In this industry, it is not uncommon to witness sponsorship portfolios growing organically, without a clear vision of which properties with which to align the brand. That approach might lead to exposing brands to unwanted risks. First and foremost, managers must know the amount of exposure of their portfolio, and the avenues to mitigate it. Risk can be multiple and varied. There are factors that can seriously impeach reaching sponsorship objective or even harm the brand long after the sponsorship agreement has expired (examples abound, especially in the cycling world…). Yet, simple tools can be used by sponsorship and marketing managers in order to quickly assess the situation and build a contingency plan to re-balance the risk within their brand sponsorship portfolio.
Often overlooked, managers must have a clear overview of the whole sponsorship portfolio including information such as rights fees, activation budgets, contract deadlines and sets of primary and secondary objectives to be attained by associating with the property.
2. Evaluating the risk of each property
Simple qualitative scales can be used by managers, in order to rate individual properties and measure the overall exposure to risk within their sponsorship portfolio. Example of a simple scale:
Is the property prone to negative publicity, scandals, injuries or deaths, financial default or even failing infrastructures? Very high (7) (6) (5) (4) (3) (2) (1) Very low
Trade-off between risk and ROI
On the properties that rated 5 or more on that scale, what is the potential return on investment? Return should be equivalent or higher than the risk taken by associating your brand and business to that organization. Other elements should not be overlooked when considering risk evaluation:
Longevity: How long has the property been in operation?
- Very high risk: 1-2 years
- Moderate risk: 3-5 years
- Low risk: 5 years or more
Property’s performance / sponsorship knowledge:
Does the property have an account manager, or does the event producers have limited knowledge of sponsorship, let alone marketing?
3. Global evaluation of the portfolio
The next step is to add all of the risk levels of all individual properties, then to divide with the total number. Is the overall portfolio at risk? Does that image align well with the brand? Risk may be pertinent with a brand image, for example in the case of Red Bull, but a very limited number of brands have such a positioning. If the risk can be balanced within the overall portfolio, having some risky properties might be worth the investment.
Other ways to mitigate risk: the multi-level strategy
When an organization decides to massively invest in one field, let’s say football or motor racing, another strategy can be applied to balance the risk. In many sports, for example, properties can be categorized according to their hierarchical level. For example: the individual player, the team, the stadium/race track and the championship. From a brand perspective, a player endorsement is extremely attractive because it helps with the personification of the brand. However, this investment is risky because it is subject to human behavior, such as scandals, violence and doping. The team sponsorship offers some of the same qualities but often is regional/national. By sponsoring a national team, a global brand can put off fans of other clubs. An investment at the stadium/track or sponsorship level is quite low risk, and will provide lots of visibility, but will usually not grant the valuable access to the players and other personalities of the sport.
Use the “best of both worlds” approach
Brands, such as Shell or LG are good examples of that strategic approach with their balanced investments in different property levels in Formula 1.
It is advisable to have a contingency plan in hand. In case of trouble, will the partnership with the organization be preserved or will there be a withdrawal of the investment? Does the contract allow such action without being heavily penalized? A strategy and a media communication plan should be in place in prevision of such an event.
Properties too should pay close attention to the risk of signing a new sponsor in spite of the money it can bring. Careful brand management is just as important to the property and consideration of other sponsor’s brand image when signing a new deal should be taken into account.