Six Questions for Cities Considering Sponsorship as a Revenue Stream
Cities and local governments are on a perpetual search for new revenue. Raising taxes is politically daunting (to say the least), and creating or increasing service fees only slightly less so. As a result, many cities are considering corporate sponsorship as a means to generate much needed revenue.
We recently had an opportunity to respond to a Request for Information about municipal sponsorship from a major U.S. city (population 500,000+). The questions they posed are pertinent to any city considering corporate partnerships as a method for generating new revenue, so we’ve included them (and our responses) below.
What should be considered in evaluating a sponsorship program?
In evaluating the potential of a sponsorship program, municipalities must consider an array of issues to determine if implementation makes sense. Among these include:
Impact on Mission: Creating marketing partnerships with major corporate sponsors is an inherently commercial endeavor, and therefore may fall outside of the core mission of municipal governance. Ensuring that a resulting sponsorship program is designed with the mission in mind is of paramount importance.
Impact on Taxpayers: Many corporate sponsors will seek to use its sponsorship of the City to engage residents in unique and compelling ways, a circumstance that can be perceived negatively by taxpayers if protections and guidelines designed to protect their interests are absent.
Revenue Potential: Ultimately, the City must consider whether the revenue potential afforded by the sponsorship program justifies its implementation.
Sponsorship Revenue Intent: While sponsorship program revenue potential is important, of equal importance is providing a clear indication of how revenue generated by the program will be used. Specifically, municipalities should take care to detail how sponsorship revenue will be used to positively impact stakeholders (residents, businesses, etc.).
Organizational Design: Because sponsorship often represents a new role for municipal governments, it brings with a variety of new roles and responsibilities (program management, sponsor recruitment and selling, partnership activation, etc.). As a result, clearly defining the team responsible for core functions is extremely important for the program to succeed.
Activation Requirements and Responsibilities: While this is related to the previous point regarding organizational design, activation requirements warrant separate mention as they are frequently overlooked. Each successfully negotiated sponsorship brings with it an enormous number of tasks and activities required to fulfill the municipality’s obligations to the sponsor. Failing to fulfill these obligations can strain the relationship with the sponsor, impact program success, and (in worst case scenarios) lead to litigation. To prevent this, municipalities must task people with role of bringing sponsorship programs to life.
Program Scope: Municipalities should determine how pervasive a sponsorship program should be. While larger programs that incorporate a broad range of assets from the City may generate more revenue, they are also more visible and potentially impactful on community stakeholders.
Categories: Several active sponsorship categories may provide a compelling source of revenue, but may represent business lines that are not palatable to City governance and/or residents. For example, alcohol and gaming companies frequently spend large sums on sponsorship, but may be considered risky partnerships for the City to
Benchmarking Success: Often this simplest of questions can be the most difficult to answer: “What does the success of our sponsorship program look like?” Ensuring that representative stakeholders have an opportunity to weigh in on this question and provide clearly defined answers help ensure that the City will move forward with a sponsorship program that is effectively positioned for success.
What types of typical city assets have you found to be marketable?
First and foremost, it’s essential to establish how companies view sponsorship. Specifically: a sponsorship is a marketing investment. As such, companies make sponsorship investments with the expectation that they will ultimately generate revenue in an amount greater than the amount of the original investment (typically referred to as “Return on Investment” or “ROI”).
How much greater and how quickly it is recouped depends on the individual sponsor.
To create sponsorship programs that appeal to potential sponsors need for ROI, we recommend that properties (including municipalities) create programs that integrate two distinct categories of assets: Direct Business Assets and Indirect Business
Direct Business Assets. Those assets that provide the sponsors with a direct, measurable revenue opportunity. In the majority of cases, Direct Business Assets are tied to providing sponsors with access to existing municipal spending as part of their sponsorship package.
Indirect Business Assets. Those assets that increase awareness of the sponsors partnership with the municipality and provide opportunities for the sponsor to engage with residents with the ultimate goal of developing new or incremental business. The revenue potential is more difficult to measure that Direct Business Assets, and so is usually valued at a lower amount. Indirect Business Assets are what is typically thought of as ‘traditional’ sponsorship assets and can a wide variety of forms including mass media advertising, transit advertising, out-of-home advertising, direct mail, community events, facility naming, program sponsorship, etc.
Therefore, marketability comes from demonstrating to a potential sponsor that the municipality is able to provide significant and unique direct and indirect business opportunities via a sponsorship program.
To protect the interests of taxpayers and create a competitive environment, sponsorship program administrators should make use of existing municipal purchasing infrastructure and put different sponsorship categories (soft drink, insurance, travel, healthcare, etc.) out to competitive bid.
What are some of the factors that would drive priority for marketing assets?
Several factors determine whether an asset should be incorporated into a sponsorship program. The prioritization of these factors is wholly dependent on the pre-established objectives and goals of the municipality. For example, some municipalities may be more comfortable creating overt, public-facing partnership with high impact and visibility (e.g. new signs or displays in public parks). This would generate more revenue, but may involve a level of integration with a sponsor that other municipalities are not comfortable with.
Specific factors to consider include:
Direct Revenue Potential: Amount of revenue that a sponsor can drive directly from the acquisition of the asset.
Indirect Revenue Potential: Amount of revenue that a sponsor can reasonably expect to derive from the activation of the asset.
Awareness and Positioning: The ability of the asset to increase awareness of the sponsor and position the sponsor in a unique and compelling way.
Asset Control: The degree to which a municipality can unilaterally control a given asset. For example, the municipality is able to provide the asset to a sponsor as part of a program without requiring additional authorizations or approvals from committees, resident groups, or other 3rd party organizations.
Channel Conformity: How well the asset conforms with existing sponsor marketing practices, content or guidelines.
Measurability: Ability of the sponsor and/or municipality to measure the effectiveness of a given sponsorship asset.
Impact of the Asset on Residents. Degree to which a given asset will improve or diminish residents’ lives.
Ultimately, prioritization of assets should reflect those areas where the interests of municipalities and sponsors are in alignment.
How do you assess the inventory of assets to market and the potential value of the assets?
For the initial phase of discovery and value, we use an established process called Asset Identification and Valuation. While the process can vary slightly from project-to-project based on client needs, timelines, and other factors, the steps remain largely the same.
Step 1: Expectations and Goals. Meet with project stakeholders to confirm objectives, formalize guidelines, confirm expectations and timelines, and project deliverables.
Step 2: Discovery. On-site visits and discovery of appropriate facilities, areas, venues, programs and “asset areas” which may have value in a partnership program.
Step 3: Research. With the findings from Step 2, begin research process to determine relative value of proposed assets. Research can include identifying comparative municipal marketing programs, prevailing market rates for common/similar marketing assets, relevant demographic information for market residents, and other factors that can inform the development and pricing of a sponsorship program.
Step 4: Expense Mitigation. Meet with municipal purchasing instruments to identify existing categories of expenditures (e.g. travel, office supply, automobile, etc.) that can be incorporated into a sponsorship program.
Step 5: Emotional Quotients. Usually taking the form of community engagement surveys and focus groups. Specifically. interview distinct populations to identify receptiveness to sponsorship program and proposed asset mixes.
Step 6: Analysis and Valuation. Using all the information gathered to this point, assign value ranges to individual assets and to the sponsorship program as a whole. Valuation methods vary greatly between different asset types, but generally use standardized techniques to produce an initial benchmark. A recommendation regarding the efficacy of incorporating each asset in to the sponsorship program is also provided to help ensure both effectiveness and efficiency.
Step 7: Resource Recommendations. Provide recommendations regarding staffing required to generate projected sponsorship program revenues and fulfill/activate program obligations to sponsors.
Step 8: Present Findings. Present findings in format preferred by the municipality. Findings will provide a clear sense of the revenue potential of a sponsorship marketing program.
What forms of sponsorship have you found to be successful? i.e. signs, banners, digital, etc.
The success of a sponsorship asset is wholly dependent on the category of business and/or the individual sponsor. For example, a soft drink company may find great value in out-of-home advertising assets like billboards and banners. A technology company, on the other hand, may find little value in billboards but see great opportunity in sponsoring events that bring together community business leaders.
This variability in perceived value is why the most successful sponsorship programs are built around an integrated offering of sponsorship marketing assets. As such, a sponsorship program may include assets from a broad spectrum of opportunities, some of which may include (but are not limited to):
Equity Positions: Facility or event naming opportunities
Brand Awareness: Signs, banners, logo placement
Business Development: Opportunities to access municipal budgets and spending
Traditional Advertising: Dedicated and tagged ads on municipal TV, radio, print, OOH and digital media
Digital: Presence on websites, eNewsletters, and social media
Events: Community, business and leadership events
Advocacy: Positioning at activities benefitting residents (e.g. park openings)
Employee Programs: Opportunities to provide products and services to municipal employees
To combine these assets into a program with high perceived value (and thereby increasing the likelihood of program success), it is essential to have a clear understanding of the sales and marketing objectives of the target business or category. This enables the municipality to effectively ‘curate’ a package of assets that specifically addresses the needs of a potential partner.
Lastly, just because an asset can be offered to a sponsor doesn’t necessarily mean it should be. The provision of assets must always be balanced against their ultimate impact on taxpayers. Sponsors may seek a broad and pervasive presence that residents may perceive as overly commercial and therefore negatively impacting quality of life. As a result, it is incumbent on municipal officials to carefully and constantly evaluate the desires of sponsor and the potential impact upon the needs of residents.
What types of businesses typically participate in sponsorships and how are they vetted?
While nearly any business type may be interested in participating in a municipal sponsorship program, there are three categories of businesses that present the greatest opportunities for success.
Businesses currently engaged in a significant business relationship with the municipality. Participation in the sponsorship program is seen as a way of protecting existing business interests and positioning for future opportunities as they arise.
Businesses seeking to generate new business through the municipality. Participation in the sponsorship program is seen as a way to initiate a business relationship with the city to access direct and indirect spending.
Businesses with a significant presence/employee base in the municipality. Participating in the sponsorship program presents an opportunity to engage with the community, boost employee engagement, and generate positive publicity.
As a public entity, careful vetting of potential sponsors is essential. For this reason, leveraging the city’s existing purchasing apparatus is strongly recommended. By issuing a Request for
Proposal for participation in the sponsorship program, municipalities not only create an open and competitive bidding environment, but also can create a clear set of benchmarks and requirements for submission. For example, financial institutions seeking to participate may be asked to provide information regarding any recent state investigations into maleficence that may have negatively impacted local residents.