P2 POLICY REPORT FINANCE Date: February 18, 1996 TO: Vancouver City Council FROM: City Manager for Corporate Management Team SUBJECT: Sponsorship of City Activities and Facilities RECOMMENDATIONS A. THAT Council defer entering into a major City sponsorship program, pending more experience with the sponsorship initiatives currently being directed by the Park Board and the Library Board; B. THAT the City Manager report back in one year on the Park Board and Library Board experiences, on the advisability of a City sponsorship program, and on recommended program guidelines; C. THAT, in the interim, the City not actively seek sponsorship arrangements, but that any sponsorship opportunities presented to it be evaluated on an ad hoc basis against the policy considerations identified in this report and be reported individually to Council for decision. COUNCIL POLICY There is no Council policy directly applicable to sponsorship. The costs of new programs are to be offset by cost reductions or new revenues. SUMMARY Corporate sponsorship has the potential of producing a moderate amount of additional revenue to support City facilities and services. An opinion poll confirms that the public generally supports the City entering into sponsorship arrangements - but with significant reservations. The City s consultants believe that these reservations can be addressed and a successful sponsorship program managed through conservative guidelines and procedures. However, the Corporate Management Team is of the opinion that the guidelines and procedures effectively rule out the most lucrative sponsorship arrangements available to the City: exclusive supplier relationships. Noting that the Park Board and the Library Board have already initiated sponsorship programs without the restrictions recommended by our consultants, the Corporate Management Team believes that the wisest course of action at this time is to continue to monitor activity in the outside boards to see what opportunities and problems arise. BACKGROUND Sponsorship is the payment of money (or the provision of goods or services) by a business to another organization for the purpose of promoting the business name, products or services. In order to deal with real and potential budgetary problems, a number of municipalities have been looking at the corporate sponsorship of city facilities and services as a possible source of new revenue. On September 13, 1994, City Council approved a staff recommendation: THAT Council instruct staff to solicit proposals for a survey of sponsorship opportunities and a study of sponsorship policy, and that staff report back on suitable consultants and costs. On January 17, 1995, Council appointed consultants to undertake this work. PURPOSE This report summarizes the results of the consultant studies on sponsorship opportunities and policy. It recommends the next steps of a City approach to the sponsorship concept. DISCUSSION 1. Inventory of Sponsorship Opportunities The City employed Spectrum Marketing Corporation to conduct an inventory of sponsorship opportunities (on file in the City Clerk s Office). Spectrum conducted a broad review of City purchases and operations to determine where it might be possible to structure beneficial relationships through which corporations made cash or in-kind contributions in exchange for "the exclusive industry and/or product right to promote their relationship with an entity or event, over a defined period of time." The inventory is subject to a number of caveats, including the following: There is very little municipal sponsorship experience to draw upon from Vancouver or from any other cities. The marketability and value of potential sponsorship relationships is, therefore, highly speculative. The assessment includes no data from Vancouver Parks and Recreation or from the Vancouver Library, as their respective Boards decided to proceed with sponsorship independently, in advance of the rest of the City and concurrently with the research leading to this report. Sponsorship arrangements which include all City operations (regardless of the direct or indirect relationship to Council) may offer economies of scale and, therefore, greater value to all participants. Spectrum could only obtain a limited understanding of complex City operations and their applicability to sponsorship. More in-depth analysis and the process of actually structuring deals could result in a radically different inventory of opportunities and associated values. Subject to these and other cautions, Spectrum has generated a table which provides its estimates of potential cash and in-kind revenue which could flow to the City over five years from various sponsorship arrangements. This table is reproduced below: SPONSORSHIP GROSS REVENUE POTENTIAL Present Value in Thousands of Dollars Year Year Year Year Year Total Total 5-YEAR Category 1 2 3 4 5 Cash In-kind TOTAL Vehicles $500 $500 $500 $500 $500 $500 $2,000 $2,500 Computers 350 350 350 400 400 750 1,200 1,950 Oil/Gas 150 150 150 150 150 500 250 750 Financial 100 100 100 125 125 550 000 550 Serv. Credit Card 100 100 100 100 100 500 000 500 Greenways Plan 250 250 250 250 250 500 750 1,250 Insurance 100 100 100 100 100 500 000 500 Cellular/Pager 75 75 75 100 100 200 225 425 Mobile Radio 30 30 30 35 35 000 160 160 Fax/Copier 75 75 75 100 100 125 300 425 BC Hydro 100 100 100 N/A N/A 300 000 300 Film/Camera 35 35 50 50 75 245 000 245 Courier 25 25 25 30 30 000 135 135 Lighting 25 25 25 30 30 000 135 135 Paper Products 25 25 25 30 30 135 000 135 Airline 25 25 25 25 25 000 125 125 Bicycles 20 20 20 25 25 000 110 110 TOTAL 1,985 1,985 2,000 2,0502,075 4,805 5,390 10,195 Although there is no way of objectively judging the accuracy of these estimates, City staff believe that they are optimistic, particularly when constrained by potential policy. However, gross sponsorship revenues of several hundred thousand dollars a year would not be unreasonable in any case. Sponsorship revenue will be accompanied by sponsor demands for corporate recognition and for other quid pro quos. Examples of these are detailed in Appendix A for each of the sponsorship items listed in the table above. Many of these overlap with one another, and the City and the sponsors may have to make choices which further reduce revenue from that identified in the table. As well, most of the examples are dependent on "exclusive supplier" relationships. The guidelines recommended by the City s policy consultants would preclude these. 2. Public Opinion on Sponsorship of City Services The Angus Reid Group was commissioned to conduct a survey of Vancouver residents to gauge public opinion on the sponsorship issue. A random sample of 650 respondents was interviewed by telephone between May 8th and May 23rd, 1995. A sample of this size provides results which are accurate to within plus or minus 3.7 percentage points, nineteen times out of twenty. Survey highlights are as follows: In general, Vancouverites support the concept of sponsorship. The chart below compares support for sponsorship, charitable donations to the City, and advertising on City assets. In total, sixty-six percent of those interviewed support the idea of the City trying to attract sponsorship arrangements with companies. Support for sponsorship increases with familiarity with the concept and after working through some of the policy issues. The next chart compares support for sponsorship at the beginning of the survey questioning with support at the end, after respondents have given opinions on the policy issues associated with sponsorship. Overall support increases to seventy-eight percent subsequent to a relatively thorough consideration of issues. Most of this increase is in the strongly support category. Using sponsorship to fund new facilities, services, events and improvements is preferred to using it to maintain existng services. Support for sponsorship is accompanied by concerns. Fifty-five percent of those interviewed are concerned that the City may become too financially dependent on voluntary contributions from private companies and these contributions may not be stable from year to year. A larger concern is the potential danger that sponsoring firms would get preferential treatment in the awarding of contracts, the issuing of development permits or other decisions the City makes. Seventy-six percent of interviewees agreed with the identification of this possibility. The public is also concerned that City sponsorship agreements not reduce the ability of not-for-profit societies to raise money through sponsorship arrangements. Sixty-two percent of respondents believe that City sponsorship would not be acceptable if it threatened the survival of not-for-profit organizations. The community and social stature of sponsoring corporations is of considerable importance. Eighty-three percent of the respondents believe that the City should refuse to accept sponsorship from a company if there are legal, moral, or ethical concerns about the company s behaviour or the goods and services it markets. Most frequently mentioned types of companies, goods or services which respondents believe the City should avoid in sponsorships include tobacco and drugs (29%), alcohol (22%), sex-related (14%), those which abuse the environment (14%), gambling (7%), those which include some sort of shady or criminal activity (7%), anything which biases or exploits a group of people (4%), large monopolies (4%), developers and house builders (3%), and weaponry and military (3%). There is mixed opinion about the acceptability of signs and other similar material in association with sponsorship. Forty-nine percent agreed with the statement, "There is no way corporate sponsorship should be accepted if it means that signs and other material promoting private companies and their products are going to appear on public buildings, and in public parks and recreational facilities." Forty-eight percent did not agree with this statement. However, as the next two charts show, the acceptability of explicit corporate identification varies considerably with the location of that identification and with its nature. Corporate logos are acceptable everywhere except police and fire vehicles, but specific product identification is only acceptable on scoreboards and in brochures and maps (and the acceptability in the latter case is marginal at best). In all other instances, the promotion of specific products seems unacceptable. Most respondents (65%) would find it acceptable to have a sponsor attach its name to a public building, such as an arena or theatre. However, this is generally only acceptable if the sponsor contributes a high proportion (over fifty percent) of the construction costs, much higher than is typically the case for corporately sponsored buildings. Typical corporate sponsorship contributions for named buildings in the private sector (for example, GM Place and the Ford Centre) are much less than half the construction costs. Sponsor influence in planning or decision-making about the program being sponsored is generally unacceptable. Responding to detailed questioning, the only area in which a majority of respondents would accept substantive sponsor input is for special events, such as anniversary celebrations. The priority for sponsorship money is the "basics". When asked to divide up $100 of new sponsorship money among competing demands, respondents chose as their highest priority basic City health and safety services, such as police, public health, fire and garbage collection. Parks and recreation appears to finish second and cultural facilities (such as thea tres and libraries) third, ahead of special events and new buildings and other capital projects. Most people do not see sponsorship as implying firm or product endorsement by the City, but see it simply as a business deal providing the sponsoring company with an opportunity to promote itself. The majority view is that sponsorship is a good thing as long as sponsors accept restrictions on the promotion they receive. The public is generally confident that City government can set acceptable limits. Fifty-seven percent agree that "Vancouver City Council, and the people who administer Vancouver s municipal services, have the integrity and the skill to set limits the will ensure we get the benefits of sponsorship while avoiding any of the potential disadvantages." 3. Sponsorship Policy The City employed Paul Audley and Associates and C.J. Becker and Associates, with Yates, Thorne and Associates, to explore the policy implications of sponsorship. The complete Audley and Becker report is on file in the City Clerk s office. Audley and Becker reviewed literature on corporate sponsorship, conducted interviews with knowledgeable people on the sponsorship issue, looked at experience in other municipalities, solicited general public comment, and commissioned the Angus Reid survey reported above. They identified a number of policy issues and submitted a number of policy recommendations (in italics), which are summarized below. a. Definition of Sponsorship Audley and Becker discuss a number of related and frequently confused concepts, including charitable donations (philanthropy), partnership, advertising, and sponsorship. The consultants believe the City should have a consistent definition of sponsorship and therefore recommend: The City of Vancouver should adopt, for the purposes of its own policy, the following definition of sponsorship : Sponsorship is the payment of money (or the provision of goods or services) by a business to assist in the provision of City of Vancouver services or the develop- ment of facilities in return for the promotion of the name, products or services of the sponsor. b. Management of Sponsorship Activities The consultants note that the City s financial need for sponsorships is not pressing. There is a high level of satisfaction with the City s existing level of service (the Angus Reid survey found eighty-five percent of the respondents "very satisfied" or "somewhat satisfied" with the City s services). There is no emerging tax rebellion (eighty-six percent of Reid s interviewees indicated they received good value overall for their tax dollars). Vancouver s taxes are lower than most major Canadian cities and increasing at a lower annual rate, and the City continues to maintain a triple-A credit rating. The absence of an impending fiscal crisis allows the City to approach sponsorship cautiously and with deliberation. The amount which the City could raise through sponsorship is highly uncertain. While corporate sponsorship is growing as a marketing tool, the City s ability to attract sponsorship dollars is unproved. Annual sponsorship revenues at this time are largely a matter of conjecture, but based on San Diego s experience, $500,000 in the first year would not be an unreasonable expectation. The consultants believe it is worth a small expenditure of internal resources to make sure the City gets it right. The consultants believe there should be someone employed within the City administration to work with a commissioned sponsorship broker. The City staff resource would communicate the City s sponsorship objectives to the broker, administer a sponsorship approval process, ensure that there was internal coordination among sponsorship initiatives, and ensure that financial benefit was maximized. The consultants recommend: The City of Vancouver should use both an internal Sponsor- ship Coordinator and a broker or brokers to raise sponsorship funds. The responsibilities of the Sponsorship Coordinator would include communicating the City s objectives to the broker and potential sponsors and administering the sponsorship approval process. c. Sense of Public "Ownership" of Municipal Services and Willingness to Fund through Taxation Audley and Becker note that there is a possibility that, as an increasing number of public activities are sponsored by private companies, the public might take less "ownership" of these activities. There may be a reduced sense of public responsibility to the community and a lesser willingness to fund these services through tax dollars. It will be important to manage the type and scale of sponsorship that occurs and to limit the recognition that sponsors receive in order to ensure that the public perception of who pays and who is responsible for services is not distorted. d. Potential for Preferential Treatment of Sponsors Many believe that the concept of sponsorship will challenge the integrity of government, that those companies providing sponsorships will demand, or be perceived to demand, preferential treatment. It is essential that government remain objective and treat all its constituents fairly and without bias. Therefore the consultants recommend: The City's guidelines for sponsorship should ensure that it does not become involved in situations in which sponsors would be given, or be perceived to be given, preferential treatment. Guidelines should include the following: The City should not enter into sponsorship agreements with: i) a firm whose product or service presents an obvious conflict of interest with the mandate and/or objectives of the City; ii) a firm which is under investigation for or has been charged with the violation of any law; iii) a firm awaiting approval from City Council on a business project; or iv) a firm which operates in a municipally-regulated industry (for example, cab companies). In addition, the City should not enter into a supplier contract with any firm within a period of at least six months after signing a sponsorship agreement with that firm. e. Public and Private Roles The consultants note that City government has a special role to play in serving the public interest and in making community decisions without prejudice to particular private interests. There is a concern that with the acceptance of sponsorship revenue, elected officials will become accountable not exclusively to the public, but may also be influenced to make decisions which serve the interests of corporate sponsors. On the other hand, the consultants can envision situations where public and corporate objectives coincide and where all interests are well-served by a sponsorship relationship. Audley and Becker recommend: The City of Vancouver should recognize that the motivations of sponsors in entering into sponsorship arrangements with the City may be primarily philanthropic, or primarily marketing-oriented, with varying combinations of the two. If the City actively seeks private sponsorship of municipal services, it should establish a set of guidelines and a process of evaluating sponsorships which will ensure that the public interest is protected. f. Dependence on Sponsorship Revenue Sponsorship can vary with the business cycle and with the marketing objectives of particular firms. Therefore, it cannot be considered to be a stable source of revenue upon which the City should depend to fund regular programs. There is also a fear that the differential ability to generate sponsorship revenue could bias the City budgeting process toward particular programs, which would then become vulnerable when sponsorship whims shifted. In order to avoid any program or service becoming dependent on sponsorship for operating revenue, the consultants recommend: The City should limit acceptance of sponsorship to capital projects and to special projects and events. g. Sponsor Influence Over Service Objectives Sponsors frequently demand involvement in program design and service delivery in order to maximize their marketing objectives. This could conflict with the City s need to protect public interests and maximize public objectives. Respondents to the public opinion survey were generally of the belief that the City should retain control of program planning and decision-making. Audley and Becker recommend: With regard to sponsor input, the City of Vancouver should establish guidelines to ensure the integrity of municipal programs and services is protected. Program planning and delivery should remain in the control of the City, and decisions should continue to be made exclusively on public service objectives. Responsibility for ensuring compliance with the guidelines for municipal sponsorship and coordination of sponsorship activity should be assigned to a Sponsorship Coordinator. The Coordinator should consult with appropriate department heads and other municipal staff to ensure that sponsorship activity is consistent with and complementary to the objectives of the City. h. Sponsor Recognition There is a general concern with the commercialization of public property through the inclusion of corporate identifiers on signage or in brochures. However, the concern varies greatly with the situation. Logos are generally accepted. Advertising of specific products is generally not desired. Any sort of corporate identification in association with public safety services is particularly frowned upon. The public is generally not opposed to the naming of public buildings to recognize sponsors but has a high expectation of sponsor participation to earn this recognition. The consultants recommend: Signs for recognition of sponsors should be designed so that they will not detract from the physical attributes of a location. The City should evaluate on a case-by-case basis situations which involve naming a public building after a private corporation or individual. Decisions regarding the naming of a public building after a private corporation or individual in return for a capital contribution should require the approval of City Council. i. Implication of City Approval or Endorsement While most people do not feel that acceptance of a sponsorship arrangement implies City endorsement of a particular firm or product, a significant minority read an approval implication into sponsorships. Clearly some sponsors will wish to trade on exclusive-supplier relationships and other similar forms of sponsorship to suggest that the City has given its coveted seal of approval. This is problematic to a government which must exhibit unbiased judgment toward all resident firms. The consultants recommend: In its contractual arrangements with sponsors the City should include provisions stating that the agreement does not imply endorsement of the company or its products and services and should prohibit sponsors from making statements which suggest that the corporation or its products and services are endorsed by the City. j. Social Acceptability of Sponsoring Firms The public generally believes that the City should not accept sponsorship revenue from companies with behaviours which raise legal, ethical or moral concerns. There is also a question as to whether the City should participate in the promotion of products (for example, alcohol and tobacco) which are perceived to frustrate the achievement of public objectives (for example, health, safety and the environment). Audley and Becker recommend: The City should not enter into sponsorship agreements with a firm whose products or activities have been deemed hazardous to individual health or to the environment. k. Effect on not-for-profit organizations Many not-for-profit organizations, particularly in the arts and sports sectors, seek sponsorship funds for part of their operating budgets and to help finance capital improvements. While sponsor revenue is still a small portion of most organizations budgets (Gaming is by far the largest source of outside revenue.), there is a belief that many organizations will place an increasing reliance on sponsorship funds in the future. There is some concern that the entry of the City into the sponsorship market will affect the ability of not-for-profits to make sponsorship deals, though the magnitude and direction of the City s impact is highly uncertain and largely open to uninformed debate. The consultants recommend: When entering into sponsorship agreements, the City should consider the effect on the not-for-profit sector and in particular those organizations which the City funds. The Sponsorship Coordinator, in consultation with other City staff, should monitor the effect on the not-for-profit sector on an on-going basis. If the City proceeds to seek expanded sponsorship revenue, the impact on the not-for-profit sector should be reviewed before the end of the first year and the findings of this review be taken to City Council. l. Caution in implementation The consultants conclude that, based on their analysis, "...there is no compelling reason not to proceed to seek increased sponsorship support and there are significant potential advantages." However, they also believe that the potential issues and problems are of such significance that the City should proceed with caution. Audley and Becker recommend: The City should proceed to seek expanded corporate sponsorship revenue, but before doing so should establish clear written guidelines concerning the purposes for which revenues are sought, the process through which sponsorships are approved and the terms and conditions on which individual sponsors and sponsorships are accepted. They also recommend that the City adopt a "statement of principle" for sponsorship as follows: The purpose of the corporate sponsorship program of the City of Vancouver is to generate revenue-producing and cost-saving agreements and contributions from the private sector which would supplement or improve the City s services to the public. As the City of Vancouver is a government organization with a special responsibility to the public and to public process, the consultants emphasize that the process of awarding sponsorships be transparent and open to public scrutiny. They recommend: There should be on file in the office of the Sponsorship Coordinator a publicly available list of all sponsorship agreements entered into. The terms and conditions of each specific agreement should be available on request. Sponsorships should be awarded through a public process after a thorough and responsible evaluation. The consultants recommend: The advice of City Council should be sought regarding whether all sponsorship arrangements should be brought to Council for approval. At a minimum, sponsorship arrangements being considered should normally be brought to the attention of City Council at least four weeks in advance of any sponsorship arrangements being accepted. Councillors should have the opportunity to express concerns and, if Council wishes, to require that any proposed sponsorship be brought before the full Council for approval. Owing to the high level of uncertainty and high level of potential policy impact, the City s sponsorship program should be thoroughly evaluated after there has been sufficient experience with real sponsorship arrangements. Audley and Becker recommend: At the end of a three-year period a review of the impact of City involvement should be conducted which examines the revenues raised, the impact on municipal services, the at-titudes of the public and the impact on non-governmental organizations. CONCLUSION The annual City budget is in excess of one-half billion dollars. At most, the City could expect to take in about two-million dollars of additional annual revenue through sponsorship arrangements, and this figure appears to be highly optimistic. After Spectrum s estimates of annual revenue are passed through Audley and Becker s policy filter, a more reasonable estimate of annual sponsorship revenue might be between $500,000 and $1 million. In the grand scheme of things, this is not a big number and is clearly not a make or break proposition for the City. Still, even $500,000 could assist community service programs which might not be funded through the normal tax-supported revenue budget, and the public expects the City to be innovative in its use of non-taxation revenue sources. It is clearly worth going after sponsorship money if it can be done in a responsible way which satisfies public policy concerns. The Audley and Becker analysis suggests that this is possible, and the consultants make a number of recommendations which they believe ensure that the public interest is served. The recommendations are conservative, and they probably preclude many of the sponsorship arrangements identified by Spectrum Marketing. For example, the Audley and Becker recommendations dealing with preferential treatment and endorsement would seem to rule out "exclusive supplier" (or "purveyor to the City") arrangements, which play heavily in the Spectrum opportunity analysis. This is a major issue, particularly given that the Park Board and Library Board have already launched sponsorship campaigns without this restriction and expect most of their their sponsorship revenue to be derived from such arrangements. The Corporate Management Team is not certain that a sponsorship program is worth pursuing in any concerted way without the major dollars which only "exclusive supplier" and other similar arrangements can provide. The Corporate Management Team is also not convinced that the City s sponsorship guidelines need be as restrictive as Audley and Becker suggest. However, we have very little real experience with which to conclude. We do note that both the Library and Park Board have embarked on ambitious sponsorship inititiatives and are soliciting sponsorship arrangements which fall outside the policy guidelines recommended by Audley and Becker. The Corporate Management Team believes that it would be wise for the City to assess the real experience of the Park and Library Boards before establishing a policy for the City as a whole. There should be sufficient experience in about a year s time to draw some reasonable conclusions. In the interim, the City should take a conservative posture relative to sponsorship opportunities. It should not actively solicit sponsorships, but should respond to proposals, guided by the policy considerations raised in this report. * * *