Sponsorship Valuations’ Importance Beyond Deal-Making

What corporate partners should or will pay for a bundle of sponsorship rights and benefits has long been one of the critical questions for rights holders and brands to answer.

The usual context for the question is agreeing on the price to be paid during contract negotiations. As I wrote in a post last year about the topic: “Setting prices and valuing opportunities in the sponsorship marketplace—in which the ‘product’ has so many variables, including tangible and intangible benefits—has never been, and will never be, an effortless process.”

But we are beginning to see other applications for understanding fair market value in situations that extend interest to parties other than the buyer and seller. For example:

• News last week that English Premier League club Newcastle United is in line for a new shirt sponsorship from an unnamed Middle Eastern company put focus on a rule passed by the league in December 2021 that certain deals must pass a fair-market-value litmus test.

That regulation was approved following Newcastle’s takeover by Saudi Arabia’s Public Investment Fund. If any club has a proposed agreement worth more than one million GBP with an entity perceived to be linked to the team’s ownership, the deal must be submitted to the league for a determination that it meets fair market value standards.

• Questions arose last Thursday after Liv N Serve Real Estate, a Keller Williams-affiliated agency owned by Seattle Seahawks wide receiver and return specialist Tyler Lockett, announced an official sponsorship of the NFL team.

Specifically, Sportico reporter Eben Novy-Williams asked the league whether the agreement between player and team could raise concerns regarding salary cap circumvention, i.e., if Liv N Serve were paying an under-market price for the sponsorship, could it be considered disguised compensation for Lockett? The NFL responded that “as a practice, the league would look at the partnership to ensure that it is fair market value.”

On paper, both leagues’ positions appear straightforward. But anyone who has negotiated a sponsorship price understands that determining fair market value is no simple matter.

For example, consider whether a third party would have seen Scotiabank’s $800 million naming rights deal for Toronto’s NBA and NHL arena as fair market value when it was signed in 2017. While there is absolutely nothing to suggest Scotiabank Arena’s is anything but a fairly negotiated agreement, an outside assessment might have had difficulty justifying a tenfold increase over the previous title sponsorship with no benchmarks or other data to support it.

While we don’t have information on how the NFL would reach its conclusion in the Seahawks case, an article in The Guardian at the time the Premier League passed its rule said, “To reach a decision, the league will consider evidence from the club and an independent agency – which is expert in the field of market valuation. Finally, it will lean on a data bank, in which all of the commercial deals in the league are recorded anonymously and benchmarked.”

That three-step process reflects a thoughtful approach and although there has been nothing publicly stated, it appears to have approved the sleeve sponsorship deal that Newcastle signed last June with Noon.com, the ecommerce platform that is 50 percent owned by PIF. At an estimated $7.5 million GBP per year, the deal is among the highest in the league.

It will be very interesting to see if the league and its valuation process feels the same about the $25-million-a-year GBP jersey-front deal that Newcastle reportedly has pending.