How Much Should You Pay an agency to sell your Sponsorship?
We get approached on a weekly basis from racing teams and drivers who are looking to hire a sponsorship sales agency to help them raise funding. While we believe there is a lot more that goes into to being successful in sponsorship sales than just “brokering”, here is a breakdown of hiring and paying a sponsorship sales agency or a “broker”.
Types of broker remuneration
There are three types of broker remuneration, and most brokers are paid on some combination of these:
-Commission: This is performance-based, and calculated as a percentage of the sponsorship raised. This will generally range from around 10% up to 35%, or even more for difficult sales, and will be based on several factors (see below).
-Up-front fee: The thinking is if your materials and offer options for the property are a mess (or non-existent), it could take some effort to develop them into something saleable. Some brokers have charged up-front fee for this.
-Retainer: This is a monthly fee paid to a broker, remunerating them at least in part for the effort they put into selling.
When sponsorship brokering was first around, it was fully commission-based. There was then a trend toward an up-front fee plus commission. Now, the norm has shifted toward retainer plus commission, with no up-front fee.
If you hire a broker on retainer plus commission, the commission rate will usually be much lower than if you pay a straight commission.
If I have no money, can I just a pay straight commission?
As much as it would be financially convenient for cash-strapped, newer and smaller rightsholders to pay commission only, that is extremely unlikely.
The fact is that there are more people who want sponsorship brokers than there are good brokers around, so they are able to cherry-pick the properties that are easiest to sell.
For less established teams or drivers, you will be lucky to get a broker at all, unfortunately. If you want any chance to find someone to sell on your behalf, you need to budget for a retainer. For established properties with a strong fan base and a good track record with sponsors, you may be able to get a broker to work on commission-only, but don’t count on it.
What happens at renewal?
This is a big question and can affect total broker remuneration by quite a lot. It has to do with what happens once a contract runs out and a new contract is signed. There are two approaches:
-Reducing – The fee the broker gets is reduced for any renewals or subsequent contracts. The amount varies but is generally around half of the commission for the original sale. This will usually continue for the life of the property’s relationship with that sponsor, but some broker contracts put a limit on how long a broker can be remunerated, such as ten years.
-Evergreen: The fee the broker gets is never reduced. They get exactly the same commission for the life of the property’s relationship with that sponsor, no matter how long that may go.
In either case, the broker will be compensated.
-Whether they had anything to do with the renewal or not.
-Whether the new contract took effect immediately after the end of the previous contract (a renewal), or was entered into at a later date. This window for a broker getting commission can be several years, so don’t think if a sponsor comes back after a two-year break that you won’t need to pay the broker, because it’s likely you will.
-Regardless of the amount of the new sponsorship. They will be remunerated on the actual amount, whether that goes up or down. So, if you have a $40k sponsor, who then renews at a much higher level, like $160k, you will be paying commission on the higher figure.
Examples of broker compensation
The actual levels of remuneration vary from broker to broker, and can be different within different markets or market segments. Below are a few examples of how broker remuneration might be structured:
-$3000-5000 per month retainer for 35 dedicated hours, plus 9.5% commission, evergreen. 20% commission (no retainer), evergreen, for some very established properties.
-$5,000-10,000 per month retainer, plus 12% commission, reducing to 6% on renewal. 20-30% commission (no retainer) for some very established properties.
-$4,000-6,000 per month retainer for 30 dedicated hours, plus 12-15% commission, reducing to 6-7% on renewal. Doesn’t accept commission-only clients.
What about contra?
Brokers should also be compensated if they secure contra (AKA in-kind) that fills a genuine need:
-Reduces or replaces something on the property’s budget
-Adds value to other sponsorship offers (eg, media negotiated in excess of the property’s needs, which is passed through to sponsors)
Some brokers charge the same amount in commission on genuine contra. Others reduce the commission on contra. If it’s genuinely saving the property cash, my personal view is that it should be compensated as if it were a cash sponsorship.
Other factors that will affect broker interest and remuneration
This really boils down to ease of sale. Big, established, and sexy (in a marketing sense) properties are relatively easy to sell, and these are the properties that interest sponsorship brokers the most. The harder it is to sell, the more they’ll charge to do it, up to the point where they believe the sale is unlikely and not worth their effort.
The most common factors that contribute to the ease or difficulty of sponsorship sales, or the amount charged, are:
-Lead time: More lead time makes it easier to sell. Anything selling with a short lead time is unlikely to be appealing to a sponsorship broker.
-Whether the property is established: An established property is much easier to sell.
-PR problems: A property with recent, positive PR or at least no PR issues is easier to sell.
-Size of the property (number of fans, members, attendees): The larger and more passionate the fanbase, the easier it is to sell.
-Advanced planning: If planning is advanced, the infrastructure/venue/permissions are all sorted out, and it’s confirmed, it’s easier to sell.
-Geography: National, regional, and large local properties are easiest to sell. There’s a huge financial upside to genuine global sponsorship, but the time and legwork it takes to get an offer through all of the pertinent channels, and get all of the approvals, can make global sponsorships not worthwhile to some brokers.
-Connections: If a broker has deep, longstanding connections to brands in a sector or geographic area, they may command a premium.
The upshot is that you’re asking a broker to put their reputation on the line for what you’re doing, and they’re only going to do it if they know they’re selling on behalf of a credible, professionally run financially stable operation. If you fit that bill, you may well secure a broker, and get them at a reasonable rate. If you’re lacking any of the above, it is going to be much more difficult to get a broker at all, much less at a reasonable cost.
And for all of you out there with just some wild idea, with no plans or infrastructure – and we hear from dozens of you every month, forget it. Nobody, NOBODY is going to sell sponsorship for your concept.
Should we grant sales exclusivity?
Granting sales exclusivity means that any sales will result in a commission to the broker. ANY sales. That means some huge brand could rock up and directly make you a great offer, with no involvement whatsoever from the broker, and that broker will still be paid a commission.
We’re m not a fan of sales exclusivity. We believe all properties should have the ability to make direct sales if they get the opportunity.
What you should look for
There are a few tips on what you should look for in a sponsorship broker.
-Insist on exclusive hours. You want the broker to spend time concentrating on your property, not pitching multiple clients in one meeting or call.
-Require a best practice approach. If you’re paying a retainer, you’re paying for the time it takes a broker to craft fully customized, best practice sponsorship proposals.
-Don’t overpay the retainer. There has to be a strong incentive for the broker to actually make a sale.
-Limit the length of your initial brokerage contract to 6 months, so you can assess performance.
-Ask for an out clause something that allows you to end the contract if the broker hasn’t raised any sponsorship within a reasonable timeframe. It can take 9-24 months to fully fund a racing property.
-Require periodic progress reports. You need to know who they’ve pitched and where any negotiations are.
-Involvement in final negotiations. You should not allow final negotiations to take place without your involvement, ideally with you being in the room. You need to know what’s been promised and ensure you understand all explicit and implied expectations.
Are there any guarantees?
There are no guarantees that a broker will be as successful as you hope they will. An offer of a guaranteed level of sponsorship would be a red flag. Targets, yes. Guarantees, no.
What happens when the broker contract ends?
When a broker contract ends, there will often be a few prospects that are in the middle of negotiations. Generally, a broker will finish any pending negotiations and be awarded the commission, even if their retainer relationship is over. They should not be pursuing new sponsors once the contract has ended unless mutually agreed.