partners. Rather than just offering ‘traditional’ rights they should be focusing on delivering over and above expectations. With more creative rights and exploitation opportunities, sponsors will be able to drive greater returns in their activations which, in turn, will increase the value of the rights. It is worth noting that, according ESP Properties, sponsorship income in Europe will be worth over $16bn in 2017. So, whilst broadcast rights are playing an increasingly important role in the revenue mix, rights holders should remain focused on delivering for their partners.
Whilst we do live in challenging times, it should not mean that the sponsorship industry lies down and accepts this slump. Sponsorship is still one of the most powerful marketing channels available to brands if activated correctly. It’s time for the industry to evolve, mature and drag itself out of this downturn.