I recently had a long talk with Eli Bremer on sponsorships and on his vision for Olympic sports. He explained me the intricacies of direct sales sponsorships.
Eli Bremer, a modern penthathlon Olympian, runs Shaklee's Pure Performance sponsorship program that supports US Olympic athletes. He assists with athlete selection, coordinates speaking engagements and appearances, and continues to develop the program.
Of all sponsorship models, the direct sales avenue can be one of the most lucrative for athletes. For some reasons however, I’ve always been cautious and even a bit suspicious when it comes to direct sales sponsorships. Quite understandably, given the industry's history of questionable practices from some brands that often seems like a pyramid scheme. Obviously no athlete wants to be involved in this.
Here’s what I wanted to know about direct sale sponsorships:
How do direct sales works?
Direct selling is when an individual sells a product on behalf of a company as an independent sales person. Unlike someone who is hired by the corporation, a person who engages in direct selling is technically a business owner who runs their own business. In most cases, people involved in direct selling try to sell to their friends, family, and acquaintances.
What makes direct selling potentially lucrative is the networking effect that it embraces. If you recruit other people into your direct selling organization or downline, you receive a commission on the sales they make as well as your own.
What makes it a potentially valuable model for athletes?
Athletes have instant credibility for a variety of products. That’s why companies pay athletes to endorse their products. While most people who embark on a direct selling career struggle to gain credibility as a salesperson, athletes have it from the beginning.
Furthermore, athletes have people who want to financially support them. When an athlete is training for the Olympics, many people feel compelled to offer financial support. If an athlete asks you to purchase a product for which the athlete is credible (for instance a supplement line the athlete actually uses), the customer is likely to find the prospect relevant and the idea of supporting the athlete financially a positive proposition.
What are the economics of direct sales as opposed to a fixed sponsorship?
Companies pay athletes to increase the sales. It’s really that simple. So when a company pays an athlete to endorse a product, they make the decision based on an estimate of increased sales versus the cost of paying the athlete. For instance, if a company pays an athlete $5,000 to endorse a product and then another $20,000 to market that endorsement (known as activation), the company is betting that the endorsement yields at least $25,000 back to the company (note that the company may need to sell $50-100,000 worth of product to make this a break-even proposition). This model is the traditional sponsorship model.
In a direct selling position, an athlete is also paid to increase sales for the company. But rather than the company activating the sponsorship, the athlete does that with his or her fanbase. The corporation agrees to pay the athlete a percentage of sales (this is set up in a contract). Typically, commissions on sales will be between 20-40% depending on the company and volume of sales. So while in a traditional setting, a company would pay an athlete a $5,000 sponsorship to move $50-100,000 of product, an athlete could achieve $10,000-30,000 in a direct selling position. Realize though that this money is not free to the athlete with no additional work. The athlete needs to take the role of activation and promote to their fanbase.
What are the risks for the athlete?
If an athlete engages with a direct selling company, they will have a risk due to historical stigmas associated with this industry. Over the years, there have been bad actors in the industry who have set up enterprises derogatorily known as “pyramid schemes”. As a result, the industry received a bad reputation as a whole for years. With that said, many of the companies who engage in direct selling today are well-run businesses that strive to provide quality goods to the consumer while rewarding individuals for selling them.
The most valuable asset an athlete has is their reputation. Before engaging in a direct selling company, do your research and ensure you are partnering with a reputable company that sells products you actually believe in. I have seen many athletes engage with disreputable companies or attempt to sell products they don't use or don't believe in, and it detracts from the athlete’s reputation and marketability all around.
When it comes to categories, athletes seem to get confused. What are the common misconceptions about them?
Categories are sections of the market that do not interfere with each other in their pursuit of customers. For instance, an automobile company does not compete with a clothing company for market share. Typically athletes can sign multiple sponsors in multiple categories so long as the sponsors are non-competing. It is important to note that an athlete has different values to different categories, and the categories range in value as well. Many athletes fail to recognize the difference in values between the categories. While you may be worth $5,000 to a sponsor in one category, you may have a $500 value in another category. The sponsor evaluates you based on the value to their company in their category, so changing your sponsorship approach based on the size of the category and your value to that particular category is key to maximizing your total sponsorship potential.
How do you avoid signing conflicting sponsorships within the same categories?
Athletes should communicate with their sponsors and ask what category they fall into. Sponsors should be eager to share with their athletes the market segment they address and what constitutes a conflicting sponsor. Also consider sharing your sponsor portfolio with each of your sponsors and make sure they do not see any conflict.
As athletes, we tend to expect something from nothing. Passively get paid for endorsing a sponsor for example. If you fall in this category, the whole direct sales thing is not for you.
On the other hand, if you’re willing to put on the work and if you have strong ties within your community or a good social reach online, direct sales sponsorships could definitely become a very profitable endeavour.