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Alternative To Salary Caps: Luxury Tax
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Sports league sponsorships are a very important source of financing for many leagues across the world. The revenue derived from sponsorship deals is the second biggest source of financing for most sports leagues after the sale of media rights.
However, many people are still not aware of the economics of sponsorships. This is because of the fact that initially sponsorships were done with charitable motives. This continues for some time. However, over the past few years, sponsorship has clearly moved out of the realm of charity and into the realm of marketing activities.
There are very clear financial objectives behind the sponsorship of sports league events and media companies have created metrics that can be used to measure the success or return on investment of such outflows.
It is for this reason that the quantum of money earmarked for sports league sponsorships has seen a rapid rise in the past few years.
The total amount of money earmarked for sports sponsorship has been estimated to be close to $66 billion in 2022! This market is growing at a very high speed and is expected to reach $90 billion within the next five years. Large events such as FIFA World Cup are able to generate upwards of $1 billion in sponsorship deals.
Such events provide a good opportunity for a brand to engage with its target audience in a non-commercial manner. This fast growth is the result of the ability of sports leagues to have a high degree of engagement with market segments that are hard to reach out to using other modes of advertisements.
Since sports can gather a large and diverse audience and also drive a high degree of engagement, sports sponsorship deals are highly valued by all types of corporations.
There is no widely accepted definition of sports league sponsorships. However, these sponsorship deals can be considered to be an agreement between a sports league and a commercial organization.
The commercial organization decides to provide certain resources to the sports league. These resources could be in the form of cash, kind, or an activity that will be performed free of cost.
In return for providing these resources, the commercial organization wants to be able to exploit the commercial potential of the sports league. For example, the FIFA football World Cup final is viewed by more than one billion people worldwide. Hence, when a company aligns itself with the event, it is able to reach a large number of people.
The fact that the objective of the sponsor is to exploit the commercial potential and obtain some kind of economic benefits separates it from charitable endeavors which the company may be undertaking as a part of its corporate social responsibility.
Sports sponsorships used to be a simple activity earlier. However, of late, a lot of innovations have taken place in this field. As a result of the innovations, the scope of sponsorship has expanded. As a result, a lot of planning is required to successfully execute such a deal. Some of the details related to planning have been explained below:
It is important to note that scheduling also plays a very important part in maximizing sponsorship revenues. The league needs to schedule the crucial matches at a convenient time so that maximum viewership can be generated. This will add value to the sponsor and will result in a higher sponsorship amount.
It is possible for sponsorship to be obtained from multiple sources. The management of the sports league needs to ensure that they have carefully thought through the aspects of the game which they want to monetize. It is also important for them to think of the economic value which can be generated in each case.
It is important for all sponsors to perceive parity amongst the prices which have been offered to them. This will make it easier to build long-term relationships with the sponsors.
The fact of the matter is that the importance of sponsorship as a funding source has been rapidly increasing. It is important for the management of sports leagues to be aware of this increasing importance and the innovations which are driving it.
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