Sports sponsorships and sports media buys have long been popular among brands looking for total rating points (TRPs), eyeballs or impressions. But sponsorship executives say the market for inventory has become even more competitive—and costly—since sports fans returned to venues en masse. “A supply-and-demand issue [exists] in sponsorship and media. It is tough right now [for buyers],” said Larry Mann (partner, rEvolution). “Not only is it challenging to find opportunities, but many of these [teams, leagues and media companies] are looking for 18-20% increases on pricing, too.”
JWS’ Take: A sellers’ market has existed at least in part because there have been fewer assets available. Remember, in many cases teams, leagues and media companies issued make-goods for the inventory—or impressions—not delivered during the pandemic. And those IOUs came due earlier this year.
The sun does appear to be setting on that chapter, though. Michael Neuman (managing partner, Scout Sports & Entertainment) is not anticipating “any make-goods still being active as we turn the calendar to 2022.”
Teams, leagues and IP owners have also been working to reduce clutter within their sponsorship portfolios. “Most of them realized they were going to hit their numbers early in the sales cycle [with the increases being paid],” Neuman said. “If you have an opportunity to potentially remove some of the lower-spending clients [and subsequently the assets], create a cleaner environment and still hit your numbers, there is not a team in the country that is not going to go down that route.” Indeed, it takes just as much work to service a small partner as it does a big partner. The $250,000-$500,000 level sponsors in Top 20 markets are the ones being priced out.
Brands being priced out of the NFL, NBA, MLB and NHL are looking at leagues like PLL. But demand and pricing is up there, too. Co-founder and CEO Mike Rabil said his lacrosse league no longer negotiates deals for less than six figures (they used to do $25,000 or $50,000 deals). That is in part because PLL is trying to optimize resources and improve sales margins, but the competitive marketplace is also a factor.
While supply is down, demand is up. There are simply more brands looking to advertise in sports now than there were pre-pandemic. In addition to the industry’s endemic partner base, which has largely come out of hibernation, we have seen the emergence of, and increased activity from, categories like cryptocurrency, FinTech and sports betting. “You have a slew of cash-heavy categories that have set out to build awareness, drive trial and drive engagement, and they are gravitating towards sports,” Neuman said.
The imbalance is most noticeable within the media business, because supply is truly finite. “There is only X amount of units or X amount of commercials within a college football or NFL game,” Mann reminded. And for a brand that wants to reach the masses in Q4 2021, those are the properties to buy.
To be clear, it is not just NFL and college football broadcast windows selling out. Strong demand flows “all the way down to the NHL, e.g. the Nashville Predators on Bally Sports South,” Mann said. “It doesn’t matter what the programming is. All sports are very well sold” in spite of the price hikes.
Team or league sponsorship inventory is never truly sold out. The IP owner can always add another asset if needed, provided the addition does not violate category restrictions. But it has still become tougher and more expensive for brands, particularly those in premier categories (think: financial services, quick-service restaurants), to gain access to top-line properties (think: jersey patch, naming rights).
Neuman said he is seeing the greatest uptick in asking price with assets that deliver significant TV-visible exposure. “The B2B, the hospitality, the tickets, the behind-the-scenes non-media assets, those seem to be fairly static in price,” he said. “But the premium assets, the ones generating the most amount of value for the brand, are seeing [as much as a] 20% increase year-over-year.”
The buyers’ market is undoubtedly a factor in the rising prices of both media and sponsorship assets. But Mann said inflation should not be overlooked, either. “It’s part of our culture right now. The cost of nearly everything is up,” he said. “You’re not going to stop buying food at the grocery store because prices went up 15%,” and brands are not going to stop buying sponsorships either. Teams, leagues and media companies, who all suffered financially in 2020, know that.
It’s reasonable to wonder if, or when, brands will put their foot down and begin to resist the price hikes. We have not seen it to date. “They are complaining, but they are all buying,” Mann said. That is because there is no real viable alternative to live sports. “If a brand wants TRPs [target rating points], this is where it is at,” he added.
Of course, business is also good for most sports sponsors right now. The S&P 500 recently reported it had recorded its third highest net profit margin since 2008 (in Q3).
It remains to be seen how pricing will be impacted if the economy turns. But Elevent.co co-founder Francis Dumais believes the sponsorship market—at least for the high-profile sponsorship (see: jersey patches and helmet logos)—may experience a near-term setback regardless. “When the renewal period comes in two or three years, we’ll probably see lower values because the broadcast valuation [will not be] as high,” he said. And while the value brands receive on social will likely increase, “the media value on social is a lot less than the media value on broadcast. TV still drives a lot of the value.” Remember, Neuman said the assets increasing most in value right now are TV-visible.
Strong competition for assets could prevent prices from backsliding as linear viewership continues to wane. Neuman cautions against banking on upstart categories, though. He notes there is a history of those who have come on strong (think: pharmaceuticals in early 2000s) to eventually fade away. He also has his doubts the established brands will continue to “overpay for assets that they’ve owned for a long time.”
For the record, the Scout executive does not believe a “drastic reduction in investment” is on the horizon. He says the industry is “getting to the point where we’ll have a stronger understanding of total viewership rather than just linear viewership,” which will show the value proposition across different media is greater than we currently believe it to be.