Chris Baldwin discusses the steps brands can take to protect their sports sponsorship investment.  

Sport-based promotions need protection against unforseen incidents

Sports-based promotions don't have to be an exclusive club for sponsors, and with the UEFA Euro 2012 European Cup fast approaching, brands need to be looking now at how they are going to capitalise on it.

However, it's not just a case of designing a clever promotion around your chosen event and then going to market. There are serious issues regarding protecting your brand from excessive costs and over-redemption. Sporting events are notoriously unpredictable, as the performances at the last Fifa World Cup demonstrted. So brands need to ensure they have the right insurance cover at the right cost.

Risk assessment for sports-based promotions is unique as it is worked out on a two-fold risk analysis: the redemption risk that relates to the number of people who will actually take part in a promotion, and the sporting risk that is about the actual sporting outcome; such as the number of goals scored or stage a country reaches in the competition. The latter would be worked out through complex sporting analysis, such as, in the case of England in the Euros, the average number of goals scored in a European tournament compared with their current performance.
 
Redemption risk, on the other hand, is influenced entirely by consumer behaviour. We can compare the proposed promotion with others in our extensive database to determine the likely uptake of the offer – this will be influenced by a string of other factors, such as on-pack design and the type of mechanic used. From this we can calculate the likely financial exposure of those redemptions and then offer brands a Fixed Fee to cover each and every application as well the logistical costs of fulfilling the brand’s promise to its customers. This multi-layered risk means it’s crucial to involve a specialist promotional risk company.

An example of how this works in practice comes from a promotion Mando ran with a leading in-car electronics manufacturer over the course of the Fifa World Cup in 2010. Customers purchasing any of the company's products during the course of the competition would be able to claim back the purchase price if their country won. In order to participate, consumers had to register their details online and answer one or more skilled questions on a fact relating to World Cup football, plus they had to enter the serial number of the product they bought.

 Euro 2012 sponsors 

They then needed to print out the confirmation of their registration and retain it (confirmation was also emailed to them). Consumers whose team won the World Cup were then able to claim a full refund by going back online and confirming their details and bank account number, printing off their certificate/confirmation and mailing that along with the cut out part of the box with barcode or serial number, and their purchase receipt to the handling house.

The offer was communicated via on-pack stickers and supported by point of sale material, website banners and leaflets. The offer was made across a range of European countries and with a large cash reward on offer, there was a huge incentive for people to participate. On top of this, with consumers having to print out the registration form, there was a greater chance of them claiming should their country win.

Although the popularity of the campaign was unknown, and therefore so was the risk, Mando researched the odds of each participating country's chance of winning and calculated the estimated registration level for each participating country using the sales volumes. By running a promotion guaranteeing the consumer a high-value refund against the performance of their country, the brand created a compound risk by combining the redemption risk and the sporting risk. Taking a Fixed Fee cover for the promotion, gave the brand a unique ability to combine the layered nature of the risk.

This situation with sports-based promotions can be further complicated by the fact that sports risk premiums are calculated on a real-time basis, and there can be huge fluctuations in cost due to the current performance of an individual or team, or their opponents. England's Fifa World Cup performance is a case in point; the team was playing well in the lead up to the tournament and expectations were running high. Just prior to the tournament, the general feeling in the sports risk market was that England would score eight to 10 goals, therefore trying to buy cover based on the team’s goal scoring or progression in the competition became more expensive.

On top of this, the closer you get to an event the less capacity there will be in the market to actually buy insurance, therefore what cover is available will become more expensive. For example, individual insurers or funds may decide to only place £10 million at risk on a particular outcome of a sporting event - England winning the Euros for example - and as that £10 million pot gets used up, so the cost of cover goes up.
 
Of course, you can't predict the unpredictable, which is why Fixed Fee is such a good way for brands to protect themselves with sporting events. The promotional cover company operating the Fixed Fee - not the brand - takes all the risk. During the Beijing Olympics we covered a promotion for Powerade based on the number of medals won by England, only to see Team GB come home with one of its biggest ever hauls of top gongs.
 
The best message to brands is the more basic the mechanics of a promotion are the more people will buy into it. Stay away from basing your promotion on the performance of specific people – unless it’s unavoidable such as solo sports - and instead go or team performances. Promotions around sporting events have the highest participation rates of any promotional activities, so this is a lucrative area for brands and they need to ensure they get it right.

Chris Baldwin is head of marketing at Mando, a risk assessment specialists.