Small and medium-sized companies (SMEs) are about more than just GDP contributions. They are also indispensable in terms of job creation and fostering entrepreneurship. Small players are the big drivers of innovation, they create opportunities for internationalisation and contribute to more diverse and inclusive societies. At Up4Scale, we are committed to supporting small and medium-sized enterprises (SMEs) that want to take on the world. One of the many tools available to growing enterprises is a commercial sponsorship agreement. These typically involve a business buying the right to be associated with a particular cause, entity, event or even a specific location. The motivations behind entering an agreement are equally numerous. Major commercial names may seek to establish their brand in a foreign market. Charities may look to raise awareness of their cause within a greater community.
It can also be a matter of melding a cause with a profit-motivated enterprise. For example, a commercial food supplier may sponsor a privy food security institution. By doing so, they get a foot in the door of a particular territory while also attaching their brand to an important cause. Equally, a small business interested in entering a foreign market may find themselves in a mutually-beneficial agreement with a larger business seeking to legitimize their local efforts. But while quick and affordable, commercial naming rights agreements can also be a useful tool to scale internationally; and like many new initiatives, they come with a variety of risks and potential pitfalls. This guide aims to give small and medium-sized enterprises looking to internationalise through sponsorship the knowledge they need to maximise the potential of naming rights agreements. So what are naming rights? A naming rights agreement, or sponsorship deal, is a commercial arrangement built around the mutual understanding that a business or organisation (the sponsor) will have their name affixed to a particular entity, event, part of a facility or a product. The most famous modern example of the latter is that of Canon and Barbie.
The typical motivation for a SME to enter a naming rights agreement is to attain the same level of recognition as some of its global competitors. If you’ve got a limited marketing budget, a naming rights agreement can get your brand out there. In the previous section we illustrated one way a commercial naming rights agreement can fulfil an international objective; there are many others. SMEs can use naming rights deals to reach a new demographic, or build brand awareness in a new country. Many SMEs interested in internationalisation will be aware of the complexities of turning a profit overseas. A naming rights agreement has the potential to boost profitability. A business doesn’t need to pay a fee to others for becoming involved with a given project. In most cases, they receive a steady stream of dividend payments from a percentage of ticket sales, product sales or the likes.
Another interesting outcome of naming rights agreements is their potential to support a green transition. Smaller enterprises often rank lower on the social responsibility ladder. They may lack a clear understanding of their role in environmental degradation or climate change. On the other hand, they may lack the technology, knowledge or resources to make a substantial difference. Enter naming rights agreements. According to the UN, the greatest risk-charity partnerships are those that fail to go beyond ‘benefit’ statements. They expect the typical benefits associated with CSR (Corporate Social Responsibility) partnerships, so don’t inquire any further. Those who do inquire often end up satisfied; but they still walk away with a positive association to a given cause. In the long run, their brand may benefit from having gone green.
The granting of naming rights can also be a great opportunity to develop (or grow) a market. For example, a business interested in producing a new product could seek a naming rights agreement aimed at determining whether there is potential for a new product. Should the product be a hit, the business is already well-positioned to be considered an industry-leader in the given market. Essentially, a small business can “test out” whether a new product will be successful in a particular location; without making a huge investment. Issues such as product quality and target market expectations can then be learned through skilful immersion in that market. Sponsorship deals tend to be dominating the naming rights headlines in recent years. The reason behind this trend? The financial resources of the world are in a constant state of reallocation; and the trend is skewed in favour of those with the deeper pockets. Small and medium-sized companies are not always viewed as the ethical or responsible option for potentially high-profile projects. However, if they market their support of particular causes correctly, they may find themselves with the upper hand in a naming rights agreement.
While attracting a cause unconnected to awareness is advantageous in most commercial contexts, it is often seen as unethical to foreground one’s commercial gain above the plight of a charity. Thus, an SME seeking a deal would be more inclined to emphasise their desire to create better lives or produce a better product, rather than be viewed as another ‘money-hungry’ corporation. In terms of sponsoring a location or event, SMEs should leave no stone unturned in the search for potential partners. In recent years, naming rights-related transactions have risen to an all-time high. As a result, there is sure to be a business struggling to sell a brand. Or a sports team struggling for finance. Or a university struggling for funding. Or a public space struggling with a name. Any of these parties can be found seeking a potentially mutually-beneficial deal; all it takes is the proper research.
Another practical consideration is the level of detail that goes into a naming rights agreement. Unless underwritten by an international sponsor with bottomless pockets, it is important to ensure that the terms attached to a deal are fair. From grand proclamations of ‘forever’ to annual payments, there are a variety of factors that determine the success or viability of the deal. We can help you assess whether the deal is fairly priced or whether it is something that is simply unsustainable. We can also help you understand how the agreement fits within your overall commercial strategy. A naming rights agreement may be an invaluable marketing tool; however, they are not without their risks. Potential pitfalls include: The are many ways to measure the success of a naming rights agreement; and it may depend on your motivations when entering the deal. Speaking specifically: if the goal was brand-awareness, the key performance indicators (KPIs) should be brand mentions or hits; if the goal was profits, the KPIs should encompass ticket or product sale numbers.
Another metric is the ability of the agreement to define a brand. Is the product or service better known for their association with a given project, or their own unique benefits? If the intent of the agreement was to bolster the company’s status as an industry-leader, having the name of a universally-known project as part of your branding may ultimately limit your reach. Finally, a naming rights agreement is also a mere stay of execution. It can boost business while the interests of the target audience are attuned, but it is not a long-term fix for plummeting sales. It should be treated as an opportunity to learn about or fix the potentially broader issues your business has been facing.