The Advantages of Long-Term Contracts
31 Aug, 2012By: Terry Hasseltine
Before sitting down to write this piece, I had to do a quick update of my personal bio and it reminded me that over the course of my 20+ years in the sports industry, I have worn the hat of most demographics in the industry- from collegiate athletics, to event rights holder, to city and state wide sports commission.
And throughout those positions, contracts of many sizes and scopes were constantly being discussed and presented to or by myself and the organization I was working for. But a few things always stayed the same- the short- and long-term benefits to all parties involved by signing a contract of any length of time, and they are not always just financial, but of course it is a perk.
But in order to make sure my thoughts on the advantages of long-term contracts were well grounded, I reached out to several leaders and diverse cross section in the membership of the National Association of Sports Commissions (NASC), our essential resource for the sports event industry. As in most cases, there is a consensus in the points of views of my peers, which makes me feel confident that my thoughts are on target, have been validated and are relevant to this discussion.
First, we need to define long-term contracts. For the purpose of this article, we will define long-term as any agreement three or more years in duration. We’ll dive into the benefits of long-term agreements for events, sponsors, Event Rights Holders (ERH) and National Governing Bodies (NGB) and the host community. In fairness to the topic, we will not, however, dive deep into the intricacies of the deal points that may exist in long-term agreements, but remain general in scope as the complexity of each agreement differ based on jurisdiction. And, I prescribe to the philosophy that success is in the details.
Recruiting, hosting and retaining events are the life blood of our industry and the ability to orchestrate a long-term contract to host an event can create many significant benefits and rewards. Here are a few reasons long-term contracts are so beneficial from an event perspective: It allows the host and event rights holder to share revenues either before and/or after event expenses. In many cases, clauses in the contract termination conditions exist before the end of term by either or both parties, thus allowing each party a sense of a level playing field toward the efforts.
The contract creates opportunities to place performance measurements on the event which, in many cases are related to financial concessions, as well as participation levels. In addition, performance measurements present an avenue for review of event and related financials by both parties within a defined number of days post event, thus creating a defined constructive evaluation process and a sense of familiarity with the event is created. Thus, it eliminates the recreation of an entire event and allows you to build on your success annually, and it allows for a defined time to take corrective action to address any short comings.
Lastly, there is an overall cost effectiveness over the life of an event, as when you go to extend an agreement, in many cases it comes down to preferred pricing and the elimination of some costs (i.e. site inspections) more efficient use of time and resources (i.e. start-up costs). And being that you’ve already run the event, when extension of the contract comes both parties are able to be more amenable to better cost sharing benchmarks.
In most cases sponsorship is a necessary need for successful event execution. Sponsorships and long-term commitments generate several significant advantages, opportunities and benefits. If defined correctly, sponsorships allow for payment plans over the term of the contract, thus providing needed cash flow leading up to, during and post event. Sponsorships allow great strategic partnership opportunities and activation that can enhance an event experience and allow for greater exposure for events and sponsors.
As with any agreement, relationships take time to create and maintain and with a long term agreement, partners can play on each other’s strengths and allows time for this growth and understanding. Proof of performance from the sponsor and host provides for the amenities of the sponsorship and allows for additional means to measure success. In addition, measurements which could lead to a change (increase or decrease) in the value of sponsorship over the length of the commitment could help foster new opportunities to engage additional sponsors too.
However, there can be some challenges as in exclusivity and/or first-right to renew/refuse future sponsorship. The timing of such could hinder future participation of other sponsors. But, the key to sponsorship isn’t strictly the cash or in-kind return, but the essential activation sponsors take in and around your event. Successful partnerships allow both parties to find cost savings, to brand and market the others brand and presence in the sports industry that are mutually beneficial to both parties Like anything, it is about managing expectations, structured opportunities and ROI.
The host community benefits from long-term contracts in many different ways. One, it allows the host community and sports commission to develop multi-year strategies for local sponsorship, youth development from clubs and associations at the local, state and regional level. Hosts also can book the venue contracts and get multi-year date commitments for the same date so a long-term marketing, branding and management strategy can be implemented.
Two, it allows sponsorship sales to be focused and staff to spend less time on renewal and new business recruitment. Three, it provides the host an opportunity to develop operational productivity over a multi-year time period of the same event. These productivities could be financial, as well as a higher level of execution which will enhance the participant and guest experience. Four, hoteliers are accustomed to multi-year contracts with conventions and trade shows, so they are very open to this concept and the sports industry needs to promote this business opportunity.
Lastly, multi-year deals will also promote the local host to possibly invest in long term facility development or enhancements if there is a multi-year contract that will support the ROI for the community from economic impact and implied quality of life for residents and local corporate businesses.
Event Rights Holders and National Governing Bodies:
The Events Rights Holder and National Governing Bodies can also benefit from long-term agreements too. It starts with the ability to foster and develop strong relationships with local host(s) and their corporate community. There are potential cost savings over time in areas like transportation, equipment storage and personnel time. In many cases, a higher level of event delivery and execution from host and venue is created as they become more knowledgeable of the event, client, guest needs and more.
The host community may be willing to provide financial incentives in a long-term arrange that might not otherwise be there in a one up situation. Another benefit of long-term agreements is the legacy of growing the infrastructure in a host community where both parties are put in a win-win position, especially as it pertains to their ROI and annual exposure opportunities.
Lastly, long term contracts allow the ERH or NGB to create a long term development programs in multiple facets of their youth or adult programs. In addition, it also provides the ERH or NGB to 'test drive' a community for possible hosting larger scale events in future years.
In looking back on the stake holders of long term contracts - the event, the host community, the sponsor and the ERH/NGB - there are numerous benefits to long-term contracts. However, I think the biggest benefit is one that starts long before the contracting even begins and that’s the relationship between the parties looking to contract.
If the foundation of the relationship doesn’t exist, the idea of going to any type of contract is null and void. The moral of this discussion is that winning friends and influencing people will ultimately lead you to quality partnerships. Therefore, opportunities will begin to naturally present themselves to get into long-term agreements that are 'win-win.'