Tuesday, September 29, 2009

Creating real value for sailing's sponsors

To start off the second posting in this series, I want to quickly discuss the partners that make up a Volvo Ocean Race or America’s Cup team:

The Sponsor: The sponsor is the end customer. The sponsor’s key competence is aligned with their core business, whether it be manufacturing cars, writing software, consulting businesses, banking or designing handbags. The sponsor makes decisions on building new factories, hiring employees or launching marketing programs, based on that project’s investment yielding a positive Net Present Value (NPV).

The Activator: This is typically an events agency such as Momentum, Octagon, or IMG. They work for the sponsor to build all of the auxiliary activities upon the sailing property platform.

The Property: This is the sailing team. It provides the base for the activator to build a positive NPV business development program targeted at the sponsor’s core business. The end goal of the sailing team is to manage the sporting operations, while supporting the activator’s plan.

I’ve read a lot of team sponsorship proposals over the past 5 years: Volvo Ocean Race, America’s Cup, World Match Racing Tour, European IRC, and Med Cup teams... Most sponsorship proposals lose sight of, both, the customer and the product. When I read most sponsorship proposals, generally, my first thought is ‘Hey, I’d love to sail for this team. This is going to be fun.’ The proposals talk about the race, adventure, prestige, competition, sailing team members and the program’s management structure - all of the key elements to winning a sail boat race. While this type of presentation does have a place in the sales cycle, it does not focus the product to the customer. The product that we are selling is a platform for corporations to leverage their core business goals.

Remember, we are selling the activation plan, and not the sailing team. The reason for this is straight forward; If a sponsor only financed the sailing property and did not make a further investment into activation, they would, most likely, just barely recover their costs of the property's sponsorship cost. However when the property is coupled with a sophisticated activation program, then 2 things happen; Not only is the activation the source of the most significant returns on investment, but also, the activation, through network effects, brings more attention to the sporting property, thus increasing the returns that the sporting team generates. The following illustration gives a basic insight to this principle.

Since we've examined the marketplace (in part 1), understand how commercialized sailing projects are structured, how sponsors financially justify their investments, and where the real value is generated we are now ready to look at the sell cycle....stay tuned for part 3 of this series.

Thanks for posting questions and comments, I'll continue to post responses.

-Matt out
37 48.0N
122 26.6W

Friday, September 25, 2009

Filling the Sponsorship Pipeline

I’ve decided to kick off a multi-part series of posts on the ‘Commercialization and Business of Professional Sailing’ as a bit of a change from my typical ‘Life from the Nav. Station’ pieces. This has been a personal interest of mine for some time, but seems particularly timely given where we are with the VOR and America’s Cup timelines. In this first part I will establish a baseline for where 'we' are in the global sponsorship market place.

Let's dig in...
With the start of next Volvo Ocean Race two years away and the America’s Cup/Louis Vuitton Series, ostensibly, returning to life, we sailors are asking: “Who’s going to be on the starting line”. While some of the teams will be underwritten by wealthy ‘hobbyists’, both the Volvo Ocean Race and the America’s Cup have their eye on the commercialized sports level where F1 and NASCAR currently reside.

What does this mean?
There are a lot of corporate sponsorships that will need to be sold in the next 12-24 months. Consider that an America’s Cup team will spend at least $20 million, and a Volvo Ocean Race team spends about $8 million annually. With an idealistic, 12 AC and 12 VOR teams, there is at least a $336 million annual pipeline that must be filled to sustain each event. To add some perspective on what $336 million represents in the advertising industry, in 2008 $918 billion was spent globally on all forms of advertising; $16.8 billion was spent on sponsorships, and 69% ($11.6 billion) of those sponsorships were allocated to sports (IEG Sponsorship Report)Thus the America’s Cup and the Volvo Ocean Race teams should represent a 2.9% market share of global sports sponsorship.

By way of comparing the VOR or AC to other sponsorship properties:

  • The title sponsorship of a week long PGA event has a price tag of $15 million.
  • A full year (38 race) title sponsorship of a NASCAR team costs $18 million.
  • Each ‘Gold Level’ sponsor of the 2008 Beijing Olympics spent $100 million.
  • A top tier Formula1 team’s annual operating budget in 2008 was $400 million.

If you consider that, practically, none of the AC or VOR teams have financial commitments from commercial sponsors at this point in time, we have a long-long ways to go to reestablish professional sailing’s stake in the global sponsorship market. In the second post in this series, I will discuss (what I see as) the make up of a successfully commercialized sailing project. Please post comments and questions. I will post responses to each of them.

-Matt out
37 48.0N
122 26.6W