Chris Pinner’s Nearest the Pin
FC Barcelona and Nike look like they couldn’t be happier together, having signed a new sponsorship deal reportedly worth £120m p.a. and therefore breaking adidas and Manchester United’s previous £75m p.a. record.
FIFA and the IOC may be in slightly rockier relationships. After all, a lot has changed since they reported record revenues of £2.1bn ($5.7bn) in 2014 and c.$850-1,600m from Toyota for eight years on their TOP programme.
Yet in both cases, friends have asked me the same question: “Who is the winner in this sponsorship deal?”
Unlike sport, sponsorship is not a game of Win and Lose
It’s time someone articulated why brands and rightsholders (and my mates!) need not see deal-making as a zero-sum game. So here goes…
Thinking Win/Win underpins any successful partnership
In sponsorship negotiations, rightsholders and brands often enter discussions with a Win/Lose mindset, leading to no deal or a Lose/Lose outcome. But deal-making need not be seen as a zero-sum game. If rightsholders and sponsors change their thinking and their metrics just a little then they can often create Win/Win partnerships.
“Not a technique; a total philosophy of human interaction” is how Stephen Covey, author of best-seller The 7 Habits of Highly Effective People, defines Win/Win. To Covey, it means that in any deal “all parties feel good about the decision and feel committed to the action plan”. I find it surprising that many rightsholders and sponsors do not think the same way.
Many rightsholders focus on revenue and price rights without understanding their value to would-be sponsors. It’s like a first date spent pitching all the reasons you are a 10/10 without once stopping to ask what your potential partner about their passions.
What happens without win/win thinking?
Many rightsholders are out to maximize the price they get from sponsors at pretty much any cost, even if it means a bad deal for their partner. In a sense, this is not surprising if we consider their profit maximization problem:
Rightsholder Profit = Revenue from Sponsor – Cost of Providing Rights
(Rightsholder ROI = Revenue from Sponsor / Cost of Providing Rights)
Seemingly, the rightsholders’ profit will be maximized by bleeding the sponsor dry while incurring as few costs as possible. This can cause Win/Lose partnerships, as demonstrated when thinking from a sponsor perspective and their profit maximization problem:
Maximum Sponsor Profit = Incremental Value from Sponsorship – Cost of Sponsorship
(Sponsor ROI = Incremental Sales from Sponsorship / Cost of Sponsorship)
As shown in our two equations, Revenue from Sponsor = Cost of Sponsorship. Looked at like this, taking the size of the pie as fixed, both parties could be forgiven for seeing any relationship as Win/Lose.
Except that the size of the pie is not fixed. We must recognize that Incremental Sales from Sponsorship are variable. More incremental sales can mean more value to be shared between both parties.
What would you rather have?
Fortunately, not all first dates are one-way pitches, and insightful rightsholders realize deals are not a zero-sum game. Instead, they search out and build Win/Win partnerships.
However, even for those with the right mindset – even for those daters who could be a perfect match – many still struggle to find the right words to make it show. In sponsorship, the debate and media coverage today is focused on revenue and cost. We know FIFA generated £2.1bn in revenue from 2011-14, but we collectively lack the language and metrics to understand how much is created for sponsors. The point here is that the sponsorship industry needs not only to think Win/Win, but also to talk through a Value lens. Put another way, sponsors care about value and ROI. Rightsholders must demonstrate their ability to deliver maximum value and ROI for sponsors.
They can do this by replacing the one-size fits all rights packages and proposals of today with value-based discussions with sponsors. Instead of metrics like # fans, demographic of fans, # followers and broadcast exposure, potential partners could discuss how to maximise value and ROI across all the different ways that a company is using sponsorship to create value (pathways to value).
An example of Win/Win thinking in action
Synergy have worked with some of the world’s biggest brands to use this approach to inform discussions at the negotiation table. We helped one such brand use value-based thinking to realise that some of the rights on offer, such as naming rights and social media branding, were not big value drivers and so did not justify the asking price the rightsholder in question was requesting. The next step taken was to share that thinking at the negotiating table. The result was an open and honest discussion on how each partner could work together to maximise value for both parties:
- The brand in question ended up saving £100,000’s on unnecessary rights.
- The rightsholder had additional rights to sell to other sponsors for £100,000’s.
If it becomes clear that a partnership is value-creating, as it appears to be for FC Barcelona and Nike, both parties can negotiate a price and go on to live happily ever after. Time will tell if their tale of romance continues. For now, as Stephen Covey suggests with another of his 7 Habits, let’s Put First Things First and start thinking Win/Win.