In-kind sponsorship is a great tool for increasing event revenue, creating value for participants, as well as forging relationships with both private and public stakeholders. When properly leveraged, it is a fantastic compliment to cash sponsorship, often capable of delivering greater benefits with greater ease from a far larger pool of potential sponsors.
To help you make the most of this key revenue-generating channel, we take a look at what in-kind sponsorship deals look like, what to seek them for and the many benefits they can deliver for your race.
What is in-kind sponsorship?
In-kind sponsorship is a broad term used to describe any sponsorship arrangement where a sponsor provides an event with goods or services (value in kind) instead of cash as part of the sponsor offering.
It is important to understand, that regardless of the fact that the value provided is in the form of goods, in-kind sponsorship remains a reciprocal commercial relationship. This means that the in-kind sponsor will still expect to derive the same benefits as a cash sponsor, e.g. exposure for their brand or product, marketing opportunities, direct sales opportunities etc. This is a crucial distinction between in-kind sponsorship and – for example – charitable donations where a donor may give away goods to an event without expecting anything in return.
Common uses of in-kind sponsorship
In-kind sponsorship can be sought for most race budget items, including:
- Team travel expenses – often a significant cost for some races, sponsors can be solicited to help provide free or discounted air, train or bus tickets to cover the travel needs of the event team.
- Team accommodation – hotels can often serve as event accommodation sponsors. Typically the arrangement will involve accommodation discounts for the event team in exchange for the sponsoring hotel receiving sales privileges amongst race participants and guests.
- Participant giveaways – T-shirts, medals and other giveaways can be covered, either through direct provision by the manufacturer or under sponsorship by a third party. In many cases, the items may be provided by a local authority, tourist or commerce board who can often procure the items at a better price from a local business.
- Food & drink – supplies can come either from a third party or, more typically in the case of water and energy foods, from the manufacturer who will happily contribute goods in exchange for exposure through the race.
- Policing expenses – costs charged by the police and other public entities can in some cases be offset partly or fully by local authorities with an interest in promoting mass-participation events in their area.
- Venue hire – wherever venue hire is required (e.g. for athlete briefings, race pack pickup etc) local authorities and hotel partners can help out in exchange for event exposure and other benefits.
- Transport, electronic equipment & fixed structure hire – barriers, audiovisual equipment, buses for participant transport etc can often either be hired on the event’s behalf by local public partners or more likely be made available to the event from existing inventory.
Benefits of in-kind sponsorship
There is a common misconception that in-kind sponsorship is a “lesser” form of sponsorship or even a last resort for small events who can’t secure cash sponsors. This couldn’t be further from the truth. Although it is indeed the case that some of the largest and most prestigious events have an easier time soliciting cash sponsorship, in-kind sponsorship is an essential revenue component for events of all sizes.
It is true that in-kind sponsorship has certain limitations:
- It is of limited use in covering certain general expenditure items, e.g. fuel and sundry expenses
- It can’t be used to pay salaries
- It can’t be banked as profit
However, because it is so effective in targeting costs and so much easier to obtain than cash, it can deliver huge benefits to your event. Let’s look at some of these in more detail.
Perhaps the most important benefit of in-kind sponsorship is by releasing funds earmarked against race expenditures. The fact that in-kind sponsorship generates cash may sound counter-intuitive at first, but it is easy to see why that is the case: when you no longer have to spend money to buy goods you need, you end up with cash you can use some other way or bank as profit.
Take the example of race T-shirts. Suppose you have a $1,000 budget to spend on T-shirts for race participants. That $1,000 would likely have been raised through one of your sources of race revenue, most likely, registration fees. Getting a sponsor to provide the race T-shirts, automatically releases that $1,000 formerly earmarked for T-shirts. As a result of your in-kind sponsorship, you now have $1,000 in cash.
Better sponsor alignment
Because a lot of the items you need for your race are provided by businesses who have an interest in engaging with your audience, in-kind sponsorship provides a much better platform to for mutual value creation than cash sponsorship.
Let’s return to our T-shirts example and let’s assume that you plan to cover the purchase of those T-shirts through sponsorship. You can either (a) seek a cash sponsor for $1,000 or (b) look for a sponsor willing to provide the items directly. And who better placed to do that than a T-shirt manufacturer.
By asking a manufacturer of the goods you need to provide the items as part of an in-kind sponsorship, you are achieving two things at once:
- Getting the items you need at a much lower actual cost to the manufacturer. The manufacturer will likely not think much of the forfeited profit and would be happier to provide the items at cost rather than putting up the cash equivalent.
- Giving the sponsor a natural, guaranteed activation channel for his sponsorship. After all, if you ask Adidas to provide you T-shirts for your race, they will know their product will be getting straight into the hands of their potential customers. Which is a much better than any promise of a logo placement or race bag leaflet.
So, when you can, go straight to the source: make your goods provider your in-kind sponsor.
Get more for less
Another useful feature of in-kind sponsorship is that it tends to be more targeted in scope than cash sponsorship. Cash sponsorship usually ends up extending to all aspects of an event. In-kind sponsorship is often much more contained.
For instance, an agreement with a hotel partner to provide accommodation for your team in exchange for promotion or sales exclusivity, often limits your obligations to just that. Whereas a cash sponsor might require extensive branding rights across all your race materials, mentions on all your communications etc, an in-kind sponsor may be satisfied with a much more specific set of benefits than do not impinge on your ability to solicit more lucrative sponsorship with strategic partners.
Last but not least…
In-kind sponsorship is much much easier to get – for a number of reasons:
- Lots of businesses, even very large ones, prefer providing goods rather than cash. That is not only because of the reasons discussed so far. In many cases, it is more efficient, in accounting terms, to provide value in kind. Often it is also much easier to obtain approval to release goods rather than cash. And it is not unusual for cash sponsorship to fall victim to marketing and budgeting cycles.
- Lots of potential sponsors can utilise idle assets. For instance, it would be very straightforward for a hotel or municipal authority to grant use of a venue – not so much if a sponsor had to provide money for the hire of such venue at market rate from a third party.
Accounting for in-kind sponsorship
The peculiarities of in-kind sponsorship do not only touch on your potential sponsors. They also have a significant bearing on how you account for these agreements.
As mentioned earlier, in contrast to charitable donations – which themselves often come under intricate accounting rules – sponsorship is a reciprocal arrangement. It is therefore often deemed a commercial transaction, regardless of whether the benefit for the event is in cash or goods.
The exact treatment of in-kind sponsorship will likely depend on a number of factors: the legal entities participating in the transaction, the goods and services exchanged, the governing legal jurisdiction etc. It is therefore essential that you check with your accountant the appropriate accounting treatment for all sponsorship transactions before finalising any such agreement.
Did you find this post helpful? Have something to add? We’d love to hear your thoughts in the comments section below.
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