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The Future Of Endorsements

As the corporate dollar has been drained, the perception is that athletes have had a tougher time scoring sponsorship deals as companies have cut back budgets.

We spoke to Patrick McGee, President of ProVentures, a sports and entertainment consulting firm that negotiates endorsement deals on behalf of corporations with talent, to get his assessment on the state of the corporate endorsement game.

There are three kinds of strategies in this environment. The first is a risk adverse strategy, where companies pay the top tier athletes large upfront money in order to obtain exposure that is as close to guaranteed as possible. The second is the incentive strategy, where savvy companies will try to lock up future stars by providing some upfront money, but the majority of the compensation comes in the form of performance incentives, which can often be insured by the company via a third party. The third is the opportunistic association strategy, where companies do one off deals at highly visible events with players that are on the cusp of greatness and who likely will obtain a lot of short term visibility. The compensation in these deals is more like a television time buy with the potential for a longer term deal if the one off deal goes well.

"My guess is that 75 to 80 percent of major companies are still using the first strategy. However, since the recession we are seeing companies looking for different cost effective ways to accomplish brand associations with athletes and the athletes in many cases have been receptive.”

Being nimble is becoming more common and it is a huge advantage in this environment. Companies that budget in advance for last second opportunities that become available on a particular property or athlete have the best chance to get the best bang for their buck. It is becoming commonplace for some companies to maintain a six figure budget for these types of buys, just like these same companies do with the last minute purchase of advertising.”

Contracts are becoming more complicated in this economy. Not only do companies want to make sure they’re getting their return on the investment, but more factors are involved in the negotiations. For example, a company may want to buy a sponsorship with a certain athlete not only for that player’s performance, but because of the market they play in. Those companies are looking for protection if the player is traded, regardless of on field performance. Social media is also a new point of contention that is a hot button for companies. Having an online network that allows for authentic distribution of content and messaging is critical to brands in these challenging times and how this is developed with a brand that signs an athlete is a major factor. These issues just add another layer of complexity to the endorsement contracts that are being negotiated.”

Questions? Comments? SportsBiz@cnbc.com

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