Managing the Impact of Music Festival Sponsors Cancelling Participation.

Securing sponsorship revenue is an essential part of making a modern music festival financially viable. Sponsorship revenue is often considered as a key revenue stream for festival entities and often mitigates cash flow issues associated with late surges in ticket sales. What is the impact on a festival entity if a key sponsor withdraws their participation in an event.

Festival organisers invest time and effort in securing sponsorship deals with sophisticated pitch presentations that use historical data and testimonials to sell the benefits to potential corporate sponsors. Once a deal is secured the festival entity usually receives a part payment or deposit which they can use to finance costs incurred in the planning phase. Contracts specify the responsibilities and obligation s of each party in the relationship and in most cases, everything proceeds according to plan. What happens if a sponsor pulls out leaving organisers with a budgetary shortfall and the possibility of adverse publicity.

Importance of Sponsors to Music Festivals.
Sponsors have become an integral part of any sizable music festival with early financial contributions helping to finance site build infrastructure and fund curation expenses. Sponsorship revenue helps organisers to keep ticket prices for festival-goers at a manageable and affordable level, especially in a time when running costs are soaring. In addition, given that most tickets are sold in the final month before live dates many organising entities face ongoing cash flow challenges. An early boost in revenue from a participating sponsor can help ease that burden. In some instances, a sponsor may be heavily involved in the services a festival needs, like telecoms or power generation for example further reducing running costs. Sponsors also look for opportunities that help to enhance their own green credentials where they can work closely with organisers to produce an environmentally friendly and sustainable event.

Why Sponsors Pull Out.
Sponsors can pull out of a deal with a music festival for a variety of reasons which can vary from budgetary pressure to reputational risk. In a troubled world where extreme political views have penetrated many artist's social media posts organisers must tread carefully during the curation process. Whilst organisers cannot always control what an artist may say during a live performance they can at least do some due diligence by checking if a potential booking may be a liability. If an organiser insists on booking a politically controversial artist it can prompt a sponsor to pull out because they don't want the brand associated with extreme political views, sometimes called pre-emptive decoupling. In some cases, a festival organising entity may have an association with organisations involved in commercial activities perceived as environmentally damaging. Being associated with these companies can have a negative impact on a sponsor's reputation and their own commitment to sustainability. Although many large corporate brands have annual sponsorship budgets these can be impacted by commercial operations. If the brand has poor market performance and the parent company needs to cut budgets to maintain profit margins it can lead them to pull out of sponsorship deals.

Contract Implications.
When a verbal deal is made between a music festival entity and a potential sponsor it can just be the start of complex contract negotiations. Key elements that need to be agreed include payment terms, how much and when, along with the obligations of each party in the relationship. Given the sometimes-fickle nature of the music festival sector the termination terns of the contract often receive special attention from both parties. Sponsors are looking for more ‘elastic contracts’ which can potentially help protect their brand and provide specific financial reclamation procedures. The inclusion of financial reclamation clauses allows festival entities to typically claim up to 50% of total fees or 100% of production costs already sunk and comes from funds held in an escrow account. Some organisers also include further penalties to compensate them for finding a replacement sponsor. Other specific clauses can relate to a festival's breach of sustainability reporting (greenwashing) and potential reputational damage.   A reputational damage clause can be subjective and open to interpretation and can happen if it becomes apparent that a corporate sponsor is involved in nefarious activities or the organisers book an artist who has made questionable political or offensive statements, for example.

Managing Financial Implications.
Aside from the immediate financial cost of a corporate sponsor withdrawing their involvement in an event there are other penalties and cost implications for organisers. In the event of a sponsor pulling out and triggering an escrow account release the funds are usually transferred within 72 hours, however if this is disputed access may be delayed. Organisers would typically need to conduct an immediate cost audit to determine costs already sunk and supplier invoices due along with any impact of cash flow. In addition, they will need to audit all promotional content and materials to remove the withdrawing sponsor’s name and logo. If there are immediate cash flow implications organisers will need to arrange finance to fund ongoing costs which can be challenging, costly and time consuming. If a corporate sponsor is withdrawing to protect their brand, they may claim a ‘moral turpitude’ (sometimes used in US law) which can delay the settlement or release of cancelation funds.

For festival organisers planning their next event using a software management platform like Festival Pro gives them all the functionality they need manage every aspect of their event logistics. The guys who are responsible for this software have been in the front line of event management for many years and the features are built from that experience and are performance artists themselves. The Festival Pro platform is easy to use and has comprehensive features with specific modules for managing artists, contractors, venues/stages, vendors, volunteers, sponsors, guestlists, ticketing, site planning, cashless payments and contactless ordering.

Image by jp26jp via Pixaby

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