Aug 18, 2009 at 03:28 PM
Financial Statements for Sponsors
Following up on our look at how sponsorship properties can use financial statements to better tailor their pitch and get an informational advantage in sponsorship negotiations, it's time to take a look at what sponsors can learn from properties' financial statements. This gets a little tougher. Unfortunately, there are not as many publicly listed properties, but on the other hand many properties' heavy reliance on sponsorship as a key revenue stream means there is a lot of useful info out there if you're looking at a publicly listed property. This also means, unlike sponsorship info in sponsor-side financial statements, major media outlets are more likely to cover this news. Let's dive in.
In recent weeks, we've seen the following properties post earnings announcement (seemingly not-related to our practice of sponsorship), but a closer look reveals:
Six Flags (formerly NYSE:SIX until bankruptcy, now SIXFQ.OB) Second quarter sponsorship, licensing and promotional revenue fell 33% year over year.
Live Nation's (NYSE:LYV) showed an overall dip in revenue and number of sponsors, but a considerable improvement in revenue per sponsor. Does this mean their preference is for bigger, multi-property bigger deals? Perhaps this statistic is skewed by one big, new partner coming on board like say Red Bull?
International Speedway Corporation (NYSE: TRK) noted that a new or changed racing teams could be formed with drivers that generate less fan interest or race less competitively, which can affect attendance at NASCAR Sprint Cup and Nationwide racing events, as well as corporate marketing interest, that can significantly impact operating results.
70% of revenue at the World Series of Golf (a subsidiary of holding company "ICP") is recorded during the month of May with revenue from sponsorship partners decreasing in the three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008 by 45%.
If you're looking at investing sponsorship dollars in one of these publicly held properties, this is information you'd probably like to know. So the question becomes how do you navigate mounds of irrelevant data to find what you need in the most efficient way possible? As a start, let's consider these questions:
How much value does this property place on in-kind or barter and how is it accounted for?Most companies record barter and in-kind revenue at gross sales, and record the related sponsorship expenses to cost of sales when the products or services are used.
Does this property, like many, have seasonality and in what time period do they generate their sponsorship revenues?
Look for clues to seasonality in Cautionary Statements or Risk Exposure, generally found towards the end of a statement. How could this affect your payment schedule (and how do they account for sponsorship revenue)?
How important is sponsorship revenue to a property's bottom line?
Almost all event properties will break out sponsorship revenue as a percentage of overall sales within Segment Information as seen in this World Poker Tour example.
How many partners does this property have and how can I leverage those relationships to build b to b partnerships?
Check in Recent Events for new partnerships, Marketing and Sales to find new sponsorship and licensing agreements and look at revenues within Results of Operations to find new partners that you can potentially tie in to. Sometimes properties, such as Live Nation, break out the number of sponsors each quarter, which could be helpful insight as well.
How are this property's charitable distributions allocated? Properties in many cases announce Charitable Contributions. Does this align with your company's own charitable affiliations and strategy?
When are their contractual revenues the lightest and how will this affect your negotiating power for a longer term contract?
Liquidity and Capital Resources can provide a look at the general viability of the company. Some properties break out contractual sponsorship obligations by year.
Does this property have any immediate legal exposure?
An obvious question, but one every sponsor should consider. Look for clues in Cautionary Statements or Risk Exposure.
One special note on properties: quite a few sports properties are owned by larger, diversified media companies such as the New York Rangers and New York Knicks (Cablevision), the Seattle Mariners (Nintendo of America), and the Toronto Blue Jays (Rogers Communications). It may take a little more digging, but you can generally get the same information broken out in these statements. You just have to know where to look.
As it turns out, the basic questions we want to answer about a property's strategy really aren't all that different from some of the insights we revealed about sponsors last week. In a sponsorship negotiation, both properties and sponsors can get a lot closer to a win-win by simply sharing the right information. Sometimes that's not always in your partner's best interest during a negotiation, so that's where objective sources like this can give you an advantage. Once you get past the intimidation of 10-k's, 8-k's and 10-Q's you can give yourself a big leg up by simply knowing how to strategically navigate (read: skim through) financial statements and company conference calls, ahead of your pitch.
The goods news is, you don't have to be an MBA or CFA to do this. You don't need a fancy certified property valuation for this. It's a FREE resource you may not already be using! If nothing else, you can use this information to prepare some smart pointed questions for your client, prospective partner or current sponsor property, which may just get you closer to a successful negotation or renewal. The subscription cost for a financial statement? Exactly $0.00.