IEG Post Raises a Big Question About Our Industry
Being a powerhouse sponsorship consultant provides its obvious advantages when it comes to publishing content on the industry. Quite simply it gives IEG a great opportunity to provide cutting edge real-time insights to the rest of the industry, however therein lies the rub also - and a responsibility. There's an inherent conflict that must be treated delicately and with complete transparency. Today's IEG post is an example of why Mike noted last week, there is an inherent conflict of interest to having the same consulting company dictating every facet of the sponsorship paradigm - from publishing and events to consulting and sales.
In today's IEG blog "Is A Sponsorship Sales Agency Working Entirely On Commission A Good Idea?," Jim Andrews questions whether it is a good idea to hire entirely commission-based agencies for what IEG calls "low hanging fruit" municipal deals, using Indianapolis' selection this past July of smaller firm, Third Street, on commission as an example.
The piece, for which it should be noted may provide a perfectly sound thesis at its core, goes on to say "The downside for cities and others choosing the no-cost [up front] route is that it most likely rules out working with a larger agency with more experience, as established sponsorship firms traditionally do not work on a commission-only basis unless the property is of such a stature that significant sales are almost guaranteed. Most municipal bodies and smaller properties won’t fall in that category for a large firm with overhead and other costs to consider."
If significant sales are almost guaranteed, who really needs a statured or un-statured agency for that matter? But I digress...
The point is, what the post does not mention is that IEG, according to a story last July in the Indianapolis Business Journal, was one of those "larger agencies with more experience... established sponsorship firms" that subsequently lost the bid to Third Street. Here is IBJ's full article from July 23rd:
City picks Third Street to sell sponsorships
Thu. July 23 - 2009
Riya V. Anandwala
IBJ staff
Indianapolis officials have picked locally based marketing firm Third Street to raise money by selling sponsorships, advertising and naming rights for city-owned properties.
Third Street was one of 15 local or out-of-state firms that responded to a city request for information issued in April. The cash-strapped city hopes to raise $500,000 a year after the sponsorship program launches this fall.
Third Street was formed early this year. Its president is Sean Smith, the former director of marketing at Chicago's WXRT-FM 93.1, where he established a reputation for building non-traditional revenue streams. One campaign, called "The 93 Days of Summer," created a brand around events the station helped stage during warm-weather months.
Smith said Third Street will solicit input from Indianapolis residents before nailing down its sponsorship strategy for the city.
"There are literally 1,000 ideas," Smith said. "But our very first step would be engaging citizens of Indianapolis and getting their feedback on what they feel."
City officials declined to comment prior to finalizing the deal tomorrow. Firms that competed for the work included local agencies MZD Advertising and Hirons & Co. Chicago-based sponsorship powerhouse IEG was among the out-of-town bidders.
Details on the Third Street contract were not immediately available. But in its proposal, Third Street said the city would face no upfront costs. The agency would take compensation in form of commissions and trades depending on individual deals it reaches. Third Street said it even would consider receiving some compensation in the form of municipal bonds and free rounds of golf at city courses.
In the 10-page proposal Third Street submitted to the city, the company wrote: "When the words 'city sponsorship' are mentioned, the immediate instinct of most people is to think about plastering a corporate logo on the side of a building. That is not how Third Street thinks."
Specific ideas in the proposal include:
Smith and the company's other two principals - David Jones and Andrew Thompson - all are Indiana University graduates. After working in Chicago for more than a dozen years, the trio decided to return to Indiana and start their business here. The name of the business comes from the Bloomington street where they first met.
Even with the economy in recession, Smith is confident sponsors will jump aboard.
Perhaps this is all a misunderstanding, perhaps the IBJ article is incorrect or perhaps all that is needed, if IEG did as the IBJ article suggests, respond to the RFP is a simple disclaimer, but given the critique of a small firm pitch strategy it seems like a good idea to expect something indicating that IEG was one of those more experienced firms "ruled out" in favor of the commission-based arrangement the post critiques (which smaller firms may use to compete with IEG). The kind of more experienced firms that charge up-front retainers and might be more risky for municipalities.
Is there a chinese firewall between content and consulting at IEG? Perhaps, but whether this is intentional or not, it's something that everyone in our industry should be aware of to a fault and completely transparent with. That is not the only area of potential conflict - the existence of which of course is not necessarily the fault of IEG, but should still be considered carefully. What about inclusion in content (i.e. IEGSR) and sourcebook listings? Content and conference attendance? Content and consulting clients? Consulting and conference speaking? As the trend-setter and "worldwide authority," these are important issues to carefully consider. Our industry's standards and norms should never be reduced to pay-for-play or colored by undisclosed conflicts.
As today's example illustrates, there is a natural conflict to having the same company control all facets of our industry. That's just the way it is - for better and worse. We're not saying it can't be done, but there should be some pretty clear new ground rules.
Editor's Note: The following response to this post was issued today. Feel free to provide your thoughts on the issue in comments:
Addressing An Oversight In My Last Post
Posted: 10/14/2009 8:37:17 AM by Jim Andrews | with 0 comments
Some of you have called me out regarding my post yesterday regarding the hiring of a sponsorship agency by the City of Indianapolis. The issue is that I did not inform readers that my colleagues in the IEG Sponsorship Consulting group were among the firms that responded to the city’s RFP.
That is fair criticism. I was operating under the guidelines that the IEG editorial team has lived by for years and years, i.e., our reporting and commenting is independent from and not influenced by the consulting, valuation and ROI work done by the folks in the other offices. I should not have assumed that everyone who reads this blog is aware of the strict guidelines under which we operate, and thus should have included a “full disclosure” note to provide transparency.
This provides me with an opportunity to inform you that the editorial team at IEG takes our obligation to be fair and unbiased very seriously. While it begins with a bedrock ethical commitment, it’s also just good business. How many of you would continue to subscribe to IEG Sponsorship Report, attend our annual conference or even read this blog, if we were just mouthpieces for our colleagues or shills for their clients? Not many, I would imagine.
Do we sometimes write articles about IEG Sponsorship Consulting clients? Yes, when they have done something worth sharing with the industry. Do we publish insights from our consulting colleagues when they have something meaningful to share? Yes. Those are the same standards we apply when we write about other company’s clients, or quote or profile their executives, which we do often.
Thus, my post yesterday had nothing to do with “sour grapes” because our consulting group didn’t win business from the City of Indianapolis. (As long as we’re disclosing things, I should note that IEG Sponsorship Consulting does not sell sponsorship and was not seeking to do so for the city.) It was, and is, a legitimate question about the choice properties might have to make in choosing to work with a sponsorship sales agency. It was a question the deal would have prompted me to ask regardless of who was involved. I certainly was not suggesting by any means that the city made the wrong choice, and as someone who wants to see sponsorship succeed, wherever and whenever, I hope that the city and Third Street Partners are wildly successful.