Ally Financial entered 2020 with big plans to continue fueling its five-year sponsorship deal with Hendrick Motorsports and its Nascar star, Jimmie Johnson. The pact, which began last year, has given Ally closer access to racing fans. In- person events have included carting Johnson around to surprise fans camping out during race weekends and hosting bourbon tastings while giving out cupcakes decorated with an image of the driver’s face—at which consumer data is collected to use for marketing purposes.
But then the coronavirus hit, forcing Nascar into a two-month pause before restarting racing without fans on May 17. “All of that stuff is just gone—all the trackside stuff that we normally do is just stuff we are not able to do,” says Ally Chief Marketing and Public Relations Officer Andrea Brimmer.
Ally is among countless brands whose sponsorship plans have been upended by the pandemic, which has forced the cancellations, suspension or significant alteration of just about every major music or sporting event across the globe.
Global spending on sports sponsorship rights fees will fall from $46.1 billion in 2019 to $28.9 billion in 2020, according to projections from Two Circles, a sports agency that provides data management and analytics to more than 300 clients, including the National Football League, Wimbledon and Premier League. “The COVID-19 pandemic has seen most new sponsorship agreements put on hold, and many existing agreements will be ended as a result of companies implementing major cost-cutting measures or going out of business,” Two Circles reports, adding that sponsors will “given ‘make good’ sponsorship collateral and cash rebates due to the postponement and cancellation of live sport, significantly reducing their financial outlay in 2020.”
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But getting out of deals is not as easy as it sounds. So-called force majeure clauses in contracts—which allow brands or rights-holders to exit deals in the wake of unforeseeable events—are in some cases not ironclad enough to provide an escape hatch for something as unprecedented as the coronavirus, according to sponsorship experts. It often depends on the specific language in the contract—like, for instance, if a pandemic is referenced—and the jurisdiction, should a case go to litigation, says Linda Goldstein, an advertising lawyer and partner at BakerHostetler. “Different courts take different approaches to the enforceability of force majeure clauses,” she says.
For events that were canceled, such as South by Southwest, “I would imagine that in most of these cases there is a negotiation happening of rolling your sponsorship dollars over to the following year,” says Goldstein. But things get complicated for sporting events that might eventually proceed, but without fans for the foreseeable future—which is the most likely scenario for major pro sports.
Nascar’s revised schedule does not allow fans through at least June 21. The PGA Tour will get back to action on June 8, but at least the first four tournaments are closed to the general public. The National Basketball Association, which indefinitely suspended its season on March 11, has been mulling restarting but playing all games in just two cities, Orlando and Las Vegas, according to multiple reports. Major League Baseball has proposed starting an 82-game season in July that would begin without fans. The National Football League has announced its full schedule of games starting in September, but plenty of unknowns persist on how that might happen.
No fans means no beer, soda or food sales, and branded seating areas—including the “Budweiser Terrace” at Busch Stadium in St. Louis—are essentially worthless. “If I am the brand I am going to argue I contracted for a live event with ‘x’ thousands of anticipated people and that is not what you delivered,” Goldstein says. But other parts of a sponsorship, like access to TV highlights or the use of trademarked team logos, would presumably retain value if games are played in empty arenas and stadiums.
But with so many unknowns, finding the right sponsorship price is proving tougher than hitting a 100 mph fastball. COVID-19 has put more than 120,000 active sponsorships in limbo in the U.S., forcing more than 5,000 brands to figure out how to recoup lost value, according to sponsorship consultancy IEG. And an industry survey conducted by IEG suggests brands and properties are not seeing eye-to-eye on how to get there. It found 64 percent of properties—which refers to the teams, leagues or music event owners selling the sponsorships—believed they could make up all lost exposure, while only 45 percent of sponsors took that view. Further, only 11 percent of properties expected prorated agreements and refunds, while 31 percent of sponsors expect to receive them. Still, about one-fifth of each group agreed that the lengths of sponsorship agreements would be extended.
Brian Gordon, CEO of Engine Shop, the marketing agency that owns IEG, is advising clients to have candid conversations and recognize that “this isn’t about a quick make-good.” Properties are going to have to work a lot harder to maintain the current levels of investment and are at risk of losing significant sponsorship dollars if they can’t figure out new ways to help brands engage with their property and their community, says Gordon. And clients are frustrated to have dollars tied up in sponsorships that aren’t activating right now, and can’t move that money to another medium, he says.
Molly Arbogast, president and CEO of POV Sports Marketing, an agency that represents brands in sponsorship deals, says “some teams are coming forward and saying ‘We need to give your money back’” because they are not able to provide benefits spelled out in contracts. “I think teams and leagues are doing the right thing now [but] whether or not that continues in four months remains to be seen.”
An executive at a marketer with major sponsorship spending told Ad Age that the company has been able to get refunds from NBA and National Hockey League teams it sponsors by simply pro-rating the portion of home games that likely won’t be played and getting that money back. But this person, who spoke on the condition of anonymity, says that for the NFL, “everybody is just kind of waiting to see what happens,” adding, “I don’t think they want to go out and have this tough conversion with partners proactively.” An NFL spokesman said: “We are having conversations with our partners. We are preparing to play the 2020 NFL season as scheduled and with increased protocols and safety measures for all players, personnel and attendees.” But he added that “we will be prepared to make adjustments as necessary.”
Virtual solutions fill the void
Amid the uncertainty, properties are trying to appease sponsors with stopgap virtual solutions. Nascar during its shutdown launched an iRacing series that had drivers racing virtually using simulation equipment. Fox Sports broadcast the races on TV. Ally gained awareness by outfitting Johnson in branded gear. It also arranged Zoom calls with the driver for fans who were randomly selected from the marketer’s social media channels. When Nascar started live racing again, Ally organized virtual Zoom meet-and-greets with Johnson.
“Nothing matches the experience of tens of thousands of people at a track,” Brimmer says. But with Nascar “being the first sport to go back live, I think they are going to pick up a lot of casual fans...and I think that is going to be a net-new add for us.” She says Ally has not pressed to get refunds from its sponsors, including Nascar, because “our feeling is it’s just not a good thing to do as a long-term partner.”
The NBA’s Philadelphia 76ers have also offered sponsors virtual solutions. Firstrust Bank has put its name on a virtual town hall that gives season ticket holders a chance to have questions answered by the team’s General Manager Elton Brand and head coach Brett Brown.
Music festival promoters have been especially aggressive with virtual activities, as they try to salvage deals with sponsors of events that have either already been canceled or are in serious limbo. There was an immediate flurry of activity with online concerts, live Instagram interviews and other at-home events, often with fundraising elements, as brands and promoters tried to stay in touch with fans and show support during the early days of the crisis. Massive ad spender Procter & Gamble has backed several virtual events, including Global Citizen’s One World: Together at Home; Twitch Stream Aid; Fox/iHeart Living Room Concert for America; BET’s Saving Our Selves; and Altisimo Live.
Organizers of the Coachella Music and Arts Festival postponed the event from April to October—and on the day it was originally supposed to be held released an online documentary about the history of the desert fest. Cupcake Vineyards, the festival’s wine sponsor, seized on what became known as “Couchella” by running paid and organic media to both promote the livestream, while touting Cupcake cocktail recipes for watch parties. L’Oréal USA’s NYX Professional Makeup, the official makeup partner of Coachella, moved quickly to set up its own virtual music festival via its Instagram account that was dubbed #EpicTogether Virtual Music Festival. It included livestream performances by Jessie Reyez, Kim Petras and Princess Nokia, while helping to market the brand’s new Epic Wear Liquid Liners.
Drive-in concerts and contactless food sponsors
Claudia Cahill, chief content officer, Omnicom Media Group, who handles branded entertainment deals for clients ranging from McDonald’s to Pepsi, says event promoters are offering virtual integrations as a “short-term fix” as a way to hold onto some of the brand money “until some of these events come back.” But, she adds, “there is not going to be any more normal. It’s not like somebody is going to flip a switch and we are all going to go back to concerts.” She envisions a hybrid of smaller versions of live events, plus online offerings. Younger generations enjoy the “up-close and virtual nature of being close to these artists. They are in their home environment, you are getting to see them strip down in a way that a lot of these millennials respond well to because it’s very real.”
Among those preparing for the new normal is Live Nation, whose portfolio includes Bonnaroo, the camping music festival in Tennessee that was delayed from June to September; Governors Ball, a music festival in New York that was supposed to be held in June and was canceled for 2020; and Lollapalooza, a multi-day music festival in Chicago which as of late May was still scheduled for July 30-Aug. 2. A Live Nation representative says it has granted refunds to a limited number of brand partners at their request for events that were canceled or postponed. Overwhelmingly, though, brands have shown interest in coming back when events return, according to the rep.
“As things start opening up a bit, what does a live experience mean in a world of social distancing?” Russell Wallach, president for Live Nation’s media and sponsorship division, asks rhetorically in an interview. The company, which owns more than 200 venues globally, is exploring events like drive-in concerts and camping events—“based on what’s permissible by the local municipality,” says Wallach. It has already held drive-in shows in Denmark. “I have 15-plus brands that want to move forward with some type of ... drive-in concert, tailgate, [or] camping experience,” he says.
Possible brand integrations include sponsoring contactless food and drink deliveries to people’s cars, or providing things such as hand sanitizer, says Wallach. There would also be opportunities to livestream such events, giving brands another way to participate and reach the fans who are watching from home. “We’ll be able to find ways for brands to integrate into these experiences as we develop them,” he says.
But for now, promoters are focusing on satisfying sponsors with virtual events. Consider the Electric Daisy Carnival, or EDC, a major electronic dance music festival that was originally slated for May at the Las Vegas Motor Speedway. Insomniac, a partner of Live Nation that produces the event, held a virtual Rave-A-Thon to fill the void that was left in the spring, and also to raise funds for Rave Recovery, a relief fund created for dance music fans impacted by the COVID-19 crisis.
Adobe, which sponsors EDC, gave people access to the festival’s visual assets to create digital posters, which could serve as invitations to the livestream, says Monte Lutz, Adobe’s global VP of marketing and digital media. Then, Adobe selected one of those posters as a winner. The artist, Amelia Kohr, gets VIP access for four people, including travel and tickets, when the show returns to Las Vegas in the coming year, and a 12-month subscription to Adobe Creative Cloud. Her poster’s slogan summed up the situation: “Rave together. Even when apart.”