Relative Valuation

The most common ratio used in sports sponsorship is cost per thousand impressions

(CPM). CPM is also the most common relative metric used in other advertising or marketing

channels. Here is the formula to calculate a CPM: CPM = Cost of Sponsorship / (Impressions /

1000). Different sponsorship categories will have different CPM rates. The CPM rates vary

because of the ease of generating impressions in the channels and the value of people within

those channels. Digital and mobile typically have the lowest CPMs because it is relatively easy

to generate high number impressions while having lower level of measured engagement in these

channels. Luxury / hospitality suites are typically on the opposite end of the CPM spectrum.

These CPMs are often higher than the average CPM but these often occur with the most lucrative

demographics.

Does that mean that digital and mobile channels are less valuable than other forms of

sponsorship? Not necessarily. In fact, many corporate partners are shifting resources to

sponsorships focused on digital, social, and mobile activations because they can obtain detailed

engagement metrics. Digital media also enables advertisers to more easily reach younger

consumers that can add significant long-term value to companies and are often difficult to reach

in other channels. This can make digital sponsorship more valuable while still having a lower

price point than traditional media. This helps to show how understanding CPM rates can provide

a good framework for discussing value across different channels.

Comparable Valuation

Sport organizations typically utilize comparable valuation to value corporate

sponsorships. Comparable valuation is examining the value of an asset relative to similar assets

in a category. For sport organizations, this means pricing sponsorship inventory in ways that are

similar to other teams in the league or geographical area. The reason sport organizations use this

approach is because of fear that a corporate partner will purchase inventory from another team or

league if the team’s prices are higher.

There are a couple of problems with this approach. First, it is not always clear what the

prices for sponsorship items should be. Sport organizations are often private enterprises that are

not required to share the prices of their sponsorship inventory items with other teams or leagues.

Even public high schools and universities often refrain from sharing prices. That means sport

organizations often rely on estimates or corporate partners to obtain pricing information.

The second issue with focusing on comparable valuations is that organizations primarily

compete on price instead of value. It implies that sports sponsorship is solely a commodity where

buyers will look for the lowest price. Sport organizations potentially compromise revenue when

evaluating inventory in this way. Each sports team and league will have different abilities to

target specific demographics. For instance, the PGA Tour typically targets older, male fans while

the National Women’s Soccer League (NWSL) focuses on a younger, female demographic.

Different partners will prioritize different demographics and receive varying levels of value by

working with either the PGA Tour or NWSL based on their business model and objectives.

Another factor is the marketing goals of corporate partners. Larger brands will often

focus on customer acquisition and customer retention because people already know what service

offerings these companies provide to consumers. Therefore, large companies typically want to

find sponsorship inventory that either impacts their bottom line or creates better engagement

with customers. In addition to generating revenue, smaller companies often use sports

sponsorship to help increase awareness and perception of their brands. Sport organizations often

have large, passionate followings in the region in which they compete. Smaller corporate

partners then use sports sponsorships to communicate to a large number of new customers about

their presence in the market using the sports team they follow as the vehicle.

Sport organizations are advised to use all three types of valuation models when

completing sponsorship valuation. Using an inherent valuation approach enables properties to

determine quality and quantity of impressions. Employing a relative valuation enables sports

organizations to communicate impressions using a metric that corporate partners are already

familiar with when examining advertising spends. Finally, a comparable valuation benchmarks

valuations with other organizations’ price points factoring in the considerations discussed in this

chapter. Sport organizations do not need to assign the same weight to each valuation type.

However, using a combination of each approach will ensure that a property achieves a fair

market valuation.