The Double Edged Sword of Value Banks
Should you use value banks in your sponsorship deals? Value banks have a ton of benefits for both brands and properties, but they also have drawbacks.
What is a value bank? When a sponsor signs a deal with a sports organization, charity, entertainment property, or other rights holder organization... contract typically specifies what assets or deliverables the sponsor will receive in return for their investment.
When value banks are included in a contract, the assets and deliverables are left unspecified, and instead an I.O.U. is outlined. With value banks, these I.O.U.s typically include a dollar value and a general type of asset that speaks to what will eventually be delivered/specified at a later date. For example, a $500,000 media value bank implies that $500,000 worth of media-related assets will eventually be delivered to the sponsor.
The positives that come with the use of value banks?
VALUE BANKS' VAGUENESS MEANS A SPEEDY AGREEMENT REVIEW/NEGOTIATION PROCESS. There are less details to iron out before the contract can get signed.
SPONSOR RECEIVES BAKED IN FLEXIBILITY. With value banks, specifying which assets the sponsor receives happens on a year-to-year and/or month-to-month basis. So there's no formal amendment required in order for the sponsor to get more tailored and flexible assets throughout the deal.
But there are some negative implications when value banks are included in sponsorship deals:
TRANSPARENCY AROUND HOW VALUE IS DEFINED. How many digital banner ad impressions can a sponsor receive for a $50,000 value bank? Well if CPM rates are established ahead of time for the asset, that answer is easy. But what if a value bank is sold with vague/broad scope? Are all of the assets that it will be allocated against defined transparently from a price per unit standpoint?
INVENTORY TRACKING CAN BE A CHALLENGE! Unless a disciplined approach with internal deadlines and value bank allocation is implemented, there are going to be situations when it's unclear whether certain assets can still be sold to new partners or if they need to be reserved for partners with value bank investments
SPONSOR APPROVAL DELAYS CAN LEAD TO BOTTLENECKS. While it may be a given that the sponsor has the right to choose/approve how their value bank dollars are allocated, if they don't provide this direction in a timely manner, it can allow for too many value bank dollars/units to be owed with too little time left in the year! And, depending on how different sponsors' preferences are prioritized, there can be knock on effects with other sponsors when a sponsor's value bank allocation decision takes too long.
While it's obvious as to why value banks are used in sponsorship deals - especially larger and long term deals - there need to be internal processes and systems in place to avoid some of the potential pitfalls! It's not good for either party if a sponsorship leads to confusion, long hours, and internal chaos!
