MediaCom's Sher: Sports sponsorship appeal will increase even if fees drop
By Tariq Saleh
Long-term sponsorship contracts will continue to be the norm in sport but fees could fall as a result of lower marketing budgets in the wake of the current global coronavirus pandemic, a senior industry executive has told Sportcal.
The sports market as a whole is expected to take a huge financial hit given the present suspension of leagues and competitions and the impact on companies which invest heavily in the industry, including sponsors and broadcasters.
However, although he expects to see deals drop in value in the near future, Misha Sher, worldwide vice-president at sponsorship agency MediaCom Sport & Entertainment, believes rights-holders will still be able to secure long-term agreements.
Sher told Sportcal: “I think the fees could be reduced because, at least in the foreseeable future, even the companies that are going to stick with sports, a percentage of their overall marketing budget is going to be impacted. Most of the businesses are going to be, some will not be.
“You will have the likes of Deliveroo for example and maybe other industries that will thrive in this market. But given the fact this is a global issue, and everyone is very interconnected, I think this is going to impact on businesses in general and it will impact their marketing budgets.
“So I could certainly see reduced fees, but I do not see any impact on the length of contracts because the benefit of sponsorships is the being able to drive association over time, and that is not going to change.”
He added: “I do not see the relevance of sports becoming any less and I do not expect the lengths of contracts to be smaller either. Because with sponsorship, if you think about the biggest benefits you get from the sponsorship, and I do not mean from eyeballs, I mean from being aligned with a particular sport, the impact of that increases over time, it is very difficult to generate impact when it is short-term.
“So I do not think this is going to have any impact on the length of time that the contracts are signed for.”
The European Sponsorship Association recently issued new figures showing that the sports sponsorship industry was worth €30.69 billion ($33.4 billion) last year, an increase of 1.9 per cent on the figure of €30.1 billion in 2018.
Soccer was cited as the key driver for the slight growth with Europe’s top clubs securing large fees for sponsorship deals in what was a year without a major global event.
With individual athlete agreements taken into account, global sports endorsement deals were worth $55 billion in 2019, according to Brandessence Market Research, and the firm projected prior to the pandemic that the sports sponsorship market would grow to $86.6 billion by 2025.
Sher, now a member of the ESA board of directors, believes that the current situation will accelerate changes to the traditional sponsorship model, with rights-holders needing to leverage digital to stay relevant in a market which is set to undergo a period of change.
With reduced marketing budgets, Sher, who has worked with major brands involved in sponsorship including Toyota, Shell, American Airlines and Allianz, expects those which have embraced the digital space to have an advantage over their competitors.
He said: “What you will see is the nature of these [sponsorship] agreements is going to change dramatically. There is going to be a lot more digital, it is going to be a lot more digitally-led and a lot more performance-based. So, if you are a rights holder right now, I would be looking at what I need to do with my organisation to be digitally optimised and be set up as a media owner because that is the future.
“When we all come back, there is still going to be a huge appetite for sports and I do not think that is going to diminish, but what I think will happen is it will refocus the way the sponsorship industry works. The competition, for the budget, is going to be greater.
“Because there is not going to be, at least in the short term, as much money available and those who are going to be best placed to get that budget are going to be the rights-holders that are really set up particularly around digital. What has happened now has demonstrated to sponsors that you need to have an ecosystem that allows you to engage with people all the time through social, through digital, e-commerce and so on, and a lot of rights-holders are not set up for that.
“What you will see is that the types of sponsorship in the past which were very media-driven and all about signage and things like that, those are going to become a lot less relevant and rights-holders who can be open to much more development in the digital space are going to have a significant advantage over their counterparts.”
Bordeaux, the French soccer club, this week became one of the first sports teams to lose a sponsor as a direct result of the pandemic as local restaurant chain Bistro Regent exercised a clause in its contract allowing for a termination in the case of a health crisis.
More sponsors could follow suit, with many companies having inserted ‘force majeure’ clauses in contracts.
In the broadcasting market, several media rights-holders have opted to withhold payments with no live sports on offer.
In France, pay-TV operators BeIN Sports and Canal Plus have refused to pay the LFP, the French professional soccer league, while the top-flight Ligue 1 is suspended.
Meanwhile, DAZN, the international over-the-top streaming platform, has also alerted sports leagues that it will not make its next rights fee payments for any content that has not yet been delivered.
Asked if this will become a more common occurrence in the sports market in the coming months, Sher replied: “Yes, it will be. What we are realising is there is going to be a knock-on effect for everybody. We are just seeing that with sport but this is happening throughout. This is happening in every business where there is a connection and there is a pretty significant supply chain.
“We have seen DAZN who are saying we are not going to make a payment for the rights that they have not received, so it makes sense. There is an agreement where they are saying we will purchase the rights to then feature the content on our platforms, but if we are not receiving the content, we are not going to pay for the rights.
“It is the same thing for the sponsors, they have entered agreements now and I am aware of other situations where it becomes a conversation between the club and the rights-holder to say, and this depends on the contract, we have a clause we want to break, which is an option that sponsors have, or there is a conversation to be had to say at the moment we are not receiving the value of the sponsorship.
“So the option in those cases are, are you offering us a reduction on the fee, or complete stoppage on the fee right now, or are you offering us more value down the road when everything reopens? It really will depend on the relationship between the two, the sponsor and the rights-holder. So every party has to show flexibility.”
Despite the obvious financial impact the coronavirus will have on the industry, Sher believes the appeal of sports and sponsorship “is only going to increase” as he expects it to open up new opportunities.
Sher insists it is time for sponsors to reassess their marketing strategies and be more innovative in their approach.
He concluded: “The opportunity now is to innovate. For a lot of sponsors who have traditionally maybe spent in particular areas and executed in a certain way, I think this now is a great opportunity to go back to the drawing board. I would encourage a lot of sponsors to look at their portfolios, look at what they are doing, how they have been executing and think about how the world post-coronavirus will look like and what would be the most relevant role they can play in that world. For me, that is the opportunity.
“Are there other new opportunities outside of what people have traditionally done? Is it gaming? Is it original content? Is it talent? Now is this time to reflect on how things have been done and look at the world that we are going to be in in a few months’ time.
“Has the role of sponsorship and what you are doing in that space evolved? They will find the answer is yes. How do they innovate? How do they connect with people in that world? A lot of the industry still relies on traditional sponsorship assets that are very eyeballs driven. Now is the opportunity to think about connecting with people, creating content that people want to see and operating in the new world, it is going to be a new world.
“I am telling clients they need to use the time now to really to do an audit of where they are, how they have been behaving, and where and how that can inform what they should be doing coming out of this to stand out and to really drive relevance.”