Sponsorship plays a huge part in the sports market and as we turn our attention to the Paris Olympic Games, the spotlight lands on the selected athletes and teams, with whom success at the Olympic Games could result in new sponsorship opportunities. The Paris Olympics is reported to have generated a 60% increase in sponsorship revenue compared to the Tokyo Olympic Games of 2020*.
A sponsorship agreement sets out the terms upon which an individual or business (the "Sponsor") provides funding, products or services in return for promotional rights which enable the Sponsor to promote and market its brand, products or services in connection with an event or marketing campaign, or even to establish a long-term relationship between the brand and sponsored party.
Scope of Sponsor's appointment
In appointing a "Sponsor", the parties should consider the scope and nature of the appointment and in particular, the Sponsor's title or designation and form of exclusivity. For the Sponsor, an exclusive appointment is preferable to prevent a brand that offers similar products or services from sponsoring the sponsored party, but the sponsored party may not want to exclude other brand sponsorship opportunities. This therefore requires careful drafting and consideration should be given to any existing agreements or arrangements which may conflict with any new sponsorship agreement, to ensure it is effectively carved out in the drafting. The parties may therefore consider a sector specific application to exclusivity to offer a more balanced approach.
Contribution
The main obligation for a Sponsor is the contribution which it makes in return for the Sponsor's rights, and this can be monetary or non-monetary but is usually in the form of a sponsorship fee. The sponsorship agreement should clearly outline how much is to be paid and when and whether the sponsorship fee is fixed or variable. For example, for a one-off event the sponsorship fee may be fixed but, if the Sponsor is investing in a long-term relationship, the sponsorship fee may be variable depending upon the success of the relationship or performance of the sponsored party.
Sponsor's rights
In addition to the grant of exclusivity and use of a designation, the Sponsor usually receives promotional and marketing rights in return for its contribution. The sponsorship agreement should therefore deal with the ownership and use of the Sponsor and sponsored party's intellectual property, in particular the name, trade mark and logo (and if applicable, image rights). Both parties should also ensure that the sponsorship agreement clearly sets out the scope of the advertising rights, so it is clear what promotion is being offered to the Sponsor and the limits on such offering. For example the laws, regulations and codes specific to advertising and the limits on the promotion of brands in particular sectors, including finance, betting and alcohol. Consider whether the Sponsor should also receive other sponsorship rights in return for its contribution (for example, tickets to a sponsored event) and what affect (if any) the availability and delivery of the Sponsor's rights will have on the contribution, such as a reduction in the fee or the offering of a like-for-like replacement. In such circumstances the parties may want to link the performance of the rights and obligations in the sponsorship agreement to the principle of force majeure, to exclude liability where performance is affected by the occurrence of certain events outside of a party's control. This requires careful consideration and drafting, particularly following recent case law on this subject.
Duration and termination
The duration of the sponsorship agreement will vary depending on the sponsorship being offered, for example where the sponsorship is for a one-off event, the agreement will likely expire following the event or on provision of the contribution (if such monetary or non-monetary contribution is being provided after the event has taken place). However, for other sponsorship arrangements the duration may be for a longer period of time, for example an initial fixed term which may be extended for a further fixed term.
The parties should also consider the termination rights, which in addition to the standard provisions include rights specific to the nature of the sponsorship. For example, the right to terminate if the sponsored event is postponed or any of the sponsor's rights are not delivered, or a termination right linked to performance, where the sponsorship agreement is founded on the success of the sponsored party. A party may also want the right to terminate in the protection of its brand, image, goodwill and reputation.
Sponsorship, in particular in sport and with the rise of promotion through social media channels, is crucial to providing funding and branding opportunities to individuals, teams and brands. A framework of the terms in a sponsorship agreement is therefore necessary to ensuring clarity, compliance with the law (specifically in respect of advertising) and protection of rights (including image rights).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.