Corporate sponsorship is a £1bn business in the UK. It can take a variety of forms - everything from sports and charity events to radio and TV now attract sponsorship from businesses. Everyone is aware of the major deals, such as Marlboro's connection with Formula One or Benson & Hedges' link with cricket. Carling has sponsored the football Premiership for so long that the two now seem inextricably linked.

And with the recent relaxation of regulations by the Independent Television Commission (ITC), TV sponsorship - a relatively new form of advertising - looks set to grow rapidly. It is already worth in the region of £100m a year in the UK, and many view it as a more effective means of advertising than commercial breaks.

Out of the £100m a year TV sponsorship market, ITV claims the biggest share, taking about 60-65% of the total revenue. Andy Thompson, head of sponsorship, Carlton TV, says it is down to the exposure chosen programmes receive, so understandably advertisers are clamouring to sponsor shows such as Who Wants to be a Millionaire, with its proven popularity.

£100m may sound high, but according to Thompson, it constitutes a very small percentage of the total TV advertising revenue - about 2-3%. 'The £100m a year is just for television sponsorship. £2bn is what all advertising air-time is worth, so it is the commercial breaks between programmes, the 30-second TV spots - and that is the vast majority of our business - that is 98% of our income. I am not talking here about selling programmes worldwide or merchandising or licensing and all that side of our business - I am just talking about what most people think of when they think about a television commercial.'

Compared with the £700m Channel 4 makes from advertising revenue, the £18m for sponsor-ship deals seems fairly insignificant. Not true, according to David Charlsworth, head of sponsorship at Channel 4. 'Being a company that works on fairly small margins and bearing in mind that all our money from Channel 4 goes back into making programmes, there are no profits to be shared with shareholders because we don't have any. Therefore that is a lot of money to make a lot of programmes - that is fantastic. So the incremental money is hugely important in terms of what you can do with it and it makes the difference between us having a very average year and a very good year.'

And sponsorship is a relatively new concept - it has only been around for the last 10 or 12 years but it is growing at a rate of 20-25% year on year. Deals can range from £15,000 to £10m. Mark White, deputy sales director at Channel 5, says: 'It is dependent on how long the programme is on for but more importantly, when it is scheduled and the type of programme it is - it is more related to audience than anything.'

Granada's Martin Lowde, director of sponsor-ship and licensing, says there is no hard and fast rule for determining how much of the budget a company might allocate. 'It depends on the individual company, and every single deal is completely different. For some it is 100% of the marketing budget and for some it is just 5% - it depends on the brands.'

The benefits of sponsorship for both sides are clear, as Lowde describes: 'The primary benefit for the advertisers is marketing their products, brands or services, and it is communicating them to the general public at large. In terms of the benefit to us, it is additional revenue against the program investment that we make. We make an awful lot of programmes at ITV and spend £750m a year on programming, and we look for ways of offsetting that investment by finding advertisers to fund the programme.'

There is not much difference between the cost of spot advertising and that of sponsorship, and Charlsworth claims it has as much of an impact on sales as straightforward advertising. 'Most advertising nowadays is what we call theme rather than scheme anyway - it is image building or awareness. And sponsorship is pretty good at covering both if it goes on long enough and it is on a big enough property. So it is starting to have a very similar effect and people are starting to track it as such. The ITC has just relaxed its rules to allow you to do basic things like show your product in sponsorship credits, which you weren't able to do up until fairly recently, so that has been a big, important step for advertisers.'

Thompson believes that sponsorship done well is in fact more effective than normal commercial breaks. 'Right now [it] is a very effective tool. You can make a brand very famous, very quickly through sponsoring programmes. If you consider that kind of power - if they had just placed adverts in and around the commercial break around that programme, you would not remember them as well. But because they have sponsored an important programme, you can imagine how effective that is for a sponsor trying to drive their business.'

He continues: 'You are buying an association with a programme to change or create an image and a feeling for the brand. But it goes further than simple awareness - when you watch Coronation Street and Cadbury's or you watch The Bill and Npower, they are intrinsically linked together now. To make your advertising do that can take a long time. They have got a very high awareness.'

One of Channel 4's best known sponsors is Nestlé, whose brand Nescafé accompanies the American comedy Friends. 'In a nutshell, Friends is a perfect fit for the brand and it reaches more of our target audience in a very cost-effective manner,' says Ainslie Cheung, senior press and PR officer for Nestlé UK. The campaign has been successful in creating greater brand awareness among 16-24 year-olds, so much so that Nescafé has renewed its £3m sponsorship of the programme for 2001.

According to Lowde, the success of sponsor-ship is proven. 'It has a very significant impact on sales and we have a number of case studies as well that show that. Granada uses tracking studies to ascertain the effectiveness of each deal for the client.'

TV sponsorship can take many forms, so advertisers have a vast array of options to choose from and the length of contracts will depend on these. They include series, themed evenings or weekends and sports events. One option is 'showcasing', such as Rennie's sponsorship of Christmas programmes, Toyota's of New Year programmes and Direct Line's involvement with Movie Premiers on ITV. 'The ITC code only allows you to sponsor a substantive programme strand so yes, traditionally it is a series,' Charlsworth says. 'Sometimes it can be passed for a series but it is something that makes sense to the viewer as a unit on its own.'

Deals are arranged in a number of ways. Interested companies can approach a TV channel, but often the channels will go out and pitch a programme to various organisations. Thompson says 'there will be some programmes where we are in the luxurious position of being able to have more than one interested party, therefore we can effectively go to the highest bid. But the truth is, that is relatively rare - we would tend to do that on major properties such as sports events like a World Cup, Euro 2000, Rugby World Cup or Who Wants to be a Millionaire? '

Sponsors for relative newcomer, Channel 5, include new media company Shopsmart.com, for movies, SoccerNet, for football and Auto Windscreens for the weather. According to White, it doesn't just come down to which company has the deepest pockets. 'There are examples where we haven't chosen people despite them being willing to spend the most money, because we just didn't think it was the best association for us. So we may choose somebody who is paying slightly less money but might have a bigger overall perspective on the sponsorship.'

Thus the final decision as to which company sponsors which programme does not necessarily come down to the highest bidder. Achieving a match of values between the programme and sponsor is crucial, and will determine a campaign's success. The Nescafé agreement to sponsor Friends was negotiated by Phil Cresswell at Universal McCann. He says that 'successful and long-term associations such as the relationship between Nescafé and Friends are the real Holy Grail of the sponsorship market'.

Another of Channel 4's partners is Stepstone, which sponsors Sport on Four. The latter may seem like an unusual marriage, but Charlsworth believes it makes sense. 'The whole brief that we were given is that finding a new job is all about being extremely competitive, positive-minded and energetic, and that is why we wanted to link it with sport - it was by far the best thing. And the whole point is that credits bring these things out. It is not a question of in your head do you think that fits - it is what you see on the screen - whether that works or it doesn't is what is important.'

He continues: 'There are some very obvious fits, like Wella originally sponsored Friends, or Frasier and Ericsson, and actually they were both awful. The creative didn't look right. Things like Cadbury have nothing to do with Coronation Street, but you do understand what they are trying to do when you watch it. So that is the skill in all of this.'

Sponsorship can be a very effective means of increasing brand awareness and sales, but it is not without its problems - for the sponsors, television channels and the viewers. 'There are enormous problems - for instance if the schedule changes,' David Charlsworth points out. 'It often does, and we have to reserve the right to move our schedule around because of the competition. The sponsor attached to a programme can feel pretty miffed that we have moved the schedule, but we have to do it anyway. We can't have sponsors affecting the schedule, otherwise you would be seeing things at times that suit them and not at times that suit you.'

He continues: 'It is not a question of complaints, it is a question of people getting pissed off - you know, we decide to move something for very good reasons in terms of getting a competitive audience and sponsors feel like they should have an input into that decision. Unfortunately they can't, so that causes an enormous rumpus normally.'

Other issues arise when programmes contain material the sponsors were not expecting. One example of this was when Becks, the beer company, decided to sponsor Queer as Folk on Channel 4, 'which is probably the bravest sponsorship anyone has ever done - and there were complaints from Germany. The actual owners of the brand, rather than Scottish and Newcastle, took offence to it and pulled it. And that caused all sorts of problems and also offended the entire gay community, so these things go a lot wider than you might think.'

And the challenges don't stop there. Charlsworth describes the time when Countdown was accused of cheating, 'which is a bit like having your granny accused of selling crack. That was crazy because they weren't, and suddenly we had the sponsors, Seven Seas, jumping up and down saying we were bringing them into disrepute. Murphy's Law really is applicable. It is not for the faint-hearted, so many things can change and it is highly out of your control.'

Amusingly, as far as problems with sponsor-ship go, Tony Bilsborough, spokesman for Cadbury, cites 'the public perception that we have some control over the scripts or the characters' as the main concern. 'There is a perception that if there is a character or scene that is deemed unsuitable that somehow Cadbury can knock on Granada's door and insist that changes are made . . . we have absolutely no control over the editorial direction of the programme and nor would we wish to. It would be totally wrong for us to dictate how Coronation Street went.'

A great deal of thought should also be put into what the credits will be. Sponsors would do well to bear in mind that programmes such as soap operas have an extremely loyal following who would actually take offence to an ill thought-out credit tacked on to their favourite 30 minutes of television. Any offence caused could result in the sponsorship backfiring.

And then there is the boredom factor. Viewers will get bored if they are subjected to the same predictable credit every time they switch on the box. It is therefore a good idea to have a variety of credits that can be rotated - if they are done well, this can become as interesting to the viewer as the programme itself.

But as Lowde points out: 'There will always be some people who don't like certain forms of advertising, but I think, in general, sponsorship is a liked form of advertising. People think it is supporting their programmes and the money is perceived as going into their favourite programmes, so it is a philanthropic activity in the eyes of the customers.'

Despite issues such as these, it seems the only way is up for the sponsorship industry. 'It has grown for the last five or six years and it is set to carry on growing, though not at the same rate,' says Charlsworth. 'It is definitely slowing down, not because that is bad, but because it has been growing at such a frenetic rate over the last four or five years.'

Although it is too early to say, those in the industry believe that the ITC's recent relaxation of the rules governing sponsor-ship will also lead to more interest from potential advertisers, because they can now show their brand in the credits.

Thompson believes that sponsorship will be the only sensible option in the future. 'Over the next few years as there become more and more television channels, people will just watch programmes rather than channels, and it is going to be more important to have your advertisement or your sponsor-ship around a particular programme. You will be chasing an audience, so it makes sense.'

Perhaps the most famous deal to date is Cadbury's sponsorship of the 40-year old ITV soap opera, Coronation Street, which is aired several times a week at peak times. Cadbury chose sponsorship over advertising because, as Tony Bilsborough, spokesman for Cadbury, says, 'it is very cost effective in terms of airtime alone, but more crucially, it links you with a programme with which your key consumers will have a great deal of empathy. So it is important that you don't just pick any programme or the cheapest or the most popular or whatever, but that you pick one that is right for your brand. Certainly we thought long and hard about this and we chose Coronation Street because it was popular, but also because it matched our brand'.

The company believes that the Coronation Street audience is a very broad one, similar to Cadbury's target audience. Thus the selection of programme to go with a brand is extremely important - and for Cadbury, it has paid off. Bilsborough claims that the campaign has had a direct impact on sales: 'In terms of awareness, I think something like more than 90% of the population are aware of the link between Cadbury and Coronation Street, which is far and away the most successful sponsorship in TV history. But crucially, not only are they aware, but we can show that regular viewers of Coronation Street have actually increased their consumption of Cadbury's chocolate since the sponsorship, and that is the bottom line.'

He claims Cadbury is doing research all the time, constantly monitoring and tracking audiences and consumer groups. The outcome? 'People are eating more chocolate than ever before,' says Bilsborough, 'but it is difficult to say whether that is attributable to the TV sponsorship or just the rising consumption of chocolate as a whole. But certainly it has been a successful sponsorship for us and we have renewed the contract three times.'

Because of the magnitude of the deal, it is the most lucrative in ITV's portfolio. Bilsborough explains that with all the promotion and production costs, it comes to around £10m a year. 'There is a specific figure that we pay to Granada TV but as far as the total package is concerned it comes to about £10m.'

This may seem like a huge sum - and it is - but it constitutes a large portion of Cadbury's total marketing budget. Bilsborough believes this is money well spent, since it is not just the master brand that is receiving airtime but, since the relaxation of regulations, many of their individual brands. The deal is now in its fifth year, and Cadbury has no plans to terminate the contract.