By Jane Garthson, Garthson Leadership Centre
September 8, 2009
The dilemma:
If an event is cancelled or greatly scaled back at the last minute, due to circumstances beyond our control, what do we do about our vendors and sponsors? We’ve spent the money they gave us.
Jane's Response:
Once businesses enter into a vendor or sponsor relationship with you, the monies they pay are not gifts or donation. In your case, they paid in advance for a service. Your service was delivering a potential audience or customers for them as attendees or "eyes," and in effect the monies were in trust until that happened. Of course, you needed to spend or at least commit the monies in advance to market the event, procure the space, etc., and there lies your dilemma.
I am assuming that the vendors and sponsors in this situation were also not responsible for the cancellation. If a sponsor was part of causing the cancellation, that company would share the responsibility and risk with you, and you’ll need to interpret the comments below accordingly.
If the event is completely cancelled, you are obliged to offer the money back - but you do not have to offer it back without options. Perhaps they would let you keep the money now in return for a larger booth at the next event at no additional cost. Perhaps they would leave the sponsorship monies with you for the next event along with some interim support such as a logo and link on your web site. If there is no other event scheduled, create one or use your communications vehicles such as newsletters to promote your sponsors.
Be creative
Find benefits for them that cost you little or nothing to provide. After you come up with a few ideas, sit down with each business partner and brainstorm. Always get advance agreement for any use of their name or logo, and confirmation that they would value the proposed communications.
If the event was scaled back or got very poor attendance, it will likely take more negotiation to determine what portion of their monies to refund. They know there is some risk they have to share, especially with outdoor events dependent on good weather. They are more likely to be upset with a deliberate action, such as more prominently displaying signage for sponsors who paid less, or scheduling a new and conflicting event in the trade show time slot.
Sponsorship is not a donation
Businesses that get involved with community organizations usually care about the cause, even if the deal is strictly business, and are not looking to put your organization into bankruptcy. Even with other businesses or individuals, accounts payable get negotiated when the alternative is no payment at all. Since the situation was outside your control, they will likely compromise rather than demand a full refund.
What you cannot ethically do is treat the money as a donation. The monies would have come from a marketing, communication or advertising budget, not the philanthropy fund. Some marketing manager or other staffer is on the hook for demonstrating that their marketing budget was used effectively to reach a target audience. If they cannot show such an evaluation, their work performance evaluation will suffer, and it might even cost them their job.
It seems you had no policy in advance, and I strongly recommend that your organization implement a risk management program. You should regularly review your operations, looking for areas of greatest risk or most chance of harm, and develop risk management strategies to deal with each. Events often fall into the high risk category, and the risk increases when you sign contracts, accept sponsorships or otherwise enter into business dealings. Ask conference planners these days what their contracts look like with hotels, and the penalties for failing to meet the minimum "room block"!
Events do not just pose a financial risk. Your reputation is now on the line, and not just with these vendors and sponsors. Businesses talk to other businesses, especially in the same local community or the same industry sector. Negotiating a fair deal is critical or next year there may be no vendors and no sponsors.
Does your organization’s Statement of Value or Principles include transparency or openness? Now would be a good time to live up to that value. Contact your sponsors and vendors without delay, and work with them to find the right solution for each.
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