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As the industry leader in evaluating and measuring marketing investments, Navigate has a wealth of knowledge in the sponsorship and marketing space. This blog shares our knowledge and insights on current events in the sports business, marketing and sponsorship worlds.

Beyond the Valuation

Navigate Research - Tuesday, February 23, 2016
Written by: Dan Kozlak

Sponsorship valuations have become an increasingly important and valuable tool. The significant growth in sponsorship investment levels corporate partners allocate from their marketing budgets to achieve advertising and business initiatives, as well as the dependence properties place on sponsorship revenue streams to operate at the highest level possible, have necessitated their use.  Valuations serve as a credible source for determining an appropriate price for a partnership, as well as demonstrating the return on investment a partner has received from the exposure generated by properties’ assets.  

By educating both properties and corporate partners about the appropriate value for partnerships, it can help generate an efficient market place where both sides can feel confident executing such partnerships.  However, determining the total fair market value price of a sponsorship is just one advantage valuations provide.  As anyone who has been involved in sponsorship negotiations can attest to, establishing an appropriate price for a partnership is just the initial step.  

There are a few other key components a valuation can satisfy beyond determining a fair price.
In instances where the sponsorship in question is new, dramatically expanded, or does not have a renewing partners, valuations can serve as a prospecting guide.  Establishing a fair market price for a partnership enables properties to focus their efforts towards prospective sponsors that can afford such investments and who have historically purchased sponsorships at a similar level.  Instead of simply targeting all potential corporations, setting a desired price allows properties to save time and resources by exploring only feasible partners.  And if it is unknown whether a potential partners would be willing to make such an investment, providing a broad price range during initial conversations can help prospects determine if they would like to further discuss the opportunity or not.  Establishing this pricing level can help save a great deal of time and resources from a partnership development standpoint.

Demonstrating the overall value of a partnership does help to establish the ultimate price it is sold for.  However, a valuation can serve as an asset package management guide.  Almost all sponsors have specific objectives they would like to fulfill from their sponsorship investments. A valuation of each asset can ensure an agreeable portion of the package’s value is being driven by assets that achieve those objectives.  Based on a sponsor’s desired “key performance indicators” (K.P.I.’s), a sponsor and property can work together to ensure the right mix of assets is utilized to deliver against those metrics.  This comes from a combination of the sponsor sharing these objectives and marketing goals (i.e. driving awareness, differentiation from the competition, building brand affinity, product promotion, etc.) and a property supplying and activating appropriate assets to achieve these goals.  However, this is only possible through a full asset package valuation.

Corporations engage in sponsorships with the ultimate goal of garnering a return on investment to their company’s bottom line.  Valuations provide a more accurate means of measuring their generated return against what the sponsorship has proven to be worth.  Measuring this observed fair market value of an existing sponsorship can help a sponsor to determine whether they should renew existing partnerships, optimize their asset mix, expand their partnership, or step away from a partnership.  Properties can also utilize the assessed fair market value to demonstrate to existing or future partners the return they can expect when partnership with their organization.  No matter which side of the partnership the return is measured on, a valuation will provide the most accurate performance gauge possible.

In negotiations, confidently knowing what a partnership should be worth in the marketplace can be very valuable.  Valuations can aid prospective sponsors by indicating whether the price they are being pitched appropriately aligns with the assets they are being charged. Valuations also aid properties by determining where they can establish pricing at knowing they can confidently walk away from a low-pitching prospect to pursue an offer they know they can command in the market place.  Having this information provides either side with an upper hand during negotiations.  By establishing the fair price of a sponsorship, partners can make appropriate decisions in their best financial interests.

While it is important to understand the best price to place on a given sponsorship, there are many other additional advantages to conducting valuation.  Valuations can assist in prospect targeting, asset package management, accurately gauging return on investment, and negotiation strategies.  Given the increasing amount of cost associated with sponsorships, executing valuations can be well worth their investments.