Do you ever do sponsorship deals in contra or “value in kind”? Many organizations do. Clients often ask us about the real value of value in kind (VIK). Is it worth it? Is it a pain? What should we do? I have written about this before, but it seems to be coming up quite often again so thought I would share these insights with you.
There are pros and cons for both the sponsor and the property. Here are some thoughts.
- For the brand, by using VIK instead of cash as their investment in a sponsorship deal, they also get to showcase their product to the property, and possibly, the property’s audience in addition to the assets they get for the dollar value invested.
- VIK is often not counted in the sponsor’s budget, or it is at a discounted rate versus cash. So, a $50,000 sponsorship could be cash and use up $50,000 of the sponsor’s overall budget. But if it is all VIK, it may not be counted at all, and the sponsor still has $50,000 cash to spend elsewhere. Or, if the sponsor’s accounting looks at the hard costs of the VIK provided being worth, say, 25%, then the “cash” outlay for the sponsor is $12,500 for a $50,000 deal, leaving $37,500 in cash to spend elsewhere.
- One key when dealing with VIK or contra is to make sure you are both comparing apples to apples! As a property, you need to accept VIK based on what you would pay for the product. If you had budgeted to spend $25,000 on bottled water and can get the needed 50,000 bottles of water at a store for $25,000, then that is all it is worth. If the sponsor says their bottled water is worth more, too bad. You need 50,000 bottles of water and have a $25,000 budget. So the sponsor needs to supply 50,000 bottles of water and get $25,000 in sponsorship marketing assets in return. It is an apples-to-apples exchange.
- Likewise, if a sponsor wants to do a $50,000 sponsorship deal all in VIK for water and you only need $25,000 in water, then the deal is $50,000 in marketing assets that the property provides and the sponsor pays $25,000 in water and $25,000 in cash. (Watch how quickly the sponsor wants to do only a $25,000 deal now.) The point being that you don’t need $50,000 in water, so why give up the extra assets for something you don’t need?
- A property doing a VIK deal must make sure that it shows in accounting. There is nothing worse than doing a $25,000 a year deal for water every year for five or so years and not showing it on the books—and then the sponsor backs out. All of a sudden, you have a $25,000 cash purchase expense that you never had before. Try explaining that!
- Remember—cash is king. As a property, you always want to do a cash deal. Then you can buy the product you need from your sponsors for cash! It is really hard to pay salaries in bottled water, donuts, printing, and accounting services. Get a cash deal and buy the goods and services that you budgeted for. (That means your budgeting has to be realistic!)
Feel free to share your thoughts or personal experiences with VIK on the blog or through social media.
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