COVID-19 HAS LEFT PROPERTIES UNABLE TO FULFILL COMMITMENTS TO SPONSORS. NOW WHAT?.
by Lindsay Rennie
As we face the massive disruption caused by COVID-19, we are dealing with many uncertainties. Paradoxically, the one thing we all know for sure is that everything is up in the air. For those of us involved in sponsorship that means we’ve had partial seasons of sports, full cancelations of events, postponements to new dates that may also be uncertain, etc. Sponsors and properties are having to navigate re-allocation of deliverables, make-goods, contract extensions or contractions and yes, refunds.
DEC Insights works with sponsorship properties to help them be the best partners they can be to their brand sponsors. We develop strategies and make actionable recommendations to ensure that properties are selling the right assets to the right partners at the right price. But the conversations that need to be had today, although still in the spirit of good partnership, are quite out of the ordinary.
As a property that has been impeded from delivering a full contract year’s worth of value to a sponsor, among other things, your discussions should be following these steps:
- Exactly what can and cannot be delivered this year and what proportion of the sponsorship fee does that impact? With a formal valuation, the parties should be in agreement as to what assets representing what amount of value are in shortfall.
- Can those undelivered assets be delivered later in the year and relatively in their original form? Or, based on 1), can the value of those undelivered assets be replaced with something else this year as a make-good?
- If it is not possible to fully replace the value of lost assets this year, can that value be reasonably made up for in remaining contract years? For example, if 20% of sponsorship fee value is undeliverable in 2020 but there are years remaining in the agreement, can 120% be provided in 2021? Or 110% in 2021 and 110% in 2022?
- If lost value from this year cannot be made up in some combination of steps 2 and 3, a property must be prepared to refund that agreed-upon amount to sponsors. Depending on the damage that may do to a property’s financial stability, flexible repayment terms may be negotiated.
Some agreements will have language to direct these contingencies, but most do not. That means the parties have to come together and work it out in a way that is mutually beneficial.
DEC Insights would like to assist in developing solutions to these challenges. From now through the end of April, any property can take us up on a no-cost, no-commitment consultation in the spirit of giving a hand to our industry so we can all come back strong. We’re all in this together. Connect with me – Lindsay Rennie – on LinkedIn linkedin.com/in/lindsayrennie545 and include “DEC Insights consultation” in the connection message. .
Everyone please stay safe and healthy.