My Beef With Sponsorship Brokerage

I get asked to sell sponsorship for clients in exchange for a percentage of the total sponsorship sales made (otherwise known as sponsorship brokerage). I get asked this a lot. My answer is always a polite but firm no. Do you want me at the table with you to help with negotiations? Sure! But definitely not as your hired gun…and here’s why:

The 5 Worst Reasons to Hire a Sponsorship Broker

You are a Charity

Am I saying that no charity should engage in brokerage? That’s exactly what I’m saying. The Association of Fundraising Professionals have spoken out clearly against commission-based fundraising. If you are a member of AFP, you are offside if you engage in brokerage. If you are a charity, you are risking damaging your reputation badly with donors if you engage in this type of fundraising.

“But wait,” you say! Isn’t sponsorship a marketing activity and not really fundraising? Yes! The problem, however, lies in the perception of the public and the spirit of the ethical code for fundraisers. And if that doesn’t convince you, then check out what the Canada Revenue Agency says (sorry readers from the rest of the world…ignore this paragraph!).

“76. If a charity provides remuneration for fundraising on the basis of results rather than effort, this may be an indicator of the delivery of a more than incidental private benefit. Such arrangements, particularly if not well-documented and/or disclosed, could also indicate that a fundraising activity is harmful to the public interest and therefore contrary to public policy and/or deceptive.”

Source: http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/fndrsng-eng.html

So not only do you risk being blacklisted by AFP and alienating your donors and supporters, but you get to have an uncomfortable conversation with CRA at audit time.

My advice? Don’t do it.

You Have No Contacts

This is the most pervasive myth of brokerage: that your brokers have a magical Rolodex of sponsors who can’t wait to give away their money but will only do it to those brokers with whom they have an agreement.

Sponsorship marketing just doesn’t work like that. Those who action sponsorship investments for their companies do not do so based on a secret underground web of brokers…they do it based on their target audience, brand goals, and measurable outcomes.

When you hire a broker, the first thing they do is engage in the activities I suggest all of my clients do and outlined for free in these articles:

Ask yourself this:

Where exactly did these brokers get the contacts they do have? Why from their last client, of course. When a broker moves on from you, the only way for them to make money is to sell your sponsors (that you paid them for) to your competitors, leaving you with nothing. Giving up the relationships with your prospects to a third party is a bad idea and short-term thinking at best.

You don’t have the staff or financial resources to do it in-house

I think that brokerage appeals to the risk averse, which is ironic because it is actually far riskier than hiring someone to handle your relationships internally. The false belief is that the broker only gets paid if they raise money and is therefore a sure thing and reasonably priced.

First of all, if a broker is willing to take you on, it’s because you have a sure thing, golden goose property. They don’t take on risky properties that require a lot of work. Brokers charge on average 25% of all sponsorship (you don’t get to close your own sponsorship, leaving the hard stuff to them) plus expenses.

If your goal is to raise 500K in one year, then you could hire yourself a full-time sponsorship sales professional with money to spare. Or you can hire a broker and still be on the hook for activation, fulfillment and refunds if something goes wrong. If you plan to raise $1 million, you can hire a fleet of internal sales professionals!

If your goal is to raise 50K then any broker willing to work on your project should be avoided like the plague.

You think it will be easier than doing it in-house

Set it and forget it right? You hire the broker, they make a sponsorship package and send you sponsors. Well, not exactly. You still have to build an inventory, do a valuation, deal with demanding sponsors, account management, stewardship, activation, fulfillment, renewal, provide leads and give access to your board, customers and service providers.

“The ask” is about 5% of the total sponsorship sales process, leaving you on the hook for 95% of the process, yet your broker is getting 25% of the total value…and who knows what was promised to make the sale.

Commission is the best motivator

The belief is that, since brokers work on commission, the more they sell your assets for, the better for them. Therefore, they are naturally inclined to get as much money as possible. This is another one of those things that seems obvious and logical…until you dive into the psychology of the brokerage process. A brokerage is a business, designed to make money.

Which of these scenarios is more profitable for the brokerage?

Scenario one:

Go to 200 hours of meetings to find a prospect with a budget that fits the target value and then spend 500 hours negotiating with a prospect to get the highest amount for that asset.

Sponsorship sold for value of 100K, broker gets 25K or $36/hour for their work

Scenario two:

Broker undervalues your assets deliberately to move the product fast. They go after your low-hanging fruit, those likely to come on board quickly. They spend 25 hours in total and sell your sponsorship for 30K (even though it’s worth 100K).

Sponsorship sold for 30K, broker gets 7.5K or a whopping $300 an hour.

So maybe you’re right, commission IS a strong motivator after all…but it doesn’t work in your favour.

Is brokerage always wrong? I can’t say that for sure but what I can say is that most properties look to brokerage as their first choice and I have heard an incredible number of horror stories. If one of the five reasons listed here is your motivation for brokerage, then I can say the odds are stacked against you that you will walk away happy.

Nobody cares more about your sales, your brand and your sponsors than you, and by extension, your staff.

Chris Baylis is an expert in sponsorship valuation and sponsorship strategy. Chris works with brands and sponsorship properties to define their sponsorship goals, determine market value of their sponsorship assets and create strategies that work.

Chris is the Managing Director of The Sponsorship Collective, a board member of the Association of Fundraising Professionals and international speaker and consultant on all things sponsorship marketing.

Connect with Chris via: The Sponsorship Collective | Twitter | LinkedIn | Google+