For website owners, if there is an area that can be exploited to make money, it is hard to see websites not look to take advantage. This is exactly what has happened with leasing subdomains and subfolder of websites, to third party companies.
In summary, leasing a subdomain/subfolder is a fairly new concept that Google has only recently brought light to the attention. The website owner points their subdomain/subfolder to a third party company’s servers, allowing them to use the URL to promote something of interest to them.
 
This, ultimately, is appealing to website owners because:

• You will be leasing/generating revenue off of a subdomain/subfolder that wasn’t there before – money for no effort?
• It can actually help the SEO (we’ll come back to this one…)

 
To third party companies, it is very appealing to rent out a subdomain or a subfolder because:

• The cost of creating a brand new website from scratch wouldn’t often be more expensive than to simply lease out an already existing website’s subdomain/subfolder
• You can associate your content with the domain brand
• It is an effective way to get good traffic/SEO without much effort

 
Now, what is interesting is that Google has finally picked up on this ‘loophole’ that is being used by many of the biggest websites out there, typically with coupons (such as coupons.cnn.com etc.). What they have said is:

We’ve been asked if third-parties can host content in subdomains or subfolders of another’s domain. It’s not against our guidelines. But as the practice has grown, our systems are being improved to better know when such content is independent of the main site & treat accordingly.
Overall, we’d recommend against letting others use subdomains or subfolders with content presented as if it is part of the main site, without close supervision or the involvement of the primary site.
Our guidance is if you want the best success with Search, provide value-added content from your own efforts that reflect your own brand.

What does this mean?

For websites that are looking to lease out a subdomain or subfolder, Google are sending a stern warning to say that they are aware of this, and are looking to penalize, into the near future, this type of activity. How this may affect the overall website’s SEO authority is yet to be made clear – usually, this type of warning is enough to deter people from risking drops to SEO.
 

Tips Moving Forward Subdomain Leasing

I am totally with Google that leasing subdomains for content/categories completely unrelated to a website is definitely a loophole which they are wanting to address. The problem is how to know if the subdomain or subfolder is being leased out or not? Strictly speaking, it is not sponsored content and neither is there a definitive way to prove the subdomain or subfolder is being leased out.
As a rule of thumb, leasing subfolders will have a bigger SEO impact on your domain than subdomains, since Google treats these almost as separate websites. If you can make sure the content on the subdomain is relatable and of good quality to your main website (through auditing and assisting with the content), you should not have any problems looking ahead.