Publication: IEG Sponsorship Report

Outsourcing sponsorship sales to an agency with experience, expertise and contracts holds obvious appeal for properties that have little or none of the above.

The good news for those properties is that the number of firms set up to represent sponsorship opportunities continues to grow, as is reflected by the sample list compiled by IEG SR of sales agencies offering services to non-sports and small-to-mid-sized properties.

But the number of properties seeking assistance also may be on the rise. Arts & Communications, an agency that specializes in cultural and entertainment properties, is receiving a growing number of inquiries from properties looking for help with sponsorship sales, as well as with identifying and packaging opportunities, said managing director Ann Holtby.

“Companies are looking for more than just exposure, which used to be where sponsorship began and ended,” Holtby said. “They want client engagement, ways to get employees involved and the opportunity to showcase products and services. Properties realize they don’t always have the expertise to solve those kinds of issues.”

The fact remains that agencies naturally are interested in working with properties that can generate the most profit, as well as expand the broker’s network and reputation, which means that some smaller or niche properties still will not be in a position to find representation.

Even for those that are in that position, a number of challenges await on the road to establishing a mutually beneficial relationship, including agreement on the property’s income potential and its ability to deliver on promises made by the agent, not to mention issues of compensation.

What Agencies Look For In Prospective Clients Given that there are more properties then agencies, brokers can be selective about whom they take on. Sales agencies consider a number of factors when determine whether or not to represent a property, including its sponsorship revenue and profit potential, the people and organizations behind the property, its prestige factor and its reach and influence.

Arts & Communications, whose client roster includes, the Art Gallery of Ontario and Montreal Museum of Fine Arts, concentrates on organizations that are capable of generating at least six figures in annual sponsorship income. “If their revenue is below that, they wouldn’t be able to hire us,” Holtby said.

One of the key sticking points between agencies and prospective clients is determining the level of potential sponsorship revenue. Many agencies say that properties have unrealistic expectations of their worth.

“One of the things I always do upfront is to give my perspective of fair market value so that we’re on the same page. It’s critical to reconcile that upfront,” said Jim Erlick, president of The Erlick Group, which specializes in film, Broadway productions and other entertainment properties.

The potential size and value of a property’s sponsorship packages is especially relevant, agencies say, because the work involved in selling small deals and large one’s is the same.

“It can take the same amount of effort to sell a $10,000 deal as a $5 million deal,” said Andrew Klein, president of Revolution Marketing, an agency that specializes in concerts, video game competitions and other touring properties. “It’s the same process: You make a phone call, send a proposal, have a meeting and close the deal.”

Those thoughts are echoed by others. “I’ve done seven-figure deals in one meeting, and I’m working on a $5,000 deal now that has taken 16 months to put together,” said Michael Richman, president of Backstage Pass Entertainment Marketing, which represents The Venetian Hotel Resort Casino, as well as performing art venues.

When evaluating a potential client, Klein tries to identify 10 companies that potentially would be interested in the property. “If there are no obvious partners, we’d have to take a pass.”

Fees Required In Addition To Paying Commission
The standard payment structure between rightsholder and agency is a retainer plus commission.

The average commission rate is 20 percent, although it can go as low as 10 percent and as high as 35 percent. That range is based on a number of factors including the size of the deal, the age and reputation of the property and the expected length of the sales process.

Most agencies require a retainer to cover expenses. Monthly fees can range from several hundred dollars to $10,000.

In addition to paying expenses, agencies say retainer fees are vital because they ensure that clients are interested in the sales process. “Properties need to have skin in the game,” said Tom Cordova, president of Cordova Marketing Group, which has represented motorsports venues and pro sports teams among other properties.

In addition to agreeing on the retainer and commission rate for new cash deals, the two parties also must concur on compensation for renewals of pre-existing deals, future renewals of agency-led deals and in-kind agreements.

If an agency renews with a sponsor that was originally signed by the property, it typically will earn its commission only on the amount of any increase. Some agencies lower their percentage for renewals of deals they originated, while others offer no discount, positing that renewals can be just as much work as new deals.

Rates for in-kind sponsorships can be tricky due to the difficulty of attaching cash values. Agencies usually earn full commission only on items that are budget relieving, sources said.

Tips On Establishing A Relationship With A Sales Agent
Cary Chevat, president of Sponsorship Resources, a 15-year-old sales agency that represents Feld Entertainment, Inc.’s Ringling Bros. and Barnum & Bailey Circus and Disney on Ice properties, plus other opportunities, offers the following advice to properties:

Grant exclusivity. It is extremely important for agencies to have exclusive sales rights. “Most agencies will not take on an assignment if they don’t have exclusivity either in certain categories or for the whole property,” Chevat said. “Exclusivity is the only way to motivate an agency.”

Develop performance metrics. Properties must be able to measure if an agency is doing its job. “Are they sending our proposals? Are they getting meetings? If they haven’t had any serious discussions within three months, fire them.” Chevat said, recommending that properties ask for copies of correspondence-not call sheets-between the agency and potential sponsors.

Make sure agency knows what it can and cannot sell. In addition to any restrictions on categories because of property policies or existing exclusivity agreements, agencies also should have a comprehensive understanding of the salable inventory under the property’s control.

“You can get into a lot of trouble if, for example, the agency promises a sponsor that it can offer a promotion giving away a CD sampler of the artists appearing at an event, and you haven’t secured those rights,” Chevat said.

Check references. Properties should talk to past clients to make sure agencies have sold deals. “Some agencies won’t do anything after they receive a retainer,” Chevat said.

Sources: Arts & Communications, Tel: 416/966-3421
Backstage Pass Entertainment Marketing, Tel: 972/386-3300
Cordova Marketing Group, Tel: 407/316-8414
The Erlick Group, Tel: 212/418-7372
Revolution Marketing, Tel: 212/378-1614
Sponsorship Resources, Tel 973/746-1925

Publication: IEG Sponsorship Report

Don’t let price be a limitation.

This issue is one of the major drawbacks to sending unsolicited full proposals, a process that is quickly falling out of favor.

As Jim Erlick, founder of The Erlick Group, an agency that brokers deals for entertainment properties and venues, put it: “If you send out a proposal with a specific price, half the time your price will be too high and half the time it will be too low.”

A more effective alternative to pre-packaged proposals is to involve the sponsor in the creation of the sponsorship program. If a meeting cannot be scheduled without putting something in writing, the initial materials should be short and concise, with just enough information to demonstrate your knowledge of the sponsor’s objectives. Erlick used this approach when he sold sponsorship of the touring production of the Broadway musical Moving Out! to Visa U.S.A., Inc. The producers allowed Visa to help plan the tour’s routing to make sure that it was housed in venue that were affiliated with the credit card. Visa also negotiated the rights to produce TV ads featuring the show’s actors and to create a Playbill-style giveaway booklet with offers from Visa merchants.

Publication: IEG Sponsorship Report

Agency:
The Erlick Group
800 Third Ave., 34th Fl.
New York, NY 10022

Contact:
Jim Erlick
President
212/418-7372

Specialization(s):
Entertainment, Marketing, Music
Marketing, Venue Marketing

Property Clients:
Andrea Bocelli tour; B.B. King Blues Club & Grill, New York City Opera; Jane Goodall’s Wild Chimpanzees IMAX film; Litchfield Jazz Festival, Conn., Long Island Summer Festival; Monkees Reunion tour; Moscow Ballet tour; Movin’ Out, Broadway musical; Ringo Starr and His All-Starr Band tour

Year Founded:1992

Employees: 4

Annual Billings:
$1 million-plus

Additional Information: Erlick also works with TSE on its film festival and Latin music circuits, as well as with Festival Productions, Inc.’s JVC Jazz Festivals.

Publication: IEG Sponsorship Report

Not too long ago, properties seeking representation for sponsorship sales had few options outside the giant sports marketing agencies. Those firms naturally were most interested in selling major sports properties that commanded six-, seven- and eight-figure sponsorship fees that even with a low 10 percent commission would yield significant income.

The relatively few occasions when smaller or nonsports properties convinced a mega-agency to take them on-the John F. Kennedy Center for the Performing Arts and ProServ or the National Tractor Pullers Assn. and IMG, for example-typically resulted in less than sterling results and a good deal of animosity. Properties complained they were given short shrift compared with clients deemed more lucrative or easier to sell, while agencies bemoaned what they saw as properties’ unrealistic expectations and lack of marketing savvy. To the relief of both sides, the past half-dozen years have seen the rise of a new breed of sponsorship broker willing to work with properties whose total sponsorship revenue might equal only one minor deal for a pro sports team or league.

This development is a natural outcome of the industry’s maturation, reflecting a number of factors, including an increase in sponsorship fees commanded by smaller properties, as well as a sufficient number of industry personnel with experience as sponsors or sellers who have sought to establish new businesses and careers as brokers for others.

However, the process of finding agency representation and setting terms that will lead to a mutually fruitful relationship still can be fraught with tension. Not every property is the diamond in the rough it believes it is, and not every agency is equipped to market the many types of opportunities available today.

So, assuming the property in question does not have an international reputation, the drawing power of a superstar personality or a network TV distribution deal, what does it take to forge a productive partnership with a sponsorship broker?

How Agencies Approach Choosing Clients

Certainly, properties have a say in which agencies they approach and in how they screen them-a process similar to the way companies choose sponsorship counsel, including issuing RFPs and soliciting references (IEG SR, May 27, 2002). But, the sheer number of sponsorship seekers versus agencies dictates that the brokers, particularly those with strong track records, have the ability to decide with whom they will work.

“We receive three to five new business requests per week,” said Judy Haber, senior partner at Performance Sponsorship Group. “That volume of interest allows us to be selective.” Determining whether a property is a good candidate rests primarily on its ability to generate profits for the agency. However, how that revenue is derived also is a consideration, as are some non-monetary issues.

For example, many agencies said they would decline a prospective client they felt could not generate interest from sponsors, even if the property was prepared to pay a fee that ensured a profit for the agency. “It can’t be just about guaranteed money, as tempting as that is,” said Kathy Emery, president of The Sponsor Placement Co. “To be successful in this business, you have to protect your credibility with sponsors and you’re not going to do that by bringing them properties you know they won’t want.”

Emery also said she has on rare occasions waived her company’s usual fee if the property represented an opportunity to break into a different area of sponsorship or new geographic market.

While the first “business extrapolation” for Wakeham and Assoc. Marketing, Inc. is revenue potential, said vice president Marilyn Michener, the agency’s other main considerations are whether the property is “high profile, which could lead to media coverage for us, or whether it has connections and networking opportunities through board members or other stakeholders that could lead to bigger fish down the road.”

The tipping point in most cases, though, still will be a property’s sponsorship value, especially since “it is just as labor intensive to do all the prospecting and prepare the materials to sell a $50,000 deal as it is a $500,000 one,” Michener said.

That issue of valuation often sets the parties at odds.

“It’s a fact of life in this business that every property has an inflated sense of worth,” said Jim Erlick, president of The Erlick Group. “We would be doing them and ourselves a great disservice if we were not brutally honest about their value,” he said. “Better to realize it up front than find out through the harsh reality of the marketplace.”

Most properties have a sense of what they want, not what they are worth, Haber said. “The best thing they can do before starting down the sales path is to find some independent counsel on their current value. Most are too quick to run. All they know is they need or want $200,000 and, even if they can get that, they don’t understand that it could cost them more money to generate it when servicing costs and staff time are counted in.”

What Makes A Property Worth Representing?

Most agencies say it is impossible to set a predetermined amount of potential sponsorship revenue as the magic number above which properties qualify for representation.

However, one of the smaller agencies contacted by IEG SR did provide figures that likely provide the minimum standard. For this agency, which asked not to be quoted directly, to cover its expenses and make a small profit, a property would have to generate total commissionable sponsorship revenue of at least $100,000.

While other agencies may not use a specific number, they all have devised ways of assessing a property’s potential.

“We look at all the assets behind a property such as audience size and makeup, media support and how we can monetize those assets,” said Erlick, whose agency specializes in entertainment, particularly theater and film properties. “Our appraisal process basically consists of five steps. If the property has a sponsorship history, we look at that. We also look at how it has been received by the public and whether it has garnered critical acclaim.

“Especially important is the reputation of the management; it may be a great show and commercially viable, but the people behind it may not be the type we or potential sponsors want to associate with. We look at how unique the property is: Is it something new that fits with emerging social trends that we can grab on the ascent? And finally, we look for things that are extendable or renewable.”

In addition to evaluating what assets a property controls, Haber, who has sold naming rights to a number of non-sports venues, looks at a property’s influence in the community as a barometer of how well it can marshal non-owned assets that can be built into a sponsorship package. “If a property does not have enough marketable components of its own-and many don’t-we look for what else can be bundled in, who else is prepared to work with them that can bring something to the table. Perhaps it’s a media partner or the museum down the street.”

WAM’s president Hugh Wakeham said his agency has a marketing programs department that concentrates on forging promotional partnerships with media, fast-food and other companies for properties that “don’t have enough of their own marketing power” to attract sponsors.

For Tom Kempton, president & CEO of The Kempton Group, a property’s understanding of sponsorship deliverables is just as important as its marketable assets. “I don’t want to bring anyone to a sponsor that doesn’t grasp the concept of servicing. So, a large part of my screening is asking questions about the property’s expectations in that area and gauging their answers. If they don’t realize that it’s about more than just responding when the sponsor calls, that’s a red flag.”

WAM has similar qualifiers for its festival and arts properties. “If you’re not going to get over your donations mentality and be able to help a sponsor execute its program, than we won’t be going forward with you,” Wakeham said. Another key signifier at nonprofit cultural organizations: whether marketing and sponsorship are integrated. “Often sponsorship is a function of the development department, which is separate from marketing,” Wakeham said. We don’t want to be in the position where the marketing department isn’t on board with the sponsorship program and is refusing access to tickets and other benefits.”

WAM also tries to surmise up front how inclusive the property will be in working with the agency. “Are we going to be at arm’s length or part of the team?” Michener said. “We want to be part of critical meetings and kept informed of developments that will impact the sponsorship program.”

Structuring Compensation And Responsibilities

The standard payment structure between rightsholder and agency is a fee plus commission. While mega properties can secure commission-only deals, most smaller organizations cannot

“Some properties want to equate us with real estate agents,” said Wakeham. “I tell them that the difference is the real estate agent doesn’t have to renovate the house before showing it. We have to do a lot of work in terms of valuing and packaging before we even begin the selling process, and there are associated costs that have to be met. We’re willing to share some risk, but not take all of it.”

Fees do not generate profits for agencies, Emery and others said. “To make our nut, we have to close deals and earn our commission.”

Agencies also agree that paying a fee, in addition to being financially necessary, is an indicator of whether a property takes a business-like approach and will be a good partner for future sponsors. “It says that they are willing to make an investment in themselves, that they realize they have to spend money to make money,” Michener said, adding that such thinking translates into a willingness to offer sponsors top-shelf benefits and service.

Erlick does accept properties “on spec,” but makes it clear that retainer clients are his priority. “You get what you pay for, and if I’m only going to get paid on the back end, I can’t promise anything.”

Erlick’s commission-only clients are included in e-mail blasts he sends to prospective sponsors, while fee-paying properties receive full service, including customized sales materials, in-person meetings with prospects and targeted advertising.

The average commission rate is 20 percent, although it can go as low as 10 percent and as high as 35 percent. While some brokers charge a lower rate for renewing sponsors, others do not. “I used to have a 10 percent rate for renewals, but have started to charge 20 percent,” Emery said. “In most cases, it’s the same amount of work to resell because you’re dealing with a new contact and you have to develop creative ideas to keep the sponsorship fresh.”

If an agency renews with a sponsor originally signed by the property, it typically will earn its regular commission only on the amount of the increase. Rates for in-kind sponsorships often are a sticking point due to the difficulty of attaching cash values. However, agencies usually earn full commission only on items that are directly budget relieving.

“It’s a matter of determining what is important,” Erlick said. “For some properties, in-kind promotional and media support is just as important as cash, so we will work very hard to secure those.” Erlick’s firm has structured some deals to include a commission on trackable ticket sales resulting from the sponsorship.

Even if a property has created sponsorship packages and proposals, most agencies will suggest a relationship that focuses first on strategy and then on sales.

“In our first phase, we set the direction, value and packaging strategy,” Wakeham said, noting that separating this function from the sales process allows both parties an out, if necessary. “It’s a good test of how serious the property is in its approach. If we finish phase one and the property is skittish about delivering some of the benefits, either one of us may decide we should not go on to phase two.”

Kempton works in a similar fashion, preparing a detailed plan, for a fee, delivered in about three weeks. “Often we find that a property needs to be re-packaged based on our knowledge of what various categories of sponsors are looking for.”

While some agencies are comfortable bringing property representatives to sales calls, others are not, a detail that should be spelled out in the agreement between the parties. “We prefer to work autonomously and don’t want to take the property along,” Erlick said. “My ability to get in the door with sponsors is based on speaking honestly and objectively with them about meeting their needs. They are not going to meet with me if they think they are going to get a full-court-press sales pitch.”

Publication: IEG

Working With Sales Agents: A Guide for Agencies and Properties

Lack of selling expertise, contacts and time are among the reasons rightsholders choose agencies to sell deals on their behalf. With no industry standards to guide practices, sponsorship agencies and rightsholders are left to figure out the best methods themselves. Below, IEG SR details key elements that both sides should consider as the forge relationships.

New vs. renewal deals

Sponsorship sellers come from two camps: Those who think renewals are easier; and those who think it takes the same amount of work through ongoing servicing. The latter group typically will not offer commission reductions on renewals. However, some agencies will shave up to 10 percentage points off their commissions for renewals. For example, Emery generally seeks 10 percent commission on renewals, compared with 20- percent for new deals.

Another renewal scenario

The agency renews a sponsor the property originally signed-but at a higher fee. In that case, the agency’s full commission would apply to the incremental revenue, said Jim Erlick, president of The Erlick Group. His firm, which represents Broadway theaters and other properties, generally receives 15 percent to 20 percent commission on new deals.

Length of relationship

Agencies prefer to work on a long-term basis with properties-and some offer lower commissions in later years of a contract to incent the relationship. However, some properties are unable to strike multi-year deals because of annual budget cycles or boards of directors that shy from long-term contracts.