1. Why Brands Need to
Rethink Sponsorship
Valuation
WHITE PAPER - T1 CONSULTING GROUP
June 2014
MITCH THOMPSON
Mitch is a Consultant at T1 with over five years experience in sponsorship consulting -
both sponsor-side and property-side. His work with blue chip Canadian sponsors has
included sponsorship valuation, sponsorship strategy, sponsorship measurement,
and other sponsorship management practices.

2. In 2012, Canadian companies spent an average of $3.46M each on sponsorship, with the average deal
being an $82,8191 rights fee expenditure. In North America as a whole, $19.8B was spent on sponsorship in
2013, with $53.1B being spent globally2.
One would think that the acquisition of sponsorship packages for such large amounts of money would be
undertaken only after conducting significant due diligence to confirm that the investment’s expected return
is sufficient. In many cases, sponsors do perform plenty of analysis around a sponsorship opportunity
before deciding to pursue it at a given price point. In many other cases they do not.
Thorough sponsorship valuation
practices are typically undertaken
by sponsors that are large enough
to afford an internal sponsorship
team or the services of a sponsor-
ship consulting agency.
But do these practices, as they’re
currently performed, really help
sponsors?
Does sponsorship valuation as
we know it tell a sponsor what
they should pay for sponsorship
rights?… Or does it merely tell
them what others might pay for
those same rights?
What is Sponsorship Valuation?
When a sponsor, and/or its agency partner(s), conduct a level
of analysis to determine an appropriate investment level for a
given sponsorship opportunity, the practice is known as
sponsorship valuation3.
This process takes place BEFORE the decision is made to
enter a sponsorship agreement with the property at a specific
price point. Sponsorship evaluation, on the other hand, is a
term used for the process that includes measurement, tracking,
and analysis practices that take place after sponsorship begins,
in order assess the effectiveness of the sponsorship.
This white paper focuses on sponsorship valuation practices.
An Intro to “Valuation”
In this section, I’ll look to provide an overview of some other approaches to valuation that can serve to
inform the conversation around sponsorship valuation. With any investment, whether it be the purchase
of an automobile for a family, the hiring of a new manager at a company, or the acquisition of sponsorship
rights, the purchaser looks to make sure it is not overpaying, and usually it wants to get a good deal.
But how a “good deal" is defined varies from case to case.
While I will touch on approaches to valuation or “appraisal” in real estate and artwork, as well as stocks,
a major focus of this section will be on valuation practices in the world of financial management. With an
educational background in finance, I see a clearly logical application of financial management valuation
practices to the valuation of sponsorship. After all, looking at sponsorship investments from a financial
management perspective makes a lot of sense when most Presidents, CEOs, and Boards who sign off
on a company’s annual marketing budget view that company’s activities through this same lens.
In a publicly traded company, the pressures to tie every investment back to an improvement in shareholder
value are formalized and undeniable… it is the fiduciary responsibility of managers to act in the best
interest of shareholders at all times. Therefore, an investment (including an investment in sponsorship
rights and assets) must be undertaken with the objective and expectation of positive financial returns in
mind as an eventual outcome.
1. O’Reilly, N. et. Al (2013) 7th Annual Canadian Sponsorship Landscape Study. http://www.sponsorshiplandscape.ca
2. (2014) Sponsorship Spending Growth Slows in North America as Marketers Eye Newer Media And Marketing Options.
http://www.sponsorship.com/iegsr/2014/01/07/Sponsorship-Spending-Growth-Slows-In-North-America.aspx
3. To be clear, the same term of ‘sponsorship valuation’ is applied when a property conducts some sort of analysis to determine a price point for selling a sponsorship
opportunity. In this white paper, I will be focusing on valuation from the sponsor’s perspective.

3. Relative Valuation
The approach of relative
valuation is common across
various fields… from valuing real
estate and artwork, to valuing a
company prior to acquisition.
Investors want to make sure
they get a ‘good deal’ when
purchasing an asset or package
of assets. When a relative
valuation approach is used,
getting a ‘good deal’ means
paying less for the asset than
others might pay.
Relative Valuation
in Real Estate
In real estate, the Sale Comparison
approach to valuation applies
the general principles of relative
valuation to the potential
purchase of a home or property.
In this approach, the property
of interest is compared to those
that are considered comparable
(in size, location, quality, etc.)
which have been recently sold
under typical market conditions.
The sale price of these
comparable properties are then
adjusted to account for any
significant differences between
the property of interest, and the
properties in the comparable
transactions. Ultimately, a
conclusion around a fair market
value for the property of interest is
determined based on what others
havepaidforcomparableproducts.
Relative Valuation
of Artwork
The Sale Comparison approach
is also used in artwork valuation
practices, and according to
Kathryn Minard, a Toronto-
based certified appraiser of fine
art, this approach is the most
commonly used in artwork
valuation. The method involves
looking at the selling price of
comparable pieces of art, and
making price adjustments
according to how the piece of
interest compares on key
characteristics. It is a method
that conforms to the Uniform
Standards of Professional
Appraisal Practice (USPAP) that
works to ensure that all
personal property appraisal
practices are credible,
transparent, and understood
by both appraisers and their
clients.
Relative Valuation
in Corporate Finance
In corporate finance, relative
valuation most commonly takes
the form of a Price-to-Earnings
multiple analysis, Enterprise
Value-to-EBITDA analysis, or
other another form of ratio
analysis. In any case, the
purchaser reviews how others
(the market) have valued the
company of interest relative to
its score on a key variable
(i.e. income), and looks at the
same relative calculation for
comparable companies.
For example, with the P/E
Multiple Method, the purchaser
would determine sustainable
after-tax earnings from
operations for the company of
interest (a key variable that
should drive company value),
and then look at its market cap4
(the company’s equity value).
The purchaser would calculate
the ratio between these two
figures, determining the
“Price”- to-“Earnings” ratio
(“P/E ratio”) for the company
of interest. The purchaser would
then conduct the same exercise
for other companies with
similar risks and growth
opportunities and calculate
their P/E ratio (or use
an industry average P/E ratio),
and draw a conclusion as to
whether the company of
interest is currently under-
valued or over-valued in the
market place. If the company is
under-valued, the investor is
supposed to assume that its
value will increase in the future,
implying the time is now to
acquire the company. This
method assumes that, on
average, the market caps of
the comparable companies
represent accurate represent-
ations of those firms’ present
value of shareholder income.
Understanding the Asset of Interest
In all valuation methods, relative or absolute, it is important
for the purchaser to understand the asset, its future, and its
environment thoroughly. This includes assumptions or forecasts
about an asset’s future performance and how that performance
will change under evolving marketplace conditions, changing
economic conditions, and under new ownership.
4. A company’s market capitalization is the total dollar market value of all of a company’s outstanding shares. In other words, it’s how the stock market values the
company’s total equity.

4. While these relative valuation
methodologies can be further
analyzed and modified, at their
core these methods make the
assumption that market values
of comparable assets, as
defined by recorded
transactions in the marketplace,
are a good starting point for
determining the value of the
asset being considered for
purchase. In a nutshell, the
conclusion is drawn that “if
others were willing to pay
$X for that asset, I should be
okay with paying $X+$5 for
this asset… based on how it
scores on key variables vs.
the comparable.”
Absolute Valuation
Like relative valuation, absolute
valuation is also applied across
numerous fields that involve the
acquisition of an asset or
package of assets. Unlike
relative valuation, absolute
valuation does not rely on the
assumption that buyers in
comparable marketplace
transactions have paid
appropriately for an asset’s
benefits. Instead, the desired
outcomes of an acquisition are
forecasted and monetized,
allowing the purchaser to
calculate a maximum price that
should be paid5. The purchaser
forecasts these desired
outcomes based on his or her
plans for leveraging the asset,
and based on an understanding
of how those plans will impact
any desired outcomes of the
acquisition.
Absolute Valuation
in Corporate Finance
In financial management, the
Discounted Cash Flow
methodology looks to attach a
present value to the one
eventual outcome that truly
matters to a company that’s
looking to acquire another
entity. This outcome, of course,
is profit. More specifically, the
purchaser calculates its
expectations for “Free Cash
Flow” (used as a proxy for profit
to avoid any accounting
trickery) of the target company
for as long as it intends to own
the firm. This forecast includes
accounting for synergies that
will arise due to the target
company’s new ownership, any
changes in its competitive and/
or economic environment, and
any other factors that will affect
its profitability. Using time value
of money calculations, these Free
Cash Flow projections are then
translated to a present value in
orderto determine the appropriate
price that should be paid for
the company of interest.6
Absolute Valuation
in the Stock Market
Similar to the Discounted Cash
Flow methodology, the
Dividend Discount Model
(DDM), which is used for valuing
a share in a company’s equity,
calculates the present value of
a single relevant purchase
outcome. For this model, that
outcome is the stock’s expected
dividends. By ignoring the
possibility of capital gains (or
losses) derived from selling the
stock7, an investor can conclude
that dividends are the only
relevant benefit obtained from
the stock purchase. Therefore,
the present value of the
5. The purchaser does not want to spend more to acquire the asset than the asset’s benefits are worth (otherwise it would be an unprofitable transaction).
6. The value of any redundant assets are added to the Present Value of Free Cash Flow, while the market value of existing debt is subtracted, in order to
calculate the full present value of the company’s equity
7. Or by assuming that the stock’s price when it is eventually sold is equal to the present value of its future dividends anyway
In absolute valuation, the desired
outcomes of an acquisition are
forecasted and monetized.
When a relative valuation approach
is used, getting a ‘good deal’
means paying less for the asset
than others might pay.
Conclusion from a relative valuation:
“if others were willing to pay $X for that asset,
I should be okay with paying $X+$5 for this
asset… based on how it scores on
key variables vs. the comparable(s).”

5. expected future dividends from
a purchased stock can be
considered the asset’s value. If
an investor is able to purchase
the stock for a price that is less
than this DDM-calculated
value, it therefore predicts a
positive net present value for
the investment - implying the
purchase should be made at
this price.
Absolute Valuation
in Real Estate
The Income Capitalization
Approach looks at real estate
valuation through a focus on
the net income that a property
produces. This method is
typically applied to properties
such as apartment complexes,
office buildings, and shopping
centres, whose owners all look
to earn financial returns on
their investment in land,
construction, and property
maintenance. In this approach,
net annual operating income is
forecasted for the property of
interest, and time value of
money calculations are again
used to translate these
projected cash flows to an
appropriate upfront price that
should be paid for the property.
Absolute Valuation
of Artwork
While it is less common for a
piece of art to be viewed as an
income producing property to
the potential buyer8, there are
certain situations in which an
artwork valuation is conducted
through this lens. For example,
when a museum looks to
purchase a piece of artwork, it
must consider the income it
expects to earn as a result.
Everything from admissions,
merchandise sales, and other
revenue streams would be
taken into consideration.
In such situations, another
USPAP accepted approach, the
Income Approach, is used for
artwork valuation. This approach
resembles Discounted Cash
Flow, Dividend Discount Model,
and Income Capitalization
methodology in that it looks to
monetize (and discount to
present value) those expected
future cash flows.
Understanding
the Differences
between Relative
and Absolute
Valuation
All in all, it’s obvious that
absolute valuation methods
take a fairly different approach
than relative valuation methods.
Absolute valuation requires the
purchaser to have a tangible
and quantifiable desired
outcome from the acquisition.
In the case of a family buying a
house, or an art lover buying a
painting, there is no tangible
desired outcome, and so
relative valuation is used.
For investments with desired
quantifiable outcomes, an
absolute valuation approach
allows the purchaser to assess
the value of the asset’s expected
net benefits. Unfortunately,
absolute valuation is much more
time consuming than relative
valuation, and projecting an
investment’s results is not a
perfect science. Assumptions
must be made around the
asset’s performance and the
environment in which it will be
operating.
In absolute valuation, it is the
purchaser who makes these
assumptions and estimates,
whereas in relative valuation,
the purchaser assumes that the
assumptions made by others
will apply to the investment
under review.
Relative Valuation
Approaches in
Sponsorship
In the world of sponsorship
marketing, the most commonly
practiced methods of sponsor-
ship valuation are relative
valuation approaches.
The most popular method is
an asset-by-asset valuation
approach, and it has been
made popular by IEG - a
Chicago-based company that is
a global industry leader. IEG is a
tremendous source of sponsor-
ship news, industry research,
and hosts an annual conference
that has been a top event in the
industry for 31 years. The
valuation approach that IEG
developed first takes a granular
approach to valuing each asset
within the proposed sponsor-
ship package. Tangible sponsor-
ship assets are valued in various
ways, depending on the type.
Signage and other sponsor
brand integration is valued by
multiplying cost per impression
(CPI) amounts by projected
impression tallies. Sponsor
integration in media assets
8. This is often because purchasers of artwork have objectives beyond financial returns for the piece of interest.

6. is valued by making adjustments
to media equivalency values,
and hospitality assets included
in a sponsorship package are
valued at face value or by
benchmarking against similar
assets’ market values.
Once these asset-by-asset
calculations are made, they are
summed in order to determine
the total value of tangible
benefits, which is then adjusted
based on an “Intangibles &
Geographic Reach Factor”
multiplier. This multiplier is
calculated from the sponsorship
property’s scores (out of ten) on
various intangible benefit
categories (i.e. Prestige of
Property, Degree of Sponsor
Clutter, etc.). Finally, the
property’s value is adjusted as
needed based on market factors
that might affect supply and/or
demand for the proposed
sponsorship package. These
factors may include the
sponsor’s category, the supply
of similar opportunities, and the
sponsor’s proposed promotional
commitment.
IEG has developed this
approach based upon 25 years
of tracking the sponsorship
industry, and based on its
review of hundreds of
sponsorship contracts each
year9. Other approaches like
IEG’s have been developed by
sponsorship marketing
professionals, including one by
Bernie Colterman of the Centre
of Excellence for Public Sector
Marketing in Ottawa, ON.
While these approaches have
been adopted by many, and are
of tremendous value to the
sponsorship community, the
underlying methodology is not
grounded in understanding how
a sponsor will benefit from a
particular sponsorship package,
but is instead based on what
others might pay for an asset or
what has been paid in the past10.
Another common approach to
sponsorship valuation is that of
quantitative benchmarking
analysis. While no standard
method exists for benchmarking,
at its core, the method is about
comparing the sponsorship
opportunity of interest to other
similar sponsorship opportunities
that have been purchased by a
sponsor in the past. Analyzing
what sponsors paid for these
comparable opportunities, and
quantitatively adjusting that
amount based on the relevant
9. M. Ording and T. Perros (2011) Determining the Fair Market Value of Sponsorships.
http://www.sponsorship.com /images/ieg2011/handouts/IEG-DeterminingFairMarketValue.pdf
Examples of IEG’s
“Fair Market Value” Approach
In the popular IEG sponsorship valuation methodology, assets
that make up a proposed sponsorship package are valued based
on tangible benefits first, and then based on a intangible benefits
and geographic reach. Market factors are also considered as
price adjusters after these two sets of calculations are made.
A sample valuation for a single asset is outlined below:
Sponsor Branding on Signage On-Site:
‣ Attendance of 20,000, assume
75% of attendees will notice
branding (15,000 impressions)
‣ Multiply by a CPI of $0.02 for a
tangible benefit value of $300
‣ Intangible & Geographic Reach
multiplier = 2.5
‣ Multiply tangible benefit value of asset by 2.5 to calculate
the asset’s fair market value of $750
In this example, the CPI value that is used is based on an IEG-
provided range for each asset type, as well as guidance around
the asset characteristics that determine whether a higher or
lower value within this range should be used. The Intangibles &
Geographic Reach multiplier used would have been calculated
by translating how the property rates on various intangible
benefit categories (i.e. Degree of Sponsor Clutter, Awareness of
Property, Protection from Ambush, etc.).
The valuator would then make any upward or downward
adjustments it feels are necessary based on market factors that
affect supply or demand for the opportunity (“Price Adjusters”).

7. differences between the
opportunity of interest and the
comparables (i.e. attendance
figures, TV viewership, age,
location), allows the sponsor to
conclude what sponsors might
be willing to pay for the
sponsorship package they’re
reviewing. In a nutshell, the
sponsor is able to conclude: “If
other packages, similar to the
one I’m considering, were
acquired for an average of $X
by sponsors, and the package
I’m looking at is actually better
(or worse) than those packages
by Y% in terms of how it scores
on key variables, it could be
concluded that sponsors would
be willing to pay $Z for the
sponsorship package I’m
considering.”
Because most companies keep
their sponsorship valuation
practices confidential, it’s
difficult to know just how many
different approaches to
sponsorship valuation exist.
Based on TrojanOne’s combined
decades of experience in the
sponsorship space, it is our
understanding that variations of
relative valuation methods are
the most commonly practiced
approaches. However, there are
some companies and agencies
that have developed unique
models which combine relative
and absolute valuation –
integrating the forecasting of
desired business outcomes into
their methodology.
It’s worth noting that relative
valuation is a very logical way to
go about sponsorship valuation
from the property side of the
equation. By understanding
what sponsors have paid for
comparable sponsorship
packages, and what comparable
properties earn in sponsorship
revenue, a property can
effectively determine its
expected organizational
sponsorship revenue as well
as price points for individual
packages. As a reminder, this
white paper is exploring the
logic behind sponsorship
valuation practices as they
relate to sponsors, not
properties.
Why is Relative
Sponsorship
Valuation so
Popular?
It seems obvious that a
company acquires sponsorship
rights in order to achieve certain
desired business outcomes. In
the case of a bank, a desired
business outcome may be that
new accounts be opened
because people feel more
comfortable with the bank’s
brand. In the case of a beer
company, a desired business
outcome may be a lift in sales at
bars during the sponsorship’s
annual time period of relevance
in a region. A sponsorship is an
investment that has a return,
and that means it is crucial to
understand the expected
returns from a sponsorship
before determining what
amount should be invested.
Why then is it so common for
sponsorship professionals to
spend thousands, sometimes
millions, of dollars on rights fees
without conducting absolute
valuation analysis first?
Reason #1: Relative Valuation
is Quick and (Relatively) Easy
As the field of sponsorship
marketing has grown in recent
decades, various break-
throughs in how sponsorship
marketing is practiced have
taken place. Among these
breakthroughs are the clearly
defined models for sponsorship
valuation that were referenced
in the previous section. IEG and
TrojanOne itself are among the
agencies that have developed
step-by-step processes for
sponsorship valuation that have
since been adopted by
thousands of sponsorship
professionals around the globe.
Anyone who has utilized one of
these methods to conduct a
thorough sponsorship valuation
on an opportunity knows that it
is not easy. It can be very time
consuming, requiring hours of
research to find the best data
points and to make the best
calculations and estimations.
That said, because the
processes have been so well
defined, and can be applied to
any sponsor of any category, it is
possible for a team of one or
two to conduct a sponsorship
valuation in isolation, without
having to bother the sponsor
company’s research
department, sales personnel, or
accounting team. And while
sometimes a thorough and
complex sponsorship valuation
can take over a month to
complete, more often than not a
sponsorship valuation takes less
than two weeks to finalize –
especially when a template
spreadsheet is utilized.
10. You’ll notice that the only dollar values being utilized in the IEG calculations are those that represent market values or historical transactions
(CPI ranges, media asset values, ticket face values, etc.)

8. Reason #2: Relative
Valuation can be Conducted
by a “Third- Party Expert”
In many cases, a company’s
sponsorship team looks to their
agency partner to provide an
expert’s opinion on an
opportunity, in order to justify
the rights fee being asked. The
agency’s blessing to move
forward with a sponsorship, or
their recommendation to only
spend up to a certain amount on
the opportunity, is more about
adding credibility to the
decision-making process than it
is about understanding how the
sponsorship might benefit the
company’s business. The
request of the agency is that
they use their expertise,
industry accepted methodology,
and determine the appropriate
“value” of a sponsorship
opportunity. The company’s
sponsorship team does not
want this process to take long,
and they don’t want to bother
other people at their company
with the process. After all, if
their agency partner is an expert
on sponsorship valuation, this
type of request should not be
too much hassle.
In this context, a relative
valuation approach is really all
that’s possible. A relative
valuation approach doesn’t
require the agency to become
an expert on the company’s
profit margins, target consumer
purchase funnel, or marketing
research practices. A relative
valuation approach allows the
agency to apply essentially the
same sponsorship valuation
methodology to a CPG
company’s sponsorship
opportunity as an airline
company’s.
While I don’t want to paint all
sponsors and all agencies with
the same brush, this type of
situation is a common
occurrence. This situation also
translates very seamlessly to the
media buying practices at many
companies, large and small…
Just because other companies
are willing to pay $10,000 per
month to advertise on that
billboard, should you? Keep in
mind that many sophisticated
agencies and sponsorship
teams are taking strides towards
integrating absolute valuation
approaches into their
sponsorship practices. I will
touch on how this is being done
at a later point in this paper. It’s
important to know that
integrating such approaches
requires a long-term view and a
willingness to think about the
big picture of a company’s
sponsorship function. The
approach cannot just be
property-to-property or month-
to-month.
Why Sponsors
Need to Avoid
Going ‘All In’ on
Relative Valuation
When a sponsor conducts a
form of relative sponsorship
valuation for a sponsorship
opportunity, and considers the
conclusions drawn from that
exercise to be sufficient in
determining an appropriate
rights fee to pay, that sponsor is
undertaking a practice grounded
in faulty logic. Here are two
examples to explain why relying
solely on relative valuation is a
bad idea.
In Situation A outlined below, a
property has asked a sponsor,
Good Guys Inc., to pay
$500,000 in annual rights fees
for a particular sponsorship
opportunity. After conducting a
relative sponsorship valuation,
the Good Guys Inc.’s
sponsorship team has
concluded that the market value
of this same opportunity is
$600,000.
As we’ve learned though,
relative valuation tells you what
others might be willing to pay
for an opportunity, based on
what rights fees have been paid
for comparable opportunities in
the marketplace.
Situation A:
The ‘Good Deal’ Fallacy
$450,000
$300,000
$150,000
0
$600,000
Asking Price from Property
Sponsor Company’s Relative Valuation
Sponsor Company’s Absolute Valuation

9. If Good Guys Inc. conducts no
further analysis, and does not
conduct a form of absolute
sponsorship valuation, it might
conclude that the proposal
represents a “good deal”. It’s
entirely possible, however, that
the value of the expected
business outcomes that are
derived from this potential
sponsorship amount to only
$350,000 in annual net income
to the Good Guys Inc.’s bottom
line. If the company decided to
pursue the opportunity, it might
be paying $500,000 in annual
rights fees, while only
benefitting its business by an
incremental $350,000 per year.
In Situation B outlined below, a
property has asked Good Guys
Inc. to pay $400,000 in annual
rights fees for a particular
sponsorship opportunity. After
conducting a relative
sponsorship valuation, Good
Guys Inc.’s sponsorship team
has concluded that the market
value of this same opportunity is
only $300,000. If the company
were to conduct no further
analysis, and no absolute
sponsorship valuation, it might
conclude that the proposal
represents a “bad deal” and that
it should counter offer with a
proposed annual rights fee of
$300,000 and let it be known to
the property that they will not
spend any higher. In that case,
the company’s competitor, Bad
Guys Inc., might come in and
acquire the sponsorship
opportunity for $420,000 in
annual rights fees.
Bad Guys Inc. may have
conducted the same relative
valuation as Good Guys Inc. did,
and determined that the market
value of the opportunity was
around $300,000. But Bad Guys
Inc. also conducted an absolute
valuation and determined that
the opportunity was worth
$500,000 in incremental net
income to its business.
Therefore, it concluded that
even though other bidders, like
Good Guys Inc., might only be
willing to spend $300,000 on
the opportunity, it was willing to
spend $499,999. Had Good
Guys Inc. also conducted an
absolute valuation, it might have
concluded that it should be
willing to spend $600,000 for
the opportunity, allowing it to
eventually outbid Bad Guys Inc.
with an offer of $520,000 in
annual rights fees, acquiring
sponsorship rights for the
opportunity.
While these two examples are
purely hypothetical, you can see
how they demonstrate the role
that both relative and absolute
valuation play in acquiring
sponsorship rights at an
appropriate investment level.
Without conducting an absolute
valuation, a sponsor doesn’t
know what the maximum price it
should be willing to pay for an
opportunity is. Therefore, it
might end up paying too much,
and not receiving sufficient
benefits from a sponsorship to
warrant the expenditure.
Without conducting a relative
valuation however, a sponsor
doesn’t know what other
potential bidders might be
willing to pay for an opportunity.
Therefore, it might end up
offering to pay more in
sponsorship rights fees than it
had to (imagine if Bad Guys Inc.
offered to pay $499,999 instead
of $420,000 in Situation B).
In conclusion, a sponsor needs
to conduct a form of absolute
sponsorship valuation in order
to understand what it should be
willing to pay for an opportunity,
but relative valuation can be a
very useful exercise for
negotiation prep.
$375,000
$250,000
$125,000
0
$500,000
Asking Price from Property
Sponsor Company’s Relative Valuation
Competitor’s Absolute Valuation
Situation B:
The ‘Bad Deal’ Fallacy

10. 11. Of course, cost/benefit ratio means the expected cost of the sponsorship, in rights fees and activation costs, compared to the projected benefits of the
sponsorship (monetized or not)
Absolute Valuation
in Practice
It’s one thing to understand why
absolute sponsorship valuation
is a logical practice to implement,
and to comprehend the pitfalls
of relying too heavily on relative
valuation approaches. It’s quite
another to take the initiative to
implement new processes and a
new perspective within your
sponsorship team.
In most cases, for most
companies, a fully comprehensive
absolute valuation is not realistic
- not immediately at least. There
are too many sponsorship
outcomes that cannot be
measured and/or monetized.
How can a sponsor monetize
the effects of their brand being
perceived as more affiliated with
a specific property, sport, or
activity? What about the effects
of their brand being considered
more philanthropic and involved
in the community? What about
product sampling? How does it
translate to long-term sales?
These are some examples of
desired sponsorship outcomes
that would be difficult to
monetize with precision.
But even though achieving
perfection may not be realistic,
that doesn’t mean that steps
can’t be taken in the right
direction by your team.
Here are some recommended
practices that can kick-start the
process towards absolute
sponsorship valuation:
1. Be Aligned on the Meaning
of “Value” and “Worth”
I have seen many
misunderstandings around
sponsorship valuation simply
because two parties are not
aligned on the meanings of the
terms “value” and “worth”.
When a client asks its agency to
tell them what a sponsorship
package is “worth”, or to tell
them what the package’s
“value” is... are they asking for
the price that others might pay
for that package? Or how the
opportunity will benefit their
business?
Making sure your team
understands the differences
between relative and absolute
valuation is the first step in
avoiding any confusion around
such asks.
2. Be Selective in the Assets
and Rights you Acquire
It is important that your team
takes the extra time to work with
properties to create customized
sponsorship packages that best
meet your brand objectives.
As discussed, there are many
sponsorship assets and rights
that are of value to other
companies, but may not be of
value to yours - based on your
unique objectives. A property
may very well offer your brand a
sponsorship opportunity that is
rich in these types of unneeded
assets, and the relative values
of these assets will drive up the
package’s asking price.
If your team doesn’t constantly
ensure that your sponsorship
portfolio consists of rights and
assets that are on-strategy,
before you know it you will be
paying for many sponsorships
that are made up of benefits you
don’t need.
3. Practice Relative INTERNAL
Valuation Practices
When reviewing a new
opportunity, it can be a very
useful exercise to understand the
expected cost/ benefit ratio11 of
that opportunity in comparison to
your existing portfolio of
sponsorships. In particular,
knowing how the opportunity
stacks up against what you know
are your “best” sponsorship
properties can tell you a lot.
While much of this white paper
warned against the pitfalls of
relative sponsorship valuation,
it’s important to remember why.
By conducting relative valuations
utilizing sponsorship fees paid
by other sponsors, your conclusion
around what should be paid for
an opportunity is grounded in
the assumption that what
others paid for comparable
opportunities was logical or
appropriate.
When your own sponsorships
are utilized in a relative
valuation, you can be more
confident that the costs of a
sponsorship have been decided
upon based on projected (or
confirmed) sponsorship
outcomes that are relevant to
your company.
4. Conduct Absolute Valuation
Whenever Possible
For every desired sponsorship
outcome that is very hard to
monetize, there is one that can
be monetized within feasible
parameters.

11. The table above lists a few
examples of common
sponsorship assets and rights
that can realistically be valued
by your company using absolute
sponsorship valuation
principles.
Implementing absolute
sponsorship valuation practices
may require using some
sponsorships as tests in order to
develop your conclusions
around the value to your
company of certain sponsorship
assets/rights.
And it may require spending
hours of back-and-forth with
your accounting team, with your
sales team, and with your
marketing research team.
Getting these people to sit down
with you and understand why
you need certain information
and insights might be tough. But
when all is said and done, being
able to determine appropriate
investment levels for future
sponsorship opportunities will
justify all the hard work.
5. Implement Process Discipline
in Sponsorship Spending
When absolute valuation
methods are incorporated into
your sponsorship team’s
processes, the desired
outcomes of a sponsorship and
the cost of that sponsorship (in
rights fees and activation costs)
are assessed using the same
unit of measurement (dollars).
Therefore, when an absolute
sponsorship valuation tells you
that your company should be
willing to pay no more than
$X for a sponsorship, it is
because the best and brightest
minds within your company
projected that it would earn
your business at least $X+$1
(present value) in return.
When a thorough absolute
sponsorship valuation is
conducted, there is no need to
talk yourself into a sponsorship
that will cost more than the
expected benefits are worth.
Even if one of your competitors
is willing to pay more for a
sponsorship opportunity, that
does not change what it is worth
to your business.
Table - Absolute Valuation Approaches
for a Sample of Assets/Rights
Sample
Asset/Right
Sponsorship
Outcome
Determining Absolute Value
Supply Rights,
Sales Rights
On-Site Product
Sales
Project the number of units expected to be sold on-site via the
sponsorship (possibly from historic sponsorships). Multiply this
amount by an appropriate profit margin per unit.
Activation Rights,
Use of Marks
Indirect Product
Sales Off-Site
Utilize previous sponsorships of various types, in test regions,
to gauge what an expected off-site lift in sales would be for the
sponsorship opportunity of interest. Multiply this amount by an
appropriate profit margin per unit.
Tickets, Unique
Hosting
Experiences
Improved Client
Relationship via
Hosting
Work with sales team to study the effects of past hosting
experiences on the future revenue gained from prospects/clients
hosted. Come to conclusions around the present value of future
business gained from hosting certain types of prospects/clients
at certain types of events. Determine the number of prospects/
clients that will be hosted via the sponsorship opportunity of
interest, and apply these present values accordingly.
On-Site
Activation Rights
Gaining Future
Clients via Lead
Capture On-Site
Analyze the average net business gained from leads at previous
sponsorship properties of each type. Draw conclusions around
the average present value of this business, and apply it to the
sponsorship of interest based on projected leads and property type.

12. Striving for an Improved Status Quo in Sponsorship Valuation
Implementing absolute sponsorship valuation practices requires long-term thinking. And it requires buy-in
from company leadership that there is a need for such a process of re-thinking sponsorship’s role in the
company’s operations. As we all know, sponsorship is not just leveraged by a company’s marketing team,
but also by its sales team, its HR team, and more. An absolute approach to sponsorship valuation therefore
requires input from personnel from many departments within your company.
Even while certain sponsorship benefits cannot be monetized, and while your team struggles through the
short-term difficulties of implementing a new approach, you can feel confident that you’re on the right track…
Because despite these complexities and difficulties that come with absolute sponsorship valuation, your
new approach is grounded in logic that you strongly believe in…
Just because someone else would
spend $1 million on a sponsorship doesn’t
mean you should!

13. T1 Consulting is a core part of our
integrated approach to client work.
Our analysts and consultants love
to solve problems, analyze data,
conduct research, and strategize.
They provide inputs into several
stages of the agency process, from
providing marketing research and
insights related to the target
consumer to developing sponsorship
recommendations and providing
program and sponsorship evaluations.
consulting@theT1agency.com
416 920 7044
T1 Consulting