Issues With Sponsorship Levels

In the previous article, we have already seen what sponsorship tiers or sponsorship levels are. We have also seen the various benefits that such a sponsorship arrangement can provide to both the sponsor as well as the sponsored sports entity. Hence, we know why sponsorship levels are widely used as a financing arrangement across various sporting leagues.

However, it would be wrong to assume that there are no downsides to this approach.

Just like everything else, there are certain disadvantages to using sponsorship levels as well. In this article, we will have a closer look at some of the common issues related to sponsorship levels.

1. Brand Clutter: The first and foremost problem with regard to using sponsorship levels is that it creates brand clutter.

   Branding is all about communication. Hence, the benefits derived by the sponsor are proportional to the clarity of the message of the sports league.

   In case, many brands are co-sponsoring a league, the image-building and the message of the sponsors get diluted. This is because the consumer’s mind gets exposed to a lot of different messages simultaneously and hence the effectiveness of the message is reduced. It is for this reason that many brands do not prefer to enter into co-sponsorship agreements, particularly for small and medium-sized sporting leagues.

2. Difficult to Guess What is Valuable to Sponsors: The process of creation of levels of sponsorship also involves the creation of different types of sponsorship packages. This means that it is the responsibility of the sponsored entity to ensure that they provide some additional benefits to the sponsor in lieu of the additional money that they are receiving.

   However, this involves making decisions about what additional items can be provided that are useful to the brand.

   For instance, in some cases, higher sponsorship levels might be provided more free tickets to the event or maybe their logo will be broadcasted in more types of advertisements. It is possible that the additional facilities might not be very useful to the brand in question.

3. Difficult to Build Equity Within Packages: Similarly, it is very important to ensure that the packages are designed in such a way that there is always parity between the different types of packages. This can be done by carefully planning the benefits offered by different sponsorship levels.

   However, it is important to note that the packages seldom remain static. In real life, the packages are negotiated while signing the agreement. It is important to ensure that no sponsor is allowed to benefit at the expense of others. The sponsorship layers must be defined in such a way that any kind of arbitrage is not available to any of the sponsors.

4. Difficult to Manage: It is also important to note that tiered sponsorships are very difficult to manage from the point of view of the sponsored entity as well. This is because the sponsored entity needs to have different types of lawyers and other professionals who help them manage such sponsorships.

   For example, the cash flow schedule provided by each of the sponsors might be different. Also, if the cash flow commitment by one of the vendors is not met, then the entire event is impacted. This means that the sponsorship dollars spent by other sponsors could also be jeopardized due to non-performance by one particular sponsor. This is only an example.

   In real life, the execution of an event with layers of sponsorships would pose a lot of challenges in the form of coordination between various stakeholders.

5. Increased Reputation Risks: In the previous articles, we have already mentioned that a sponsorship is an agreement relating to the transfer of image between two parties. Normally, the sporting league and the sponsor have a bilateral risk. This means that if the image of any one party gets negatively impacted, it will rub off on the other party too. However, when it comes to multi-layered sponsorship, the image of multiple parties gets intertwined with one another.

   Every sponsor gets impacted (positively and negatively) by the actions of any of the other co-sponsors as well as the actions of the league as a whole. It is for this reason that the reputational risk i.e. the risk of negative impact on the reputation of a company relating to events beyond their control is much higher.

6. Increased Restriction on Advertisements: Last but not least, it is possible that the finances received from sponsorship might begin to cannibalize the money received from other sources such as advertisements.

   Each time, a sports entity agrees to take sponsorship, they get bound by certain terms of contracts. These terms restrict their ability to raise funds from other competing companies in the form of advertisements.

   If the list of sponsors for a sports league increases, the corresponding list of prospective advertisers goes down correspondingly. Hence, it is possible that even though sponsorship provides immediate cash, it leads to lower economic benefits in the long run by restricting the demand for advertisements.

The bottom line is that there are several downsides to level-based sponsorships. These downsides need to be taken into account before making any decisions.