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AB's Incentive Model Roils Sports Marketing

We live in a metrics driven world. Our daily lives revolve around measurement. How many friends? How many likes? How many paces? What’s my heartrate? How long until my ride is here?

This river of data comes to us from a variety of sources (ubiquitous internet, cheap data storage, smarter machines, artificial intelligence, etc.) and we use it to try and improve our lives.

No one knows this better, perhaps, than marketers. It’s hard to imagine a profession that’s changed more in the last 20 years. By offering more insight into consumer behavior and related actions, Big Data has fundamentally changed expectations, particularly those related to return-on-investment.

Which brings us to Anheuser-Busch’s recent stick-in-the-spokes of sports marketing.

Earlier this week, the brewing colossus announced changes to the way it structures sponsorship agreements. If just about any other company makes this announcement, it’s greeted with mild bemusement and a lifted eyebrow or two. But this is AB, a company that drops about $350M a year on sports marketing. So when the King of Beers says they’re changing things up, the sports industry stops what it’s doing, listens up, and tries to suppress a mild state of panic.

In a nut shell, AB has started incorporating incentive-based pricing into sponsorship agreements with sports and entertainment properties. New AB sponsorships will include a guaranteed base payment that can increase by as much as 30% if the property meets certain predefined internal and external benchmarks. The New Orleans Saints, the Los Angeles Dodgers, the Minnesota Timberwolves and NASCAR have all signed on to the new incentive program.

Joao Chueiri, AB’s VP of consumer connections (and formerly of Nike) is behind the change. When asked about his motivation for the change, Chueiri responded: “The traditional sponsorship model, based on fees and media commitments, does not deliver the best value for us at a time when most leagues and teams are facing challenges with live attendance and TV ratings.”

Incentive-based sponsorships aren’t new to sports, though they’re much more common the other way around (with properties requiring additional fees based on performance.) NASCAR team sponsorships in particular are laden with performance incentives. Makes sense, right? A winning car generates more exposure for the sponsors, which in turn increases value. Roush Racing, for example, used to require a $1 million bonus payment from a car’s principal sponsor if that driver won the Cup Series.

Let’s consider, for a moment, the meaning of “internal and external benchmarks.” Internal benchmarks are things the team can (sort of) control. On field performance. Playoff appearances. Social media engagement. Variables can be introduced that impact these benchmarks (injuries to a key player or an unexpected rookie sensation), but for the most part teams can directly influence outcomes related to these measures.

External benchmarks, however, are a different story. The challenge here is that nothing happens in a vacuum. No brand of consequence limits its activity to a single channel in any given market. As a result, external (i.e. non-team) performance metrics can be brutally hard to isolate. For example, key performance indicators tied to, say, sales lift or key brand attributes may or may not be related to a team sponsorship. It’s not impossible to figure out, but few teams are equipped to provide that level of analysis. As a result, most teams will be beholden to external measurement data provided by AB. Which is kind of a fox-hen house thing.

AB is currently in the process of sharing their new strategy with other major sports sponsors. While it remains to be seen if there will be broad adoption of incentive-laden sponsorship deals, properties should begin preparing to act as a true partner with their sponsors. To prepare for this brave new world, sports properties should consider several things to put themselves in a position of strength:

  • Consider Upsides: Take a hard look at your property and determine where the greatest headroom and skill set to improve performance reside. Is the incoming draft class outstanding? Was there a recent investment in social media capabilities? Is the team adopting a subscription ticket product that might boost young fan attendance? Is the likelihood of appearing in national broadcasts higher? Each of these can serve as a negotiating position to amplify incentive success.

  • Clearly Define Objectives: Avoid measurement generalities wherever possible. “Increase brand awareness” is a perfect example of an empty objective. Awareness of what? Among whom? How much awareness? And so forth. The greater the specificity of the objective, the greater the likelihood that it can be measured accurately.

  • Identify Measurement Responsibility: Defining roles and responsibility for measuring against objectives is a must. Some will be easy (e.g. wins and losses), others will be more complex (e.g. external measures, as discussed previously.)

  • Beef Up Internal Capabilities: Moneyball ain't just for evaluating players. Best to set up a cubicle or two for folks who can dig into the numbers and forecast performance.

  • Require Transparency: A solid partnership is based on trust. But as the saying goes: Trust, but verify. Ensure that all parties are able to request and review measurement data.

  • Check In: Do not wait for the end of a season or a renewal period to review performance data. Set regular check in intervals with your incentive partners to ensure clear line of sight into performance, and provide time to make adjustments to activity if necessary.

Change is definitely coming to the sponsorship industry, and incentive-based deals may be part of it. Properties that prepare for this change will be best positioned to extract maximum financial benefit.

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