Minimum Guarantees Increasingly Incongruous in a Digital World
Working as I do with many tech startups looking to break their product or service into sport, it's only a matter of time before we encounter the dreaded "minimum guarantee" meeting.
It's usually a critical point in any discussion and it's one to which there is no obvious work around. The negotiation usually ends reaching an impasse for two reasons: a) the startup has not clearly or fully defined how its tech can add value to the sports organisation ("SO") often because they need to trial it first to finesse the proposition (because it's new) and b) the SO does not have a existing strategy against which the tech can be evaluated.
Given at that point, the SO's mind tends to wander to more prosaic issues - such as how to sell out the remaining tickets for the following game or event - time runs short and the gauntlet is thrown down to the startup (who have likely already invested considerably into their tech and who usually operate on the breadline) to make things easy for the SO by taking on yet more financial risk by guaranteeing a sum upfront.
Of course there is more than one way to skin a cat: often we think about brands we could ask to underwrite the MG but the principle remains the same: MG's discourage collaboration, disincentivise the SO from working it hard and more than likely creates an environment where any (possibly great) innovation doesn't occur, simply because it never had any chance of doing so.
It's a crying shame. There are so many great technologies whose functionality can help unlock or overcome some of the huge issues SO's have in their analogue business models, if only they were given the opportunity to trial them and a fair chance of making them a success. Success, remember should be for all: startup, SO and customer base.
MG's exist everywhere. What are TV rights or sponsorship fees if not MGs? Yes, they offer the comfort blanket of guaranteed revenue over a period that enables business planning (and a good night's sleep) but probably also creates a mindset which discourages curiosity about whether the commercial model is delivering value for all.
Sport is talking more and more about engagement, data and developing 24/7 comms models. Why then sign sponsorship deals which are not pegged to the growth in the quality and quantity of your customer relationships? Obviously many SO's TV deals are linked to a collective selling model but for those that aren't, why shouldn't the apex of their engagement strategy be the creation of their own OTT platforms?
Of course, anyone taking on all the risk via a MG should reasonably expect to demand a greater share of any upside (though that isn't always an easy discussion either) which means that the SO happy to take a comparatively (for them) small sum up front could be giving away much more in the long-term. Ultimately it's a balancing act that needs to work for all from day one.
The digital world around us is fluid, dynamic and offers exponential growth. MG's are by definition, rigid, linear and unilateral. Why can't SO's themselves become exponential organisations? There exists an exciting opportunity for sport to digitise its business model, if only it would get onto the front foot.
SO's need to build more time into building strategies that understand better what "digital" is and how it can transform their commercial models. Yes, there are a few snake oil salesmen out there pedalling narrow-interest or half-baked ideas but that shouldn't colour the market for everyone. If more SO's had a proactive strategic approach which served as a filter for identifying complementary or value-adding technologies, then we would see more innovation as more startups got the chance to de-risk, trial and finesse their services.
The world around us is being digitised but sport for some reason needs everyone else to take the risk for them. There is so much value being left on the table.
If you would like to read more of Well Said's thoughts on how to digitise your business model, download our recent White Paper at www.well-said.co.uk
CEO at PTI Digital | We Help Boards Align Tech and Commercial Strategy | Vendor-Agnostic | Trusted by Leading Venues and Rights Holders
9yUnless the SO is proactively sourcing tech partners to complement/enhance an existing strategy you're 100% right ... trying to define "sensible" is very hard as the SO needs enough to make it worthwhile the legal fees alone which might even then be too much for the start up. Until both sides have a clear vision for how to work together we will continue to have substandard partnerships which just propagates the lack of understanding between the two sides. The current format is just set up for failure.
Social Impact Marketing
9yInteresting, but I think the whole point of a 'minimum' revenue guarantee (mrg) is that it lessens the risk to the investor, and gives the SO an opportunity to share in the upside. Admittedly, most Commercial Directors want the security of a revenue guarantee, but if the mrg is set at a sensible level, it makes for a more collaborative relationship. I'm not sure if there is much of an alternative.
Founder and CEO, ProDataStack, an AI-supported software that gives professional athletes control of and access to their data. Founder and CEO, Winners, CRM and data consultancy.
9yA great point well made Ben but can you really see the model changing? With your SO hat on you know why the MG is part of the deal - it's a brave Commercial Director or Revenue Officer that puts forward a deal without one!