OK… Let’s play a game of ‘What Happens Next?’
Here is the scenario:
Brand X engages a ‘Sponsorship Consultancy’ to recommend which sport and entertainment assets they should acquire. The up-front ‘consultancy’ component is delivered for a fixed fee. Then, very generously, the Sponsorship Consultancy offers to secure the recommended sponsorship for a fee based on a percentage of the total deal.
So, what happens next?
Firstly, there is no chance that the Consultancy will recommend that sponsorship is not the right marketing solution. Why would they? They don’t make any more money if Brand X decides to invest in another channel.
Secondly, the Consultancy (typically devoid of any consumer insight) creates a short list of potential Assets for the brand. They make the selection through a complicated process of weightings, indexing and market knowledge which, for proprietary reasons, ‘cannot be shared’.
Thirdly, the Consultancy then contacts the short-listed Assets and informs them that one of its clients may be interested in a sponsorship relationship. However, before they can put the Asset forward to the client, the small matter of a commission fee needs to be resolved. Oh, and by the way… if the Consultancy can’t confirm their commission rate, they will not be considered by Brand X.
Finally, Brand X is told that voila… after an ‘exhaustive search’ the perfect Asset has been pin-pointed! If you move quickly, the Asset is available to be sponsored. But it won’t come cheap. Why would it? The Consultancy has been encouraged to make it expensive by a commission structure. But don’t worry; leave it to the Consultancy. They know people. They’re connected. They can negotiate the ‘best in market’ deal.
But it’s not quite over yet. There is one last kicker. Remarkably the Consultancy will always recommend a renewal of the deal. Why? Because they negotiated a lifetime trailing commission with the Asset, so they don’t want this party to stop.
For those of you who are not close to the global sport and entertainment industry, you’re probably chuckling at the absurdity of the scenario. Surely this sort of stuff doesn’t happen in today’s transparent business climate? For many of us who do work in the industry, we shake our heads at the lack of integrity and sophistication that’s happening all around us, and wonder aloud how much longer this can continue.
As we speak, rumblings continue within the media industry about the need for heightened transparency. This is the conversation that the sport and entertainment sponsorship industry needs to have. We must move past the days of ‘cowboys’ defining how the industry operates.
So how does the sport and entertainment industry address this?
- Brands need to understand that they have to pay for good strategy and insights. Sure, you can get it for free or cheaper if the ‘Consultancy’ has a commission structure in place, but it will deliver you poor strategy and untold hidden costs. And never, ever, pay a Consultancy a commission fee to source a sponsorship. You will always pay above market rates.
- Sport and Entertainment agencies needs to be transparent with their commission and remuneration models. If they are going to ‘double dip’ on commissions, at least have the good grace to tell the effected parties.
- Rights Holders need to be stronger. They need to ask whether the Consultancy is being paid by the Brand, and they need to push back on ridiculous trailing commission models where the Consultancy adds little or no value to future deals.
- Sponsorship industry bodies need to take a leadership position on the issue. They should be trying to build confidence in sponsorship as a marketing channel by improving integrity. Each market (if they don’t already) requires a sponsorship code of conduct to govern how the industry operates. The central plank of this code of conduct must be transparency.
This is not rocket science. Some might say this is simply good governance.
So, what happens next? Do we let cowboys define the industry, or do we apply basic business ethics and principles to build the integrity of sponsorship investments moving forward?
Note: for the sake of accuracy, it is best to replace the word ‘Consultancy’ with the either the words ‘Middle Man’ or ‘Sales Agent’.