Valuing Sponsorships in MMA
MMAPayout.com has talked a lot about sponsorships in the past few months, but a great deal of that discussion has avoided fighter sponsorship in favour of those surrounding corporate sports properties. The Bud Light and Harley-Davidson deals within the industry naturally draw a lot of attention. However, in the long run, they are no more important than the sponsorships or endorsements that the fighters are receiving (e.g., GSP-Under Armour).
So, today we’re going to take a slightly more in-depth look at valuing sponsorships from the perspective of a fighter, and the kinds of implications those valuations have on their related corporate sports properties.
The Count Method
The count method is a tool used to value sponsorships that involves tracking the number of sustained appearances – or impressions – that a brand logo makes on television. Those impressions are then compared to the typical number of impressions obtained through an average commercial spot during that program. The cost of an average commercial spot is then used to value the sponsorship.
The method is well-suited for MMA, because of the nature of fight gear sponsorship in relation to television visibility. However, a few adjustments need to be made in order to make the count method a viable valuation tool in MMA; chief among them is discounting the compared value of counted logo impressions to commercial spot prices. No logo impression, in aggregrate, is worth as much as the sustained number and quality of impressions that a commercial spot can generate. Therefore, it’s necessary to discount that compartive figure by as much as 95%.
Let me give you an example:
1. Fighter A is a main card fighter whose bouts have averaged approximately 9 minutes in length over the course of his 12 fight career. He wears board shorts to the ring/cage in which the main buttock sponsorship placement is typically impressionable for 3 minutes, on aggregate, each fight. His next scheduled bout will be televised on a card where the 30-second commercial spots are averaging $120,000.
- 3 minutes = 180 seconds
- 180/30 = the equivalent of six commercial spots
- $120,000 x 6 = $720,000
- $720,000 * (1-.95) = $36,000
This method provides a ballpark range as to how much the sponsorship is worth.
Other factors
As I alluded to earlier, there are other intangibles that must be accounted for (and which could possibly impact the discount rate):
1.) The definition of “impression” must be strict. An impression must only be counted if the brand logo is visible for a sustained period of time such that the consumer has the opportunity to identify it – i.e., the logo must have the opportunity to leave an impression.
Similar to the discussion we’ve entertained previously regarding assessing sponsorship ROI from a corporate standpoint, the clutter in MMA sponsorship really detracts from the ability of a logo to make a clear impression. Fighters and their management may have to begin making the difficult choices in cutting a few sponsors in favour of maximizing the potential return of their biggest clients (and in turn maximizing the price value they receive from those clients).
2.) The popularity of a fighter and his opponent will influence value. The discount rate should be adjusted to reflect dramatic differences amongst the popularity of fighters and their opponents. For example, GSP is always going to draw in more sponsorship money than most, not just because he’s currently the champion, but also because he has many levels of appeal that reach beyond MMA. Likewise, consider how the value of Houston Alexander’s sponsorships should change in fighting Kimbo Slice relative to the likes of James Irvin.
3.) The position of a fighter’s bout on the card will influence value. The size of program viewership grows from the beginning of a program until it peaks near the very end (or last match of the night). Thus, the deeper a fighter is set to compete on a card, the greater value his sponsorships ought to be worth.
4.) The live audience is also a consideration. It’s more of a bargaining chip than anything else, because while the sometimes 20,000 in attendance are watching, the logos are often far too small to make any sort of material impression count.
Endorsement Territory
There’s a distinction to be made between sponsorship and endorsement in MMA. Generally, a sponsorship agreement stipulates the exchange of payment in return for fight gear and banner representation for the client. However, often times an agreement goes further – especially for higher profile fighters – whereby they are asked to wear sponsored clothing to weigh-ins, press conferences, media events, or even appear in promotional material related to the product.
Valuation of this kind is obviously more difficult, because it must factor in the number and intensity of different communication mediums used to generate awareness and brand image enhancement. Hence, at this stage it’s much less about logo impression as it is a fee for using the fighter’s likeness to boost said brand.
Implications of Fighter Sponsorship Valuation
Much has been made about the UFC’s “sponsorship tax,” but the valuation above underscores the organizations point to a degree: small sponsors are getting very similar impressions to that of larger sponsors – with, what some would argue, better activation – but for much less cost. The idea of a tax is defensible, because it raises the price of admission for smaller sponsors that were getting way too good of a deal, and it protects the big time sponsors that the UFC depends on.
Where the sponsorship tax raises an issue is the seeming conflict between the traditional code of MMA and the current trajectory of MMA business. MMA has long operated within a small, community-oriented environment, but the growth of the sport is set to challenge that; taking care of the little guy, in some cases, may not be compatible with running a billion dollar business.