The sponsorship economics behind the last recession & how we can learn from it.

As I’ve written about before, I was in college during the 08 recession. I wasn’t yet in the professional world & not yet selling sponsorship.

By the time I got into the game, the economy was pretty well recovered and I rode that into one of the longest and best economic eras of our lifetime.

When I chatted with Rich (article above), I dove into the tactics on a micro level that would help you on a one-to-one level with each sponsor.

But I didn’t look at the macro effects on the sponsorship industry. How did overall spending change when the economy took a dive…and how long did it take to recover to the same spending levels?

Well, thanks to the data from iEG we are able to take a look back. I compiled the data together with some opinions and insights on what we may see coming in the future from a macro level in sponsorship.

The numbers below are for North American Sponsorship. Selfishly this is the arena that SQWAD and I play in (for now). If there is interest in a global analysis I’m happy to dive into those as well.

Spending drop in overall sponsorship

So did sponsorship spending drop during the last recession in ‘08?

Yes…

2005: $8.31Bn

2006: $8.94Bn (📈10.5%)

2007: $9.94Bn (📈 11.5%)

2008: $11.4Bn (📈 11.4%)

Projected at the time 2009 spend $11.6 Bn (📈 1.8%)

Actual 2009 spend: $11.3Bn (-1%📉)

After double-digit growth for the 3 years prior we saw a drop in spending for 2009. On a macro level, the speeding train went backward.

I think we can expect something similar in 2021, and honestly, it will be a bit more severe (I’ll dive into why below).

On the micro-level will this affect you? Well yes. There is less of the pie to go around. With a $100Mn drop in spending, you can imagine that spending was consolidated into bigger properties with larger brand power.

Although I don’t have the data for this (but would love to see it) I would imagine this drop primarily came from smaller market & minor league teams. It could have been even larger than $100Mn as again this money could have been shifted to some of the more well-known properties.

So, what about recovery?

2009 was a tough year…but what about 2010 & 2011? How fast did it recover?

2010: $11.6Bn (2.6%📈)

2011: $12.3Bn (6.2%📈)

2012: $13.5Bn (9.7%📈)

As we can see, it took another year of very slow until we started to really see a jump back up to the levels we were used to before the recession (close to double-digit growth)

Can we expect the same this time in sponsorship? Maybe. But again this is a bit of a different recession period, it has a mix of both health and monetary reasons why sponsors may not invest in our live events.

How this may be different: A Pandemic inflected recession

Here’s the tricky part with this recession is it is coming due to a pandemic that shut our sports down.

Obviously, we won’t see just a -1% decline in 2020. Some sponsors will pull back immensely because we don’t have what they want to buy (games).

Even if we did have them back, not too many sponsors want to double down on events that include many people gathering and being worried about catching something.

But how much will we lose? FOS reports close to $10Bn.

That is a drop of 38%…not including whatever drop comes with a recession.

The tough thing here is we don’t know how fans will react when we get the all-clear. Will they avoid Fan Zones and party decks? Will we see a drop in attendance due to a mix of the post-pandemic scare and a recession?

These are hard to answer…but I think sport still has such a pull that we can still command a high price for our assets.

What we’ll need to do is adapt our assets.

Like any stock, a drop in sponsorship spend is a reaction to confidence in our ability to produce for brands and reach their marketing goals.

Sponsor budgets don’t drop because “budgets are frozen”. Ok, some might…but they are still spending on marketing somewhere.

I think the telling item here will be can we replace what was lost AND offer assets that brands will want to buy in a cash-strapped recession.

How strong are we as an industry to push through something that honestly should have killed us? How fast can we adjust?

I’ll be very interested to see what this actually shakes out to in 2020. It will be very telling about the state of our industry.

Ok, but how did internet spending fare?

If brands don’t spend with us…they will spend elsewhere.

We are constantly compared to digital options in sponsorship…so how did internet advertising revenues do with the recession?

U.S. Internet Advertising Revenue (source IAB):

2008: $23.4 billion (📈10%)

2009: $22.7 billion (📉-3.4%)

2010: $26.0 billion (📈15%)

2011: $31.7 billion (📈22%)

2012: $36.6 billion (📈15%)

Overall, internet advertising saw a drop just as sponsorship did (and it dropped more) but the rebound was much quicker. They saw growth in the double digits in just one year after 2008.

And I expect something similar for digital ads this year and next. Cost Per Click rates are dirt cheap right now, which is an auction platform (price based on how many people are bidding for the audience) and means fewer people are spending on digital ads.

Now I know this might not be the apples to oranges I am portraying here, but this is intriguing to me. Really in 2008 internet ads were fairly young. Facebook was a baby and their powerful ads platform wasn’t even built yet.

If I had to bet we will see the same bounce back, and maybe higher and faster from digital ads.

Why? Because mindset In value has shifted

One interesting thing that has changed here is what sponsors found most valuable in our packages. I think this will play a big role in determining where the dollars that are available will be spent.

Let’s look at what brands thought were most valuable in 2016

The top items come in with exclusivity and on-site signage at #1 & #2. Digital comes in at #6.

Just one year later, we see a much different story…

Digital drives to #2 from #6….on-site signage drops from #6 to #2.

So even BEFORE any issues with on-site signage through the pandemic brands were

And the numbers are telling on digital being the need. In 2018 digital ads in North America pulled in $100Bn in revenue.

Brands are telling us by both how they spend AND directly that they want digital options. To make up ground on the -38% growth we’ll need to adapt and add these into our packages.

I’ve written about this before, but the key here is don’t fight what your brands want to spend on. I don’t care if you have $1M in signage to offload.

If your brand doesn’t want it…you shouldn’t be selling it.

This is the best cheat code we have. This data is key as we build our suite of assets to present. If we want to win…we need digital assets.

The way out: Relevance

How can you be an outlier? I think the silver bullet here will be relevance.

How relevant are your assets to meeting your sponsor’s goals? How good are they at proving ROI?

Money may dry up, but brands still spend money on marketing…they just will spend where they think they will get the largest return.

To be the outlier you have to create a product that is more relevant to those goals than other options. You have to adapt and see the openings.

This means we’ll have to change our assets. More digital, more trackable, more reach, more engagement, more ways to build relevance as to why you should as a brand spend your dollars on my package.

You can do small things to be relevant to your brands. Hyper-localize your offerings, push the reach you have on social, & create new pricing packages.

The ones that innovate during recessions become the winners. They are the outliers.

On the macro-level the above says there will be less money in the pot, what it doesn’t mean is you should expect your revenue to drop. If you can be adaptable…you can win the dollars that others fail to grab.

The graph above should not tell us we should expect to make less money, what it tells me is we have to be scrappier and innovative to win those dollars.

Use the above to inform you that if you follow the same tactics…you’ll lose.

Be the innovator. Be the outlier.

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