Should a Sponsor Exit if an Event is Cancelled?

“Social distance.”

As COVID-19 takes hold around the world, this is our lives now. To mitigate the virus’ spread, we’re being instructed to stay home, to stop mingling, and if we need to go out for something essential, to stay two metres away from each other. People are telecommuting, trains are empty, and aside from people fighting over toilet paper, a lot of stores are, too. Schools and churches have gone virtual. And in much of the world, we couldn’t travel if we wanted to. Australians, like me, are prohibited from leaving the country, our borders are closed to international visitors, and Aussies coming home face a mandatory, 14-day self-isolation.

But some of the most visceral shocks around social distancing have come with the cancellation of events, big and small, performances, concert tours, and entire sporting seasons. Museums and tourist attractions are closed. Thousands of conferences and expos have been cancelled, with a few of them moving online. A few sports persisted with no crowds, giving these once thumping games the air of a nationally televised training drill, but those are now shutting down, as well. On a related note, my beloved Sydney Swans have finished their season undefeated at 1-0.

At this point, every sponsor on the planet has sponsorships on the books for events that either won’t happen at all, won’t happen anywhere near the planned time frame, or might happen, but in a manner that diverges dramatically from the plan. Leverage plans are out the windows, along with your KPIs, and there’s a pervasive air of “what now?”

I’m not arguing for a second that these cancellations and changes aren’t the prudent thing to do, and I hope we’re all doing our part, and that it works. But for sponsors, there are some big decisions on the horizon about whether to persist with sponsorships or not, and it’s going to be important to get them right.

In this blog, I’m going to try to put some perspective on those decisions, providing a range of reasons why and how you should stay in a sponsorship, or why it might be better to exit.

Before you do anything, understand your legal options

Go through your contracts and find the part that deals with a force majeure. What you’ll find is some remedy for a cancellation or cessation of what you’re sponsoring, due to circumstances beyond the reasonable control of the rightsholder. These can be structured a number of ways, but many have one of these basic premises:

  • The right to terminate the agreement, if the force majeure precludes production of the property for a set amount of time. This could range anywhere from a few weeks to six months or more.
  • The right to terminate the agreement, if the force majeure precludes production of the property, and rescheduling is impractical or impossible.

What happens to fees paid and pending varies dramatically, depending on your contract and/or jurisdiction.

Please understand that I’m not recommending that you necessarily exercise your options, under the contract. You just need to know at what point you’re allowed to terminate the contract, and what the financial ramifications are, if you do. If there’s anything you don’t understand, talk to a lawyer.

At this point, I should probably point out that I’m not a lawyer. But if you are sponsoring without a contract, or with a flimsy letter agreement, where the only terminating event is sponsor non-payment, every lawyer I know would tell you that you’ve created a rod for your own back. Without a framework laying out the rules, if you decide you want to exit, you’re going to need to rely on negotiation and goodwill to get a fair result.

Now that you understand your contractual position, let’s talk about the pros and cons of exiting your sponsorships.

Reasons you shouldn’t exit

This is really serious, and the human and financial repercussions are going to be huge, but the virus will eventually come under control. The museums will reopen, sports will ramp back up, and calendars of events will once again be bursting with options. When? We don’t know. But treating this like the sponsorship end-of-days isn’t going to do anyone any favours.

So, while it’s a game-changer, in the short- to medium-term, and for most of the industry, a game-shrinker, it’s not necessarily a game-ender, if you keep this stuff in mind.

You could negotiate to pause or extend the contract

You’re not facing a binary choice. It’s not stay-and-suffer-through-no-returns or exit. The most sensible approach to the contract is likely to be one of these:

While social distancing is a game-changer, in the short- to medium-term, and for most of the industry, a game-shrinker, it’s not necessarily a game-ender,
  • Extend the contract for another year, season, event, or whatever makes sense, at little or no further cost to the sponsor.
  • Suspension of the contract for a period of time, picking up again when the rightsholder is fully operational.

While they might look similar, there is a critical difference. By negotiating an additional, make-up year/season/event, you can still leverage the relationship, in the interim. It may be a pale imitation of what you could do if the property was up and running, but there are distinct benefits in consistent, relevant fan engagement, and if you suspend the contract, you don’t get that.

If the market is important to you, don’t abandon what they love

The most important thing about any sponsorship is meaning – the degree of relevance it has, and passion it engenders, with target markets you care about. It’s sacrosanct.

I’m not saying you should keep sponsoring out of some sense of altruism, or that people will like you better because you don’t take your money and walk. Honestly, I don’t think people are paying all that much attention to sponsor movements, right now.

No, this is about acknowledging that you’ve got a powerful, relevant platform, with passionate, engaged fans, and it would be silly to give that up in some short-term panic. It would surely take you longer to find a new sponsorship and rebuild that degree of relevance and relationships than it will take to ride out this crisis alongside the fans, with the sponsorship you’ve already got.

It’s a fan-alignment mother lode

The fans are more disappointed than you are. Truly. They’re having withdrawals from their favourite sports. They’re missing being out and about, going to festivals and galleries and shows. They’re missing all of the human interaction and camaraderie and tribalism that goes along with those things. Your brand can’t fix what’s going on in the world, but it can be there with them.

Start with empathy, and build from there. Reflect what your fans are going through, assure them that you’re just as sad/frustrated/hopeful/whatever as they are. Show what you’re doing to pass the time until what you’re sponsoring comes back. Leave your corporate voice behind and communicate as a fellow fan. The overarching approach should be that you get it, and you’re in this together.

You can still add value to the fan experience

There are legions of people who are still passionate and engaged, even if they can’t attend whatever it is that you’re sponsoring. If you weren’t good at adding value to remote fans before, this is your chance to get good at it, because you’ve got no other choice.

If you read this blog, or if you’ve read my white paper, “Disruptive Sponsorship”, you’ll know I use the term “remote fans” at lot. I’ve harped on and on about how sponsors shouldn’t over-emphasise in-person audiences in their leverage or measurement, when there’s likely many times that many people who care about what you’re sponsoring, but for whatever reason, aren’t there.

How many Manchester United fans fit in the stadium versus how many Manchester United fans are there in the world? How many people go to the science museum versus the number of people who are flag-waving nerds? If a conference has 400 people in attendance, do you really think only 400 people care about the topic, the speakers, or the networks?

All of those remote fans are valuable to your brand. You can add value to all of their experiences, nurturing your relationship with them, increasing preference, building loyalty, and engendering advocacy.

Well, guess what? All fans are remote fans now! There are legions of people who are still passionate and engaged, even if they can’t attend whatever it is that you’re sponsoring. If you weren’t good at adding value to remote fans before, this is your chance to get good at it, because you’ve got no other choice.

How is your brand going to be there for them? How are you going to make this more bearable? Help them feel connected to the property? Maintain a sense of tribalism? I could go on and on, and you should. You’re not going to fully fill the void left by social distancing and the (temporary) loss of a property they love, but any efforts you do make will no doubt be appreciated, and bring you closer to the fans.

As this progresses, the fall-back positions are likely to become more robust

Right now, a lot of rightsholders are running around like their hair is on fire. They’re working through a myriad of operational and other issues, and their forward plans for what the property looks like a month or three from now are likely in the nascent stages.

Fast forward a few weeks, and many of these rightsholders will have put substantial fan engagement strategies in place, and you should be putting your hand up to be a part of those.

Reasons you should exit

Most people understand commercial realities, even if they may not like them, and the world has rarely been so commercially real as it is now.

Terminating a contract – the nuclear option – shouldn’t be your default position, but may be appropriate, in some circumstances. If you’re looking at terminating contracts, however, you need to be realistic about the downside. There will be politics and complaints. You could put some customers offside. Depending on your business, you could put local governments or industry organisations offside.

That said, most people understand commercial realities, even if they may not like them, and the world has rarely been so commercially real as it is now. So with that, here are a few reasons you might exit.

It’s a one-off event

If what you’re sponsoring was only going to happen once, and now it’s not going to, there’s not much you can do but exercise your termination rights.

This also applies if the event will happen again, but not in your market. For instance, if you work for an Atlanta company that sponsored the NCAA Final Four in 2020, the fact that it was supposed to be in your hometown was probably a huge factor in your decision, and shifting that sponsorship off to some future tournament is no longer suitable for your needs.

It’s dead wood

A big part of my consulting work is conducting portfolio audits, and I’ve got to say, a big part of your portfolios is dead wood. These are sponsorships that don’t perform and never will.

Maybe it’s not a good brand or target market fit. Maybe the relationship has turned irredeemably toxic. Maybe it doesn’t have enough buy-in to be efficiently leveraged. Maybe it’s just done its dash. But, for whatever reason, it’s still hanging around your portfolio, taking up budget and other resources that could be better allocated.

There’s never been a better time to clean out the dead wood – all of it – than right now. You can use the force majeure clauses in your contracts to make huge, positive changes to the efficiency and effectiveness of your sponsorship portfolio. You can do it quickly, and you can do it with less blowback than at any other time.

Is this kicking rightsholders when they’re down? Yes. But, if you’ve got twenty-four non-performing sponsorships, worth 40% of your budget, you’ve got a problem, and addressing that problem in one fell swoop has to be tempting. And, if not now, when exactly is the right time to make that break because you had the opportunity in good times, and didn’t do it?

That said, you always have the option of easing out. Tell them that you could exit under the force majeure, and that you are definitely going to exit, but make them an offer to do it less abruptly. Either way, don’t miss the opportunity to line up some exits that really need to happen.

You’ve got a budget problem

Having a budget problem, or some directive to slash X% of sponsorship, isn’t a good enough reason to get rid of a strong sponsorship. Instead, use that budget problem to make you even more selective about what you keep, even more ruthless about the dead wood.

Don’t keep a sponsorship if it’s just okay. Keep sponsorships that have relevance to a lot of people in a lot of ways, including having a robust cadre of remote fans. Keep sponsorships with lots of internal buy-in. Keep sponsorships that can be leveraged in a lot of ways, by a lot of stakeholders, over all or most of a given year. (For more on that, see “Sponsorship Multi-Tools: The Holy Grail for Sponsors”.)

The upshot

These are unprecedented times – for the world, and for our industry. Don’t rush your decisions. Think about the bigger implications, and why your brand sponsors in the first place. You want to influence perceptions and behaviours around your brand. You want to build alignment. You want your brand to be the natural choice for your target markets.

The best sponsors in the world know that meaning drives sponsorship; that meaning is sponsorship’s superpower. Humankind is in the middle of a force majeure, and that’s shifted how we interact in the world, but it hasn’t made people less passionate, nor has it made what you sponsor less meaningful. It’s just different, and your choices, your leverage, and your expectations need to adapt.

Need more assistance?

If you need additional assistance with your sponsorship portfolio, I offer sponsorship consultingsponsorship training, strategy sessions, and sponsorship coaching. I can do all of these remotely, if required. Please drop me a line to discuss.

You may also be interested in my latest white paper, “Disruptive Sponsorship: Like Disruptive Marketing, Only Better“.

Kim Skildum-Reid
admin@powersponsorship.com
AU: +61 2 9559 6444
US: +1 612 326 5265

[sharethis]

© Kim Skildum-Reid. All rights reserved. For republishing information see Blog and White Paper Reprints.

Comments are closed.