Sponsorship Revenue To Generate Largest Category Growth Rate In The Sports Industry
BY ADAM GROSSMAN
PricewaterhouseCoopers (PwC) is releasing its annual PwC Sports Outlook this week focused on the North American market. While there are several pieces of good news for the sports industry in terms of annual revenue growth, the most interesting to Block Six Analytics (B6A) was that “the sponsorship category will be the industry’s biggest mover, growing 4.1% year-over-year.” In addition, PwC projects the sponsorship category will grow by 5.7% in 2020 and “could eclipse gate revenue to become the second-largest segment by the late 2020s.”
The report highlights the main drivers of sponsorship growth to be primarily gambling, new inventory, and technology. We have highlighted the reasons that gambling will impact sponsorship revenues in previous posts that are reinforced by the PwC study. First, gambling companies have only had the real ability to become sports sponsors in North America since 2018. Second, gambling has lead to increased consumption by sports fans as demonstrated most recently by some experts attributing the increase in 2019 National Football League (NFL) television ratings to gambling.
However, the more interesting findings from the PwC study center around new inventory and technology as two big drivers of sponsorship category growth. Yet, it is not a sure bet that new inventory and technology will be long-term drivers of sponsorship category growth particularly without the right valuation metrics.
PwC featuring jersey patch sponsorships as a new inventory type is a good example of this issue. The study highlights how every NBA teams had a jersey patch sponsorship last season for the first time since the program started in the 2017-18 season as an example of why the category will grow. Other leagues are exploring adding jersey patches for the first time, such as Major League Baseball (MLB), or adding a new type of jersey activation, such as the Major League Soccer (MLS) adding jersey sleeve sponsors.
Yet, it is not clear that jersey patches will continue to drive revenue growth because many companies still do not have a strong idea on why they drive value. For example, it appears that GE will no longer be the jersey patch sponsor of the Boston Celtics after this season and both sides have seem to have been trying to end their agreement a year early. It also appears that Chevrolet will be ending its jersey deal with Manchester United after this season (even if it continues a partnership going forward) because General Motors (GM) “[has] been thoroughly unimpressed with United's performance over the duration of the deal.” This action would be in-line with GM decision to fire its global marketing chief Joel Ewanick only days after signing the Chevrolet-Manchester United deal in July 2012.
Both of these deals are likely to end because GE and GM likely did generate significant ROI from these partnerships for predictable reasons. Even before GE decided to shrink its footprint in the Boston area after reducing its headquarters size in 2019, there were going to be challenges with its jersey patch partnerships. The vast majority of GE’s revenue comes from selling enterprise technology solutions across a variety of industries. Yet, jersey patch sponsorships are particularly good at maximizing reach to retail customers across linear, social, and digital channels. Therefore, a jersey patch partnership does not clearly align nor would generate lift on GE’s core revenue metrics. While GM’s focus is primarily focused on selling automobiles and trucks to individual consumers, it was not focused on the European market. In fact, Chevrolet pulled out of the European market entirely in 2014 before Manchester United ever wore jerseys featuring the company’s logo during a Premiere League match.
The same considerations can be applied to new technology as well. Companies and their agencies are exploring new opportunities via technology that leads to new sports such as esports and the Drone Racing League (DRL) or technology that creates new opportunities within existing sports such as virtual reality and augmented reality. Yet, companies and agencies B6A talks to often hesitate to make new and ongoing investments because they do not understand how these sponsorships will generate lifts in revenue and brand metrics in predictable ways.
This is why B6A’s Corporate Asset Valuation (CAV) model examines corporate partners’ goals when valuing new and existing assets. More specifically, we break down assets into their individual attributes to determine ROI impact. This means examining what is a company trying to accomplish, who is a company trying to target, and what is the best way to reach those demographics no matter the asset type. Therefore, our clients do not look at assets only as “jersey patches” and new “technology” when examining ROI. We instead determine exactly how jersey patches and new technologies are activated across multiple channels and what they will do to tangibly help better achieve companies’ business and brand goals.
This approach enables B6A to clearly show why ROI for jersey activations has been generated in cases within the NBA and Premiere League specifically and the sports industry more generally. We have also used our Audience Inference Platform (AIP) to demonstrate why companies such as Nike and AT&T would make partnerships investments into esports. Both companies have made targeting younger, diverse demographics an important strategic priority. Both AT&T and Nike are able to engage a younger and more diverse audience by partnering with Cloud9 and League of Legends (LoL), respectively as seen through our AIP analysis.
PwC has good reasons to be bullish on the sports industry generally and the sponsorship category specifically. However, it is not a given that sponsorships revenues will increase simply because new inventory is being created. It is in the best interest of both the seller and buyer of partnerships to determine company fit for new inventory items to achieve the ongoing sponsorship category revenue increases PwC projects.