Will Pay-For-Performance Partnerships Become Standard Practice?
When news broke recently about the details of the deal between PepsiCo and the NFL to include the new Gatorade Fast Twitch beverage as part of the company’s league-wide partnership, some sports marketing pros and observers were ready to declare a tipping point.
As reported by Ben Fischer in Sports Business Journal, the renewal of PepsiCo’s eight-figure NFL sponsorship last spring included a revenue-sharing agreement related to the launch of the caffeinated line extension that is designed to compete with energy drinks such as Red Bull and Monster. According to the article, “the league and its clubs get cut into Fast Twitch sales when certain unknown sales/profit hurdles are reached.”
Sources told Fischer that the arrangement allowed the two sides “to close an eight-year renewal in May despite the two sides remaining far apart on price under a traditional fee structure.”
While both brand and property appear pleased with the creative solution they reached in this circumstance, will this deal—as some are suggesting—set a precedent and launch a slew of imitators? Recent sponsorship history says no.
Pay-for-performance sponsorship deals—a larger category that includes revenue sharing as well as incentive-based payment structures—have appeared sporadically over the past couple of decades, often accompanied by industry chatter that they are the wave of the future. Yet they remain a small minority of sponsorship agreements.
A little over four years ago, Anheuser-Busch introduced its performance-based sponsorship model to much acclaim. If other sponsors have followed in A-B’s footsteps, they and their property partners have certainly been quiet about it.
Going back even further, Bank of America’s longtime sponsorship head Ray Bednar—a leader in developing partnership ROI measurement—said in 2010 that variable compensation as it relates to sponsorship fees needed to become the standard in order for sponsors to continue to justify expenditures.
The lack of such agreements does not mean they are a bad idea. Asking rights holders to have some skin in the game and rewarding those that produce results for their brand partners should benefit both parties. The fact that they have not become standard is likely due to the fact that they require a great deal more work to establish than simply paying a single fee for a package of benefits.
Rights holders in particular must make sure they are not committing to meet results that they are not in control of. While it may make sense for a property superpower like the NFL to take a risk as a small part of a larger agreement that includes plenty of guaranteed cash from PepsiCo, other properties would be wise to limit revenue sharing or other sales-based incentives that rely on a myriad of external factors outside their influence.