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Should Sponsors Resist Contractual Activation Guarantees?

In modern sponsorship, success is most frequently characterised as being about win-win partnerships, where both sponsor and rights holder benefit from the shared value created - in other words, the synergies - by activation at scale. When this happens in the UK, it's usually the result of the sponsor delivering on a generally non-contractual commitment to activate.

However, at Synergy, we work on sponsorship contracts with rights holders around the world, and it's not uncommon to see contractual activation guarantees, particularly in the US. These can take several forms, including guaranteed activation spends, 'activation pots' (where the brand can choose from a menu of items provided by the rights holder) and/or  activation commitments, such as leveraging on-pack to a minimum scale or dictating mandatory markets to activate within.

There is further complexity when rights holders dictate the channels that sponsors must use as part of their media buy. This typically takes the form of minimum media spend with the official broadcast partner, as part of a wider deal between the broadcaster and the rights holder. And in the latest potential evolution, the NBA is exploring mandating jersey sponsors, as part of any deals brokered in the future, to spending guarantees with its broadcast partners Turner and ESPN. Although terms of this are still very much under consideration, it is in response to fears from the broadcasters that brands with jersey sponsorships won't need to buy as much of their media.  Of course it is not directly comparable, but imagine if Chevrolet, Emirates, Standard Chartered or Samsung were contractually obliged to buy a minimum number of commercial spots on Sky as part of their Premier League shirt sponsorship deals.

We are now beginning to see more and more of these type of clauses creep into contracts in the UK. So, what are the benefits and disadvantages to rights holder and sponsor?

It is easy to see the benefit to rights holders of being contractually guaranteed an active sponsor, who will take on the financial burden of promoting the asset, thereby increasing its visibility and value.

Contractual terms also protect rights holders at the end of longer deals, when it is not unusual for sponsors' interest in activation to wane.

It is less easy to see the wins from the sponsors' perspective. By being forced down certain paths, sponsors have less choice and flexibility on how they activate their sponsorship.

A minimum spend in itself could also be construed as counterproductive, as spend levels are not necessarily a proxy for reach or efficiency of messaging. Digital and Social in particular, can be highly targeted, with less wastage than channels such as Out of Home or TV, and are generally considered to be more cost efficient. If activated smartly, sponsorships can be leveraged on a tight budget.

Dictating a minimum spend in broadcast can also limit a brand's ability to activate creatively across other channels, with budget tied up in costly media buys. It can also be strongly argued that brands know their own audiences and how to interact with them better than anyone, so are best placed to select their media strategy.

As Tim Crow suggested recently in his blog on the IOC’s Agenda 2020, imposing geographical obligations is equally unpalatable for sponsors. The IOC is contemplating this to stimulate local activation by TOPs, and whilst National Organising Committees naturally want to see these global brands activate at scale in their territories, sponsors have their business priorities across the globe, which demand the focus of their marketing budgets.

In truth, it is a very fine line between ensuring that partners are, and remain, active and simply trusting them to activate effectively. Rights holders will argue that they are simply safeguarding themselves against being used as a media buy, with little incremental benefit to themselves. The balance needs to be found where clauses are included with contracts to ensure that this doesn’t unduly restrict sponsors' freedom of choice.