A sponsorship agreement is a contract between a sponsor who is paying a fee or giving goods and services in exchange for a benefit from the sponsored party. These contracts often involve significant investment and complicated legal terms. Important clauses relate to licensing and brand rights, payment terms, key performance indicators and sponsorship outcomes, as well as termination rights.
Here are 5 key considerations for brand owners, marketing or merchandise managers, or business owners who want to get their sponsorship agreement terms right.
In this article, Farrah Motley, an entertainment lawyer who provides legal advice regarding sponsorship and branding, explains the legal considerations for a sponsorship agreement.
Tip #1 – Assess what the sponsorship fee pays for
A sponsorship agreement will involve the sponsor paying money or agreeing to give goods or services or some other benefit to the sponsored party. Depending on who or what is being sponsored, the sponsorship fee may involve a substantial investment. Because of this, it is important that both parties are clear on what the fee is, and what is being given in exchange.
For example, if a sponsorship agreement describes an annual sponsorship fee, what benefits will be provided each year? If those benefits change, will the sponsorship fee be adjusted and if so, how?
Tip #2 – Consider the type and likelihood of force majeure events
Force majeure clauses became the golden child during the COVID-19 pandemic. However, a force majeure clause has always been an important part of sponsorship agreements.
The key thing about force majeure events is that they allow either or both parties to terminate the contract or suspend performance if the relevant event happens. Anything that is within one party’s control should not be considered a force majeure event.
There are lots of things that can happen that are outside both parties’ control. For instance, if the thing that is being sponsored is an event, person or product:
- the person could become ill or unable to travel
- the event could be cancelled due to bad weather or government restrictions
- the product could be held up at customs
- the event date could be moved or changed to meet government requirements
You will need to consider what you want the sponsorship agreement to allow you or the other party to do if these things happen. And if you are the sponsor, are you still happy to pay the sponsorship fee if you don’t receive a benefit because of a force majeure event?
Tip #3 – Think about whether exclusivity is appropriate
Consider your competitors when negotiating a sponsorship agreement
If you are the sponsor, you will likely want your brand to be front and centre. You are unlikely to be happy with the contract if it allows one of your competitor’s brands to step in and overshadow your brand. The sponsored party will then get the benefit of multiple sponsors while potentially having a conflict of interest. They then have to consider whose brand they will give greater prominence to.
An exclusivity arrangement can avoid this issue. The sponsorship agreement could include an exclusive right for the sponsor to showcase their brand during the term of the agreement.
The exclusivity can apply to a product type, service type, industry, or a limited list of competitors.
Consider whether the other party is the best partner for the sponsorship agreement
Do you really want to lock in your relationship with the other party? For the sponsored party, associating yourself with a sponsor for a long period of time might be risky.
This consideration should be addressed long before you negotiate the sponsorship agreement. A sponsorship arrangement signals to the public and would-be customers that both parties have a level of cooperation and support for one another.
Tip #4 – Make sure you have fair rights to terminate the sponsorship agreement
You may want to terminate the sponsorship contract if:
- you don’t receive the sponsorship fee
- you don’t receive the benefit of the sponsorship arrangement
- the other party infringes your intellectual property rights or misuses your brand
- the other party breaches an obligation of confidentiality
The termination clause needs to address when someone can terminate the contract, how they can terminate and the consequences of terminating the contract.
Tip #5 – Consider reputational risks, cancel culture and marketing in the sponsorship agreement
Clauses that address reputational risk
The reputation of a brand can change quickly. A sponsorship agreement should consider what happens when that change brings a wave of controversy or negative publicity. This could be addressed in a termination clause as well as an indemnity clause.
An indemnity clause requires one party to compensate another if certain events happen or fail to happen. If the other party knowingly or recklessly does something that negatively impacts their reputation (and by extension, the other party’s reputation), an indemnity clause may be appropriate.
How to deal with cancel culture
Cancel culture refers to ostracising or boycotting those who are deemed to have acted or spoken in an unacceptable manner. Take extra care if your sponsor partner is, or deals with goods, services or events, that may be considered controversial (particularly with your own customer base).
It is important to consider whether any marketing parameters or guidelines need to apply to how your trade mark or branding is displayed by the other party. For instance, you may wish to align yourselves on pre-agreed marketing text. Or, each party may be required to seek the other’s written consent before using their intellectual property.
How Prosper Law Can Help?
Prosper Law is Australia’s online law firm. We provide legal advice to businesses and individuals across Australia. Our areas of legal practice include contracts, eCommerce, publishing, entertainment, legal counsel and employment law.
If you need to talk to a sponsorship and branding lawyer, get in touch today.
Contact the team at Prosper Law today to discuss how we can provide you with advice for a fixed fee or at affordable hourly rates.
Like this article? Check out:
What sets me apart in my field is simply this: I consider copywriting a legitimate art form in its own right. It can be truly beautiful—and that matters. Channelling your business through a master wordsmith can drive astonishing results.
Language has been my raison d’être since I could hold a pen. But my background is decidedly different from marketing—and since I fell into the industry whilst applying for an altogether different job, I’ve forged an entirely novel approach to my trade.
In an ever more hyperconsumerist marketplace, I’ve cultivated a quiet, measured approach to my craft. And with my niche expertise in orthography—the aesthetic of the very language itself—my words entwine with UJ, enhance UX, and give that conversion rate a hefty kick up the arse.