Jul 10, 2009 at 08:11 PM
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The New Killer B's of Sponsorship
What could be cooler on a summer Friday afternoon than a crash course in managerial finance. In college, you probably dreaded the thought of this as your last class of the week. Nevertheless, the economy means sponsorship professionals are getting an all too up close and personal look at the killer B's of a sponsorship deal: bankruptcy, bailouts and buyouts. Sure there are a lot of other things that can kill a deal too, but we're hearing a lot about these recently. If you're doing the due diligence beforehand you'll at least have a leg up in protecting yourself and/or knowing what to do if unfortunately one of your sponsors befalls this fate. Keep in mind, there are many different outcomes and examples for each of these cases. We have only highlighted a few of the scenarios (we're not lawyers, so hire your own if you need specific advice!). Without further adieu, take a look at our cliff notes on the topic.
Bankruptcy
Definition: a legally declared inability or impairment of ability of an individual or organization to pay its creditors.
Sponsorship Issue: While there are many forms of bankruptcy, the general sponsorship issue is that as part of the "wind down process" long term contracts can be legally voided by a bankruptcy court if insolvency is proved and the contracts cannot be re-assigned.
Solution: Tough one. One solution is to negotiate a favorable front-end/back-end sponsorship fee ratio that ensures that you will be paid (a considerable portion) prior to providing services.
Example: General Motors filed for bankruptcy on June 1st and has asked the court to cancel some marketing, sponsorship, and promotion-related agreements with many notable counter-parties from the world of sports and entertainment. In other cases, GM has simply allowed contracts to expire. Another good case? Nortel, which today got replaced by Cisco as a technology sponsor for London 2012.
Bailouts
Definition: an act of giving capital to a failing company in order to save it from bankruptcy, insolvency, or total liquidation and ruin.
Sponsorship Issue: Bailed out firms are still allowed to make their own business decisions (assuming no new legislation is introduced), but a magnifying glass is put on nearly all of the marketing expenses (justifiable or not) that a bailed out company makes moving forward. Does your sponsor have the intestinal fortitude to overcome the bad publicity?
Solution: Be as flexible as you can with the benefits (while maintaining cost structure) over a multi-year contract. Activation/Communication strategies change and what works when a contract is signed, may not work in ensuing years. Are you willing to let your sponsor shift assets from corporate hospitality to signage, pr activities, charity tie-ins or other assets? Finally, being sensitive to your client's PR strategy during this time is important, too.
Example: Northern Trust's PGA golf sponsorship (after receiving TARP funds) and the ensuing attention it received from Barney Frank and other lawmakers.
Buyouts
Definition: an investment transaction by which an entire company or a controlling part of the stock of a company is sold.
Sponsorship Issue: Inheriting sponsorship contracts is a thorny issue. While contracts may still be enforceable upon a sale (unless a clause dictates otherwise), the decision-maker you sold on the sponsorship may lose his position with the newly acquired company and the parent company may have a drastically different marketing strategy, than your previous sponsor.
Solution: Put contracts in place that lay out specific responsibilities of each party in the case of a sponsor acquisition.
Example: WaMu was acquired by JP Morgan Chase and sponsorships inherited via the transactions are now being re-evaluated.
That's a starter kit, but certainly not a full proof summary of the sponsorship implications of financial distress. And then there's outright fraud, which has also been known to cancel out sponsorship contracts, but we'll save that for another day!
What are we missing here? Any other good insights/tips from your own personal experience?
photo credit: Ed Yourdon via Flickr
