Sponsorship has been increasing in popularity as a marketing tool for brands to create awareness, drive sales or new business, and increase customer loyalty or employee engagement.  With added interest and investment in Sponsorship, brands are now beginning to tread very carefully around the marketing tool and here are some of the reasons why. 

Mismatched brands and rights

Brands spend a lot of time and money carefully planning and deciding on the right property to sponsor (either this or its Chairman’s choice).  Despite this, there are brands that have spent huge sums of money on the wrong rights, which have not paid dividends and certainly haven’t offered much return on investment.  In some cases sponsorship has had negative effects in terms of ROI and a bad fit between brand and property has led to damaged reputations for the former and reduced commercial value for the latter.  However, today, brands have become much savvier about what they attach their name to because of the huge cost of sponsorship and with the global recession this has never been as crucial as it is now. 

Financial Services

During the recession’s worst moments any financial services company about to spend money on sponsorship was met with harsh criticism and serious public backlash.  Even now, as we begin coming out of the worst of it there are still strong opinions on the practice.  Bank of America ended any talks with the New York Yankees due to huge financial difficulties and UBS cancelled its sponsorship of the Hong Kong Open after it received a $59.2 billion bailout from the Swiss government.  Both did so for fear of major public backlash.   RBS on the other hand announced $41 billion in losses just after extending its sponsorship of the Six Nations – a decision which was met with outcry, especially as it is 70% owned by the government. 

The effects of digital

With digital, bad news can travel extremely fast.  This has meant that companies have had to rethink marketing strategies.  Bad press around a property can cause devastating effects for any company that has created a strong association through heavy marketing activity.  To illustrate the enormous implications of a scandal, combined with the power of digital, just look at Tiger Woods.  As soon as the story broke about his behaviour it spread across the world in seconds.  Shareholders of Nike, Gatorade, and other sponsors consequently lost a collective of $5 to $12 billion due to a significant drop in their stock’s values. 

Embarrassment 

Poorly performing teams, embarrassing scandals, politically damaging stories.  These are all reasons for brands (or in some cases properties) to cut-off associations with partners.  Famous and very recent examples of this are Accenture dropping Tiger Woods, Nationwide dropping the FA, and only last week, two Indian state-run firms – NTPC and Power Grid Corp of India – have decided to scrap their multi-million dollar sponsorships of the Delhi Commonwealth Games due to negative publicity around allegations of corruption, mismanagement and malpractice. 

In addition, the BP oil fiasco that has engulfed the Gulf of Mexico has severely damaged the reputations of many of the arts properties it sponsors, primarily The Royal Opera House, Tate Galleries, and British Museum.

Brands are now very cautious about what they attach their name to.  Understanding sponsorship and the effect that it has on consumers is key to understanding the possible risks of association, as well as the benefits.

One of the most common things we do when looking at a new way of doing things is to look at who is doing now and who is doing it well.

This is certainly true when it comes to working in social media in the UK.  Facebook, Twitter, Foursquare and many others are inventions from the US and rightfully they were the first to fully understand its potential for businesses and then sport.

When I look at examples of best practice in the industry I will naturally look to people who are the foremost thinkers on social media + marketing are also based there such as Chris Brogan, Gary Vaynerchuk, Lewis Howes, Seth Godin and many more.

Why can this be a problem?  Well, take a step back for a moment and think about the differences in personality.  We see Americans as being brash, self confident and loud (sorry for the sweeping generalisation but just take it in the context of this post… it works I promise!).  Whilst we British are seen as being traditional, stiff-upper-lipped and more inhibited.

So when we see US athletes, thought leaders and businesses tweeting every few seconds, checking into everywhere they go and shouting from the roof tops what a great job they are doing, would we copy exactly what they do?

On the whole probably not.  We are nowhere near as good at self publicity when we are building up our on and off line profiles.  Social Media provide us with a massive opportunity to let people know we are experts in our field and make connections around the world.

To do this you have to put yourself up there and not be afraid to show that you know your topic and are confident enough to write, make podcasts or videos about it.  You need to do this regularly and consistently to let people know that you do what you do and that they should hire you.

There are examples of people making videos and websites devoted to getting them a job with a certain company… and it succeeding.  I am not saying we need to become American and copy everything they do and say.  But if you can let go of your inhibitions and shout from the roof top every once in a while, you will be amazed at how many people are listening.

The eminent and well respected CEO of a leading Premiership football club once refused to sanction a budgeted expenditure of £40,000 on a brand refresh project. For sure, £40,000 is not an insignificant dollop of cash even in a business where certain employees earn that amount in only a couple of days. However, it was not the amount per se that so concerned the CEO. His reticence was a consequence of his suspicion that there was no return to be had on the investment.

This scenario poses the tricky question: Can real value ever be achieved from an investment in brand marketing?

To get to an answer, we first have to define our terms. Brand marketing is the activity that utilises all of the properties associated with an organisation’s identity. This may include a crest or logo, a name or style and any verbal, graphic or pictorial design features (including colour pantones, textures and font styles) that when taken together present an overall image or expectation particular to a product or company.

The problem is that few companies with a well-defined brand image invest enough time or effort to manage and develop their property. There is a commonly held view, (particularly among the accountants who seem to run most businesses today) that investment in a brand is simply another clever wheeze by the marketing department to keep themselves gainfully employed. And yet for many companies, the corporate brand is their single most valuable asset. It may not appear on the balance sheet under an obvious heading, but it is certainly present albeit in intangible form.

Let’s revert to the example of our Premiership football club and list the qualities that underpin the global accessibility and recognition of its brand:-

Unprecedented success on the pitch under the guidance of a wise (if a somewhat irascible) manager of many years service; an enviable squad of players assembled by supplementing the product of a global youth scouting system with the expensive acquisition of established stars; a stadium and training facility that is second to none; an international fan base numbering hundreds of millions spanning the globe and all constantly exposed to TV, digital and news media hungry to promote the team’s name and glorious track record of success; a portfolio of corporate sponsors eager to lavish their cash in return for a little reflected glory; an unswerving sense of loyalty and affinity that can persuade even the most casual of supporters to consume every piece of merchandise and branded tat peddled by the club’s official Megastore – including club-branded mortgages!

Assuming these qualities are backed by a sensible and prudent approach to financial management (and that the club is not overly burdened by unsustainable levels of debt), there is every reason to expect the outcome will be substantial if not sector leading sales revenues and the generation of year on year profit growth to satisfy even the most vulpine consortium of corporate investors and PIK note lenders.

So how can we quantify the brand value of this fabled if not mythical organisation?

It’s easy really. Just sell the players, sell the stadium and the training facilities; sell the database of fans; sell all media assets and capitalise all sponsorship contracts. In fact, sell off every asset that appears on the balance sheet. Now, compare the total realisable assets of our sale with the market value of the club. The difference between the two figures is the value of the brand. In our hypothetical example the figure would be north of £400m. Now isn’t that worth an investment of £40k?

There’s been something reaching media hysteria over the idea that a group of Red Knights led by Jim O’Neill, chief economist at Goldman Sachs, will sweep into Manchester in something akin to a boardroom coup and snatch the world’s most famous football club from the grasp of the Glazer family.

And create a healthy return on investment for the secretive US family firm in the process!

Suggested valuations on the club swing ever more wildly from week to week– the latest was at the weekend when a value of £1.25 billion was being mooted by The Sunday Times.

All this conjecture is the stuff of great sports journalism, but does it make good business sense?

There is a lot of discussion on the level of debt that the club is currently carrying and how this will be removed by the Red Knights.

But have these well-endowed individuals agreed on what the Man Utd brand is actually worth?

I doubt it.

How much of the £1.25 billion is for the intangibles that the Glazers own and how much of it is wrapped up in the tangibles like Old Trafford stadium?

The reason I raise this is because in essence the Red Knights will be expected to pay a premium price for the brand, rather than the computer system or quality of the dressing rooms at Old Trafford.

So brand valuation will be a key issue.

And it’s one area that traditionally accountants love to hate as there’s never been an agreed method of measuring this value with some clarity.

Which is why 1^st April 2010 could be a turning point in the Man Utd saga as the International Organization for Standardisation (ISO) publishes the long-awaited standard on the thorny issue of brand valuation.

Aimed at both brand consultants and finance and marketing professionals, the general requirements of the new standard will include greater transparency of the process of brand valuation in deals like the one being contemplated by the Red Knights.

There are likely to be enshrined within the standard – and adopted here in the UK by the British Standards Institution (BSI) – three distinct approaches to brand valuation:

1. The Income Approach – which measures the value of the brand by reference to the present value of economic benefits
2. The Market Approach – which measures the value of the brand based on what other purchasers in the market paid for similar assets
3. The Cost Approach – which measures the value of the brand based on the cost invested in it.

Valuation inputs include assessments of market data, brand strength – based on factors such as awareness and loyalty, brand relevance in its specific market and legal aspects such as intellectual property rights (IPRs).

It will be the application of these standards that are likely to become a major area of contention in any potential sale involving a global brand like Man Utd.

Each side will claim that its workings achieve the right financial outturn for each measure – except they are unlikely to agree!

Which could mean that the Red Knights pay less for the club than is currently being mooted.

Alternatively, the Glazers may decide that this isn’t the right time to sell and put this off until the club is likely to have increased in brand value relative to the size of other English Premier League Clubs.

In which case the asking price could be double what’s on the table today.