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


Rob B said...

I'd like to know:
1. How long does it typically take to negotiate a sponsorship deal of this size?
2. What is the expected ROI for this type of sponsorship, and how might it be measured?
3. What level of personal time committment outside of sailing was required of VOR and AC skippers and other afterguard?

Capt Marty said...

Looks like a very daunting task in this day and age, especially as we come out of the big recession. I think that's why Earnie went with RAK to stage the 33rd AC. The writting is on the wall, so if you have not got a friendly demented billionaire on side looks like you won't be in the running.

Matt Gregory said...

Thanks for your comments Rob. I'm going to talk about the selling cycle in my third post and the ROI structures in my second post...I'm also going to write a couple case studies in the 4th and 5th posts to illustrate 'best practices'. As for your third question: The team members, and particularly the 'figure heads', spend quite a bit of time fulfilling commercial responsibilities that go beyond the sailing focus. In addition to maintaining press relations and interviews, there are typically a lot of sponsor related events that the sailors attend as part of the team obligations.

reggiedog said...

Where do you get the $20mm for a AC team? Is that current, maintenance-level annual cost for the next year (2010) if you want to have a team on the starting line for the "next" cup in 2013? Does that escalate (obviously).

Same question for a Volvo team.

Matthew Gregory said...

The budgets come from my observations and experience in both the VOR and AC. Let's set aside the 'super teams', who spend more than these figures...It is a generalization but, most teams have a cash burn rate that is very well correlated to the length of the program. For example, if you wanted to start a VOR team tomorrow you would be putting a 3 year project together. You'd need a minimum of a $24 million sponsorship commitment to get through the end of the race in 2012. However if you were a last minute entry that found your sponsorship in the summer of 2011, then you could buy a used boat and operate a very well structured program for around $8 million. This is due to the variable costs, which make up most of the expenditures. About one third of of the budget is allocated to team members salary, another third is used to for logistics (housing, food, transport, etc) and the last third is used for equipment (the boat, rig, sails, and spares). Thus the only real fixed cost of a project is the boat and rig. Everything else is variable. Longer projects use more spares, sails, plane flights, hotel rooms etc...however the rate at which these items are used along with the gross team salary expense, is, generally, quite constant on a month to month basis.

Anonymous said...

So would there be any advantage to building a team designed specifically to work on the low cost side? I'm thinking a team of 'kids' or the women's teams in the past - the salaries for inexperienced professional sailors are definitely lower, but if you have the right draw/audience, wouldn't a schtick like that help boost ROI (if only because the investment is lower)?

Matthew Gregory said...

Anonymous poster, I think that your proposed idea is very tough to pull off in reality. Your proposal is to put together a low budget team. That is definitely a reasonable format for many projects. However, if we've already established that the cost of running a team is well correlated to the length of the program, then to take yet another cost cutting tactic of hiring inexperienced crew is very dubious. A short development program, with little practice time, with inexperienced people is a recipe for disaster. If you are looking to cut salary with inexperienced people you will need longer practice time, which means you will need more sails, spares, hotel rooms, food, etc...this drives the cost up beyond the cost of the salary savings. I think that there are plenty of examples of underfunded teams that have had little practice and development time, yet have had a full roster rockstars that still struggle given the financial and time constraint placed on them. To add the final handicap of an inexperienced and underpaid crew is not a path that I'd recommend. However, if you want to put together a team that has a storyline of inexperienced crew, go for it, just realize that you will need a bigger budget to maintain the long development program that leads up to the first race.... Furthermore the easiest way of delivering more ROI for the sponsor is by focusing on the activation strategy. I'll discuss this strategy in detail in the next several blog posts....

keep your comments and questions coming....

Doug M said...

One thing to consider here is that you are allocating 100% of the $336million pipeline to be derived from sponsorship. I think your 2.9% is high because your $336 million derived from sponsorship (alone)may be high. Often there are mixed sources or revenue like media rights, on-site tickets & hospitlaity, licensed goods and merchandise, revenue sharing, etc. Too often, properties (especially in sailing) try to get the enitre program underwritten via sponsorship assocations alone. DM

Owe Jessen said...

Sorry for coming very late, but your numbers for annual funding doesn't add up: with 12 teams at 8 mil. per year the necessary annual sponsorship for VOR would be at 96 Mil. USD. Since I suppose that your not likely to make such an obvious mistake, where do you get the 336 Mil. from?