Insights

Is it reasonable to think that, one day, advertising could overtake sponsorship as the sport industry’s most important source of corporate revenue? If we look at factors like the digitalization of sport to IP-based consumption channels, the fragmentation of content sources, the globalization of fan bases, and the growing importance of personalized experiences across all marketing channels, the conclusion we draw is a firm “yes” – eventually. Global fan bases living in an on-demand world require hyper-localized message targeting in order for the messaging to have any real impact. Traditional sponsorship models work well for global brands, but those that are “truly” global represent only a small % of the total pool of organizations that leverage sport as part of their marketing and communication strategies. The next great gold rush for the industry is to leverage technology to dramatically increase revenue beyond what traditional sponsorship can deliver. Thinking about the fundamental market forces at play, brands are under relentless pressure to connect with their target customers on a more personal level, while sports organizations strive to grow fan bases and attract more lucrative brand partnerships to grow their own revenues. Emerging technologies and smart uses of data are driving new opportunities for the sport industry while laying the groundwork for a paradigm shift in future commercialization models. In this article, we will explore these themes and provide examples that explain why the shift from sponsorship-centric models to sponsorship/advertising-based models is both inevitable and vital for the industry’s future success and growth.

The motivation for the sports industry to open its corporate affiliation models to traditional advertising is abundantly clear – there is MUCH more money available in advertising budgets than there is in sponsorship budgets – about 10x more, to be precise. In 2021 the global sport sponsorship market was valued at $64.8 Billion (according to Market Statsville) with a projected CAGR of 7.5%, set to reach $112.2 Billion by 2030. By comparison, IMARC Group found that the global advertising market size reached US$ 615.2 Billion in 2022 and is projected to reach US$ 834.9 Billion by 2028, with a projected CAGR of 5.35% from 2023-2028. 

Advertisers allocate budget to reach specific markets, targeting specific demographics using channels that can deliver the necessary impressions and engagement for the brand. Advertisers typically do not prioritize affiliation with the channel of communication being used, as they are paying to reach their desired target audience using channels such as social media, Google Ads, outdoor advertising, and broadcast media buys. In contrast, sport sponsorship leverages a deep level of brand affiliation with the sport organization and/or individual player. Sponsorship requires considerably more planning and organization, commitment to the relationship, and activation to receive the full ROI benefit, also requiring more internal resources to extract the full benefit from the rights purchased. Traditional advertising is simpler, faster, and easier to activate. We can now see a fundamental shift taking place in the market, as rights holders all over the world are updating their sponsorship/corporate engagement models to allow for the growth that technology facilitates. It is my opinion that the sports industry’s future revenue growth will consist of a more balanced, more effective mix between traditional sponsorship and traditional advertising thanks entirely to technology-driven megatrends.

Traditionally there has been a lot of “waste” in sports sponsorship as not every brand will appeal to every fan it reaches through the affiliation. The digital transformation of sport has the potential to eliminate “waste” and create opportunities for sport to deliver greater ROI to a vastly larger number of corporate brands that may not be traditional sport advertisers.

PTI Digital, a digital agency based in the UK, is a great example of a company leading sport’s digital transformation. Their mission is to facilitate “holistic digital transformation in sport” so that the industry can create smart, scalable & sustainable revenues and they have seen a rapid growth in their business over the last few years.

According to PTI’s CEO Ben Wells:

“PTI are seeing more and more sports organizations come to realize that they cannot continue to re-iterate their existing commercial model and still expect to see a massive uplift in commercial return.”

Not surprisingly, PTI see sport’s digital future as an industry imperative:

“Harnessing the potential of digital tools and your own data to move your business from a 20-30 day a year event business to an always-on, always-engaging, always-monetizing media business.”

PTI’s approach underscores the fact that we live in a digital world, driven by digital marketing and that companies choosing to invest in sport will continue to demand more sophisticated and efficient means of connecting with their target audiences and measuring their ROI. Sports organizations will need to start functioning as “media businesses” to realize growth going forward, with high levels of personalized fan engagement, points directly to expanding into the “advertising” space and not being solely reliant upon sponsorship as the main form of corporate engagement.

Efficiency is certainly a driving theme. Historically, purchasing advertising around live sport was only possible with TV ad-buys before and after the game and during game breaks. Up until very recently, “in-game” branding has been the exclusive domain of sponsors… but, with the introduction of LED perimeter boards in football almost 20 years ago or the implementation of green screen technology in US sports, the idea of messaging flexibility and increased commercial optionality were born. Today inventory not taken by sponsors is being sold to traditional advertisers on a game-by-game basis, something especially valuable for smaller sport properties that don’t generate top-level demand from sponsors. Short-format content on social media has huge advertising revenue value that rights holders almost never see for themselves. The industry now has tools at its disposal to re-direct ad spending away from social media platforms and toward itself instead.

Everyone, say it with me together – “growth opportunity”!

When we add OTT into the mix along with all other forms of digital consumption, the idea of “know your customer” isn’t as daunting for sports organizations as it used to be either, creating even more powerful options to monetize that data and service larger pools of corporate advertisers.

Software-only virtual advertising (VA), is a revolutionary technology that is accelerating the transformation to new sponsorship models that include traditional advertising opportunities. VA technology allows for advertising to be inserted photo-realistically into live broadcasts with almost no intrusion on broadcast production and requiring minimal coordination with on-site operations. Multiple different versions of a single game can be created and delivered separately into high value markets with messaging tailored for that location or audience. Why sell one game once when you can sell one game multiple times to different advertisers in different markets? Global or regional sponsors can showcase different products in different markets using locally-tailored messaging in local languages, while traditional advertisers can buy available inventory and have their messaging inserted, on short notice, in specific local markets. What’s more, customized broadcast feeds can also be created for specific companies or categories, such as betting or specific target audiences, in addition to being able to breathe new life into historical archives – adding new sponsors into old games. Rights holders can now create more high-value inventory and enjoy vastly increased options for monetizing the inventory and growing revenues than ever before.

What’s also interesting is that, in the very near future, when the majority of sports consumption is done via IP-delivered signals, it will be possible to insert individually targeted brand messages into live sport based on the viewer’s personal digital profile. Known as “hyper-targeting”, advertising within live sport events can be made available on programmatic ad-buying markets for the first time ever. With increased inventory and easier, faster pathways to sell the inventory to advertisers, individually personalized feeds will result in a higher volume of brands engaging with sport audiences than we see in current sponsorship-only models.

So, could  advertising overtake sponsorship as the most important revenue source in sports? Well, traditional sponsorship will always be an important part of the overall revenue mix, along with broadcast, digital, ticket sales, hospitality, merchandise, concessions, etc. But the needs of both rights holders and brands are outgrowing what traditional sponsorship models can deliver. Brands need to generate demonstrable ROI from their marketing investments and ensure that every dollar/euro invested is delivering measurable results. Being able to target specific audiences with advertising messaging that resonates is fundamental, as is the ability to adjust messaging and content as and when required. Traditional sponsorship requires long lead times to activate and targets many viewers with the goal of reaching the few that will actually engage. By definition, sponsorship is inefficient in its current form. Targeted digital activation eliminates “waste”, and is more flexible, faster, and efficient – delivering brands the ability to leverage data to generate greater ROI from the investment, therefore increasing incentive for marketing decision makers to invest more into sport as a highly effective communication platform. The resulting ROIs generated for sponsors/advertisers, rights holders, and fans is simply too compelling to ignore.