In my most recent blog post, I introduced the legal issues to consider when entering into a sponsorship agreement. With the Melbourne Cup coming up, I continue the discussion below.
Term and termination
It seems such an obvious issue, but what is the term of the sponsorship intended to be? Is it a one year trial, three years or from a sponsor’s perspective, preferably something like an initial three year term with one or two options to extend?
There is of course a price to pay for the grant of such option rights and these financial issues need to be factored into the equation.
Perhaps more importantly beyond the obvious term question is in what circumstances can a sponsor terminate the sponsorship early? Does the sponsor want the ability to exit should the sports team not perform in a sporting sense according to an agreed metric? For example if the team finishes in the bottom half or fails to make the finals two years in a row?
What if one or more key players leave? Can the sponsor walk too?
What is somebody is naughty?
One very important term is the ability of a sponsor to terminate the agreement if the team (or more usually one or more members of the team) engage in activities that can cause damage to the sponsor’s brand. Think through the many and varied forms of indiscretions that have befallen sporting stars over the years and then try and think about trying to draft a clause that exhaustively spells these out as grounds of termination. It would be a very long clause and would still be incomplete.
Given this, a more general clause that allows a sponsor to terminate the agreement in circumstances where the team or its members have in the opinion of the sponsor engaged in conduct that has or could damage the sponsor’s brand or bring the sponsor into disrepute is key. Importantly this decision ideally should be “in the opinion of the sponsor” so an attempt to terminate doesn’t descend into an argument about whether the conduct was bad enough.
A sponsor doesn’t want to be debating whether for example the social media comments by player Joe Bloggs are inappropriate or not. The sponsor simply needs the ability to terminate the agreement if in their opinion such conduct damages their brand. Conversely, teams would normally seek to limit such a discretionary right.
Sports sponsorships can take many shapes and forms; however one often seen element is the provision of “talent” from the team for endorsements of the sponsor’s products or services and/or appearances at events for the sponsor. Like anything important, the devil is in the detail. There is significant difference in a clause that says “The team will provide players to attend events.” versus a clause that says “The team will provide the services of players x, y and z to appear at a minimum of four post-game events for a minimum of one hour each during the season.”
The exact specifics of who is to endorse what, what they are to say, what they are to attend, what they wear when attending, do they have to make a speech or just network and more should be specified.
What sports sponsorship is complete without dealing with beer?
A little known term outside of this area of law is the term “pourage rights” – who gets to supply and pour the beer at the footy or sport of choice?! As you might expect this can be a very valuable right! Much like signage rights, it is important for a sponsor to determine who has the rights and ability to grant such rights – is it the venue? Is it the sports league? Is it the team? How do such rights interact with any other sponsorships the team has from competitors of the party holding the pourage or similar rights? Again, some form of rights audit and a comparison with the rights and obligations of the sponsor generally is needed.
Don’t forget about “pie and burger rights” either!
This blog post and its predecessor is a very high level view of a few key issues in sponsorship agreements. There are many more of equal importance and much devil in every detail.
My key message for potential sponsors is to consider in detail their business reasons for the sponsorship, what they are seeking to achieve and then to tailor what they require out of the sponsorship and then record it carefully in the sponsorship agreement. This applies equally to a team taking on a sponsor.
The Festival of the Boot is behind us, yet the football (soccer) continues and cricket season is about to begin. May teams have the success they deserve and may sponsors achieve what they want from their sponsorships!