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.
* * *