Covid-19 and the impact on Sponsorship

The impact that Covid-19 has had on the South African economy has been crippling: “Nearly all industries experienced a massive drop in output in the second quarter of 2020…as gross domestic product (GDP) fell by just over 16% between the first and second quarters of 2020, giving an annualised growth rate of ‑51%.” (StatsSa, 2020). And these poor market conditions continued throughout 2020 and into 2021.

The impact on the sports industry was much the same, devastating: mass participation events ground to a halt, the industry was decimated. Our clients’ such as the Comrades Marathon, IRONMAN SA and Spartan Obstacle Course Racing have been in an on-going holding pattern waiting for government regulations and restrictions to ease. No live sport, no broadcast, no travel & no spectators in stadium have meant that SA’s largest sporting codes and rights holders in Soccer, Rugby & Cricket, and our clients’ Sharks Rugby and Cricket South Africa, have been placed under extreme financial pressure.

As is often the case, Sponsorship as a category was, and remains, hard hit. Brands and sponsors across the board have had to ruthlessly slash budgets, to either negate the loss in revenue, or quite simply to try and stay in business.

It was, as one would say, the perfect storm. And not a good one.

10 ways in which Covid-19 has impacted the Sponsorship industry:

1. Removal from the consideration set – the need to cut budgets, combined with no events, has resulted in brands taking the decision to either exit Sponsorships, or not to consider new Sponsorships (for now).
2. Flat renewals – those properties fortunate enough to conclude renewals have done so primarily “on the same terms” i.e. no increase in either cash or VIK of the existing deal, effectively putting the brakes on future plans for sponsors to grow their investment and involvement.
3. Proceed with caution – lead time from enquiry to signature is taking longer to conclude, anything from 18 months or even longer. As brands take their time to consider and reconsider their options, momentum in the deal cycle is lost, which puts the deal at risk.
4. Pipeline pressure – because deals are taking longer to complete, pressure is placed on the sales pipeline, and the need to continually add suitable prospects. It is critical to increase in-market activity whilst ensuring tailored Sponsorship packages meet specific brand requirements.
5. The bottom line – and the longer it takes to do a deal means the longer it takes for revenue to reflect on an income statement. The impact here is felt directly by rights holders and employees, where pay cuts, reduced working hours, redundancy and business closure become real considerations.
6. Force majeure redux – we’ve seen this in every contract, but (hardly) ever had to consider it, never mind enforce it. Until now. But in truth, in our experience rather than cancellation the resultant impact has seen rights holders & brands review (and sometimes re-write) the clause and in most cases agree to an extension of a contract.
7. Discounted rights fees – a negotiation tactic used to retain sponsors, and rightfully so, when value is difficult to deliver. The impact has seen rights holders being put on defensive by having to accept lower than traditional market related values for their properties.
8. Negotiation conundrum – further to the above rights holders could have inadvertently disempowered themselves, and devalued their property, by revealing that they are open to negotiating and accepting a reduction rights fees. Tough times call for tough decisions to be taken.
9. Commercial case – brands are increasingly required to build a commercial case to demonstrate tangible returns a potential Sponsorship will make to the bottom line. This is a positive impact on the Sponsorship industry in general as it allows rights holders to quantify actual performance & delivery as a result of the Sponsorship. Something that is been lacking in traditional measures such as delivering awareness and association, the values and value of which are subject to debate.
10. Broadcast blues – traditionally a pillar in a rights holder’s basket, and a “banker” for Sponsorship managers looking for quantifiable returns based on the traditional advertising value equivalency (AVE). The lack of live sport, and resultant lack of broadcast content, has left rights holders and sponsors alike scrambling to deliver value.

However, as the Australian athlete Caroline Buchanan said, “diamonds are made under pressure” and we as an industry have never been under such pressure. And in true style, diamonds are being unearthed as we see the Sponsorship industry’s reaction to Covid-19.

10 ways in which the Sponsorship industry has reacted positively to Covid-19 conditions:

1. Solidarity – rights holders and brands need each other more than ever, and the Covid-19 “crisis mode” has resulted in both entities increasing contact & communication in an effort to work together to navigate the way through the crisis. And this bodes well going forward as each party will continue to go the extra mile for each other, as true partners forged in the cauldron of crisis.
2. Creativity – no event means no return, and this has resulted in rights holders needing to become creative in order to deliver value to their sponsors, and in so doing discovering new ways to deliver this. Never mind virtual events, rather think athletes joining Zoom and Teams calls to meet and greet sponsors, to participate in social media campaigns and to engage directly with their audience.
3. Value – the net effect of Creativity is an increase in value, both in terms of uncovering new rights which can be added and included in future rights matrices, and the resultant increase in the overall valuation of a property.
4. Engagement – Sponsorship allows an audience to connect directly with athletes, and Lockdown provided the perfect platform to facilitate this, dovetailing with the growth of digital and online platforms.
5. Online “coffee” chats – we have never been busier, and we all know how hard it is to find a gap in an exec’s diary. The move to online meetings has facilitated short, sharp catch-up sessions to be scheduled with clients to maintain contact, and with prospects to pitch prospective Sponsorship opportunities.
6. Virtual events – the birth of a new category, a new event and a new revenue stream. For rights holders with a strong brand and loyal audience, this has represented the opportunity to supplement traditional revenue streams by extending their property to a larger audience, of all ages, with no entry cap or qualification required and to sell merchandise and licensed product. These will also become permanent fixtures on their annual calendar of events.
7. eCommerce – lockdown, and restrictions on contact, have resulted in significant growth in online shopping, now having become a near mainstream method of purchase. Rights holders geared with online store capabilities have ensured that it has never been easier for their audience to purchase their team’s jersey!
8. Delivery – eCommerce requires fulfilment, and this has seen the growth and emergence of the B2C courier category. Rights holders selling replica jerseys, branded merchandise & licensed products to their audiences, represent an attractive Value In Kind (VIK) proposition to these companies.
9. eCommerce platforms – the impetus experienced in the eCommerce space has had a direct knock-on effect on eCommerce platforms as they recognize the potential of Sponsorship to build their brands and drive usage via loyal, engaged audiences.
10. Digital consumption – Livestreaming, OTT, video on demand and pay per view platforms have revolutionized how, when and where we consume sports content, and this category is set for take-off. Rights holders would be wise to review the availability of these rights in their basket.

With restrictions being reduced, vaccines becoming more prevalent, the cautious resumption of mass participation events and talk of allowing reduced numbers of spectators in stadium, the light at the end of the Covid-19 ravaged Sponsorship tunnel is slowly beginning to shine brighter.

Reference list

Steep slump in GDP as COVID-19 takes its toll on the economy, StatsSa.gov.za

Author

Richard van der Schyff