Motorsports Sponsorship: Move from commodity offerings into real value creation
This blog is written namely with racers and teams in mind. Having poured through stacks of internal marketing materials over the years, I’ve noticed two very distinct paths to sponsorship people take. There’s what I’ve termed the “commoditization” route, and then there’s the “Value Creation” route. Each has their pros and cons, but the value creation route tends to garner much better long-term results. Let’s define each path first.
The Commoditization Sponsorship Method
This is by far and away the most common method I see. What I’ve deemed the “Commoditization Method” is where racers list in their marketing materials or sponsorship deck a classic three tier package of sorts. The lowest sponsorship package gets you a sticker on the car, a social media shout-out, etc. The most expensive sponsorship package includes hospitality, maybe a race shop tour, you get the picture.
In short, standardized sponsorship packages of varying prices = a commodity
Why is it a commodity? Because everyone can do this. Every other racer on the grid around you could create similar offerings and be indistinguishable from you. In my eyes, this is now a commodity service.
What’s wrong with a commodity?
Well, nothing (kinda). Believe it or not, even the largest teams in the biggest racing series all the way up to Formula 1 and MotoGP still use the commodity method to some degree. So clearly it does works. However, by offering these standard services (as a racer or race team), you should at least be aware of what you’re actually doing, who you’re competing with, what you’re competing with, and the expected results.
My problem with being strictly focused on commodity sponsorship offerings
Let’s say you’re in conversation with a sponsor, and you’ve gotten to the point where you’re now explaining the different sponsorship packages you offer.
Whether you realize it or not, what you’re actually doing is saying to them, “Here’s what I have to offer you – by purchasing one of these sponsorship packages, your company will be assuming the majority of the risk in this deal, and I can’t promise a ROI.”
You want to know why the sponsorship turn-over rate is high. There’s your answer. This is what’s fundamentally occurring when these types of deals come together. The business sponsoring you has agreed to assume the majority of the risk in exchange for your offerings.
Who and what you’re competing with
Another issue I find with this is model is both who and what you’re competing with. Because any racer or team can create these packages out of thin air, you’re competing directly with everyone else on the grid. You already compete with these guys on track. There’s no need to compete in the market too. And if you do compete on this front, consider finding ways to become truly differentiated in this space.
Not only are you competing with other racers and teams, but you’re also competing with every other marketing option your prospective sponsor might consider spending their capital on. If I was given the choice to spend, say, $5,000 on buying a standard sponsorship package from a racer or spending it on Google Adwords, I’d spend it on Adwords every time.
How Creating Value for Sponsors Works
I’m a huge proponent of having racers and teams begin shifting from what I previously described as the commodity method (i.e. basic sponsorship packages) and move into what I refer to as the value creation stage. Before I explain this, I have some disclaimers and notable prerequisites to go over first.
This blog, in its purist form, is just information. You will not be able to take this information and immediately convert it into executing value creation for your sponsors. That’s not how this works. Some prerequisites to becoming really proficient at value creation are developing solid communication skills, a basic understanding of business and business principles, a willingness to say no to sponsors, and a drive to ask questions that get you “closer to the metal” as we say in the hardware world. Let me explain all of that in detail.
Where Value Creation Begins
When you’re in talks with an interested prospective sponsor, you’ll be able to make the decision relatively soon in the conversation whether you want to take this dialog down the path of offering them a standard sponsorship package, or if you’d like to steer the conversation in the direction of value creation.
To achieve the latter, you need to go into the conversation and not think “how do I sell them?”, but rather, “how can I help them?”.
You should start off by asking questions such as “what are your marketing goals or broader business goals for this year?”, or “what attracted you to motorsports as a potential domain to deploy your marketing efforts / budget?”, or “What challenges is the business facing that we might be able to address either partially or fully?”, or, my personal favorite, “what constitutes a win by the end of the season if we work together?”
I know a lot of racers get worked up and worry about what they’re capable of doing. I think they’re concerned about over-promising and under delivering in these scenarios. They think to themselves, “oh but what if our discussion leads us to discussing solutions that I don’t personally know how to solve?” Again, you’re still in the “how do I sell” mindset. In this conversation, you’re not concerned about how you will do this if they ask for something beyond the scope of your understanding. You simply want to clearly understand why they’re speaking to you, what they hope to solve for, gain, or expect to achieve by working with you. Whether or not you’re capable is not important yet.
Detaching Your Racing Budget from Your Discussion
In a value creation discussion, your racing budget is meaningless. There is zero correlation between the cost for you to go racing and the value you’re capable of bringing to a sponsor or partner for that matter. Zero.
With that in mind, let’s say you’re in conversation with a prospective sponsor and you’ve progressed the dialog well. You’ve asked good questions, you now understand their problems, potential opportunities, and why they’re considering you. They now have a better feel for who you are too. You now need to quantify the value of this potential deal. With the good old sponsorship packages, it was easy. You just slapped a price on it and whoever bought it paid exactly what it costs. When creating value though, there is no price tag.
Value is subjective to the buyer. What it’s worth to solve one company’s problems is not what it’s worth to solve another’s.
Determining the Price of this Sponsorship
Figuring out what to charge could be a separate blog in and of itself. To summarize though, if you are to determine how much this sponsorship will cost, you need to ask them what it’s worth to execute on what you’ve discussed up to this point. Be certain to set a realistic goal. In other words, if things go as planned, and we solve for what we discussed, what is that worth to you (i.e. worth to the sponsor)? …Ask them. Let them tell you what it’s worth.
Conversely, maybe you’ve gotten really good at this, and you’ve formulated in your discussions not only what you think it’s worth to them, but you also know roughly how much time, energy, and money it might take for you to fulfill those goals successfully while supporting your racing endeavors. From this, you decide to drop a number first, and then let them tell you what they think. This takes a lot more practice, but it saves you a lot more time. In the example where your sponsor states the value first, wherein you’re not capable of determining if that’s worth it or not, you typically have to “get back to them on that” with more info in a separate meeting. I find a lot of younger racers aren’t capable of this level of negotiations in real time, so the added pause / break between letting them tell you what it’s worth and reconnecting afterwards once you’ve figured it out helps. With a price given, you can spend that time talking with your team, maybe inquiring with marketing agencies if one needs to become involved, and getting all necessary assets aligned to understand how expensive this will be, what your margin at the end of the day to go racing will be, etc.
When you’re creating value with a sponsor, you’re the one assuming the majority of the risk in this relationship, not them. You’re now saying that you will solve for or execute on their unique goals. This is the literal inverse of the previously discussed commodity sponsorship package where the sponsor assumes the majority of the risk.
I want to reiterate that there is nothing inherently wrong with offering prepackaged sponsorship offerings as a "commodity service". Like I said, it still works. But in my experience, if you want to build lasting relationships where brands trust that you're not only capable of solving for their unique problems, but also more than happy to refer them out to someone else if you're not the best fit, you're going to build far more trust, land higher paying deals, and act as a more honest and efficient market player.
A sponsorship package with little to no ROI lasts exactly one season, but trust with a brand can last forever. It takes longer to build value, and there are skills you'll have to work on to get good at it, but I highly recommend you start trying. Your first discussions are going to be awkward, you're going to say the wrong things, and you might get lost in their business jargon. But you have to start somewhere. I have a concentration in business administration, and I can assure you they didn't teach us any of this stuff at university. You have to learn this in the field.
Additional Resources to Learn More
If you'd like to read more about the topic of pricing deals in general, I would highly recommend author Blair Enns. His books, though designed with architects, designers, and service industry folks in mind, applies extremely well to racers looking for sponsorship too. Nearly everything I learned about pricing I learned through a combination of his work and working in the motorsports field.
And lastly, if you're a driver or rider yourself and you want to get super tailored information on this that applies specifically to your situation, you're more than welcome to schedule a call with me. FYI this is not how Grand Prix Studio makes money. Our studio makes money working with medium to large entities exclusively within the motorsport domain. Consulting with racers is something offered simply because I've noticed there is a tremendous overlap between what the studio does with our clients and what racers could be doing with their sponsors, and I just love talking about how that process works and helping people out!