Sponsorship is a popular method of marketing a product or a brand and can give the sponsor greater exposure to a wider audience than the more usual advertising methods.
Sponsorship can take a number of different forms – for example, an individual or business might sponsor an event, an individual, a team or another company – the list is almost endless. Sponsorship is not just about sport either and a sponsorship deal can arise in a number of different contexts, with the core principles largely transferable between sectors.
It is important to remember that in each instance the relationship between the parties goes both ways. Sponsors will usually make a financial commitment (sometimes alongside other non-financial obligations) in return for a grant of various rights, which may be extensive and coupled with other benefits (e.g. free tickets). As with any contract, it is crucial to understand what each party is looking to achieve from a sponsorship relationship. This can especially be important further on the in the relationship where a party is looking to calculate its actual return on investment.
Stevens & Bolton LLP has created this checklist as an overview of some of the issues which a sponsor should consider when entering into a sponsorship contract. The checklist (to the extent possible) is designed to apply across a range of sponsorship opportunities, although in each case careful consideration should be given to the nature of the deal on offer as some of the points on this list may not apply as a default.
1 Parties to the sponsorship agreement
- Check whether the contracting party has the right to grant the sponsorship rights to the event and if necessary, obtain warranties to this effect.
- Consider carefully the impact if the counterparty is an offshore entity. This is not unusual in a sporting context (e.g. sports people can undertake their commercial arrangements through offshore companies set up for tax purposes), which may mean that the sponsor requires additional comfort. For example, offshore image rights companies can attract the attention of tax authorities, so a sponsor may wish to include an indemnity for tax-related matters.
2 Exclusivity/restrictive covenants
- Is the sponsor a sole sponsor?
- Does the sponsor have exclusivity in a particular category/ product area as part of a multi-sponsor approach? If so, does the category accurately reflect the sponsor’s business or will there need to be careful drafting to ensure that the exclusivity wording does not cut across sponsor business operations?
- Is the sponsor part of a multi-tiered sponsor approach, where different sponsors are granted a rights package dependent on financial contribution? Does this create issues for the sponsor (e.g. possible overlap with competitors or categories)?
- Are there are any restrictions which the sponsor wishes to impose on its competitors who may also want to sponsor the event?
3 Sponsorship rights
- The nature of the rights being granted needs to be clear and documented in writing.
- Does the sponsor have any specific rights, for example:
- official supplier (e.g. provision of kit)
- signage rights (e.g. at an event)
- clothing rights (e.g. rights to place logos on official uniforms)
- the right to promote or sell its own products at an event or location (e.g. food and beverage deals for stadia)
- hospitality suite/ free tickets/ other tangible benefits
- the right to place the sponsor’s brand on official materials (e.g. tickets, brochures)
- the right to brand an event or location with a sponsor’s brand (e.g. venue naming rights)
- broadcasting rights (e.g. the right to show an event on a designated channel)
- Consider in each case how the rights granted have an effect on the other provisions in the agreement. For example, the right to place a logo on certain materials could also require a licence to use the logo, with appropriate provisions around approval of the materials.
4 Term/option to renew
- The term of the sponsorship agreement needs to be considered depending on the nature of the deal – e.g. is the arrangement for a fixed term (perhaps a specific concert tour or season) or is it for a one-off event or series of events.
- A sponsor may require an option to renew sponsorship or a right of first refusal to future events, and it is not unusual for an agreement to contain a right to match any future offers from competing sponsors for future seasons. Consideration should be given to the specific terms of those rights.
- Does the sponsor require any bespoke termination rights in addition to the usual rights for breach and insolvency?
- Consider whether there are any outcomes which are likely to devalue the sponsorship to the extent the sponsor is likely to want to walk away. For example, if a concert does not sell enough tickets, a celebrity or sportsperson is accused of taking drugs, or an organisation suffers an embarrassing scandal.
- Consider if there are any termination rights which are specific to the sponsored party. For example, a sponsorship deal for a sports person might be terminable if they are no longer qualified for a particular event, or an event sponsorship deal might be terminable if the event venue is changed.
- Consider whether the sponsorship fee will be paid as a one-off fee or in instalments. Instalments may give better protection if the event is an on-going one or if the relationship is an unhappy one, although if this is a concern it is worth building into the contract an ability either to claw back certain payments or cease to have liability for remaining instalments where the relationship deteriorates part way through the term.
- Consider if the sponsorship fees are only to be applied for certain purposes.
- The tax implications of the sponsorship fee and of providing any promotional products to the event need to be considered. Especially if the event is an international one, as this may give rise to double taxation.
- Note the comment above in relation to image rights arrangements.
8 Intellectual Property Rights
- Specific provisions should be included in the agreement as to where the sponsor’s name or trade mark will be placed. The names and marks should be identified in the agreement and, where registered, full details of the registration should be supplied.
- A sponsor will need to ensure that its name and/or trade mark are placed in an appropriate position only and that the sponsor has final approval as to its use, as well as any other endorsement of the brand by the sponsored party (e.g. in any advertising campaigns). If the sponsor has brand guidelines then these may also need to be applied.
- The sponsor should consider any IP licensed and the agreement might then contemplate what will happen to any goodwill generated through the arrangement – a sponsor may wish to ensure that this follows ownership of the relevant marks.
- The sponsor may also wish to retain control over any IP-related proceedings.
9 Obligations specific to events
- Details of the times and dates of the event ought to be clearly set out, along with what happens if these change or the event is postponed or cancelled.
- Similarly, a list might be included as to who will be responsible for which parts of the event and any specific requirements for the event (e.g. official licences or permits).
- The sponsor may require that the event organiser has insurance or grants it an indemnity if a claim is brought against the sponsor for any liabilities arising out of the event.
10 Regulatory Requirements
- Depending on the type of sponsorship deal, there may be regulatory issues to consider. For example, sporting association requirements or broadcasting codes of practice.
11 Competition law
- Depending upon the restrictive covenants and exclusivity provisions, competition law advice may need to be taken.
12 Specific legislation for certain events
- Special rules apply in the case of various high-profile events (e.g. Olympic legislation) which may prohibit certain acts or use of certain wording.
- If a sponsor is not officially linked to the relevant event, consider whether the sponsor has appreciated the legal impact and/or risks of any ambush marketing strategy.
- Correspondingly, if a sponsor is looking to officially sponsor an event or organisation, consider how the sponsored party should be obliged to act against third party ambush marketers or, indeed, whether the sponsored party is able to do so. In the latter case, consider whether this should act as a catalyst to price chip or whether there are any other means of safeguarding sponsor investment.
For further information please contact Beverley Flynn, Beverley Whittaker or Charles Maurice on 01483 302264.
This information is necessarily brief and is not intended to be an exhaustive statement of the law. It is essential that professional advice is sought before any decision is taken
© Stevens & Bolton LLP May 2017