What is meant by a sponsorship agreement?
A sponsorship agreement or contract governs the legal relationship between a sponsor and the individual whom is entitled to enforce the sponsorship obligation. That individual may for example be an individual who is sponsored such as an individual athlete, an event organiser of an event which attracts sponsorship or the owner of a location that is being sponsored.
Sponsorship agreements in sport
What are the common kinds of sponsorship agreements involved with sport?
Sponsorship within sport is big business and consequently there are many avenues by which a company can get their product name seen by many potential customers. The kinds of sponsorship in sport are as follows:
Sponsorship of individual sporting teams – often this will mean that the name of a company appears on the front of the team shirt. This will be the principal sponsorship agreement for a particular sporting team but there will also be subsidiary sponsorship agreements in place. For example billboards around the side of the pitch will often contain the names of companies who have sponsorship agreements in place with the individual team.
Sponsorship of governing bodies – often companies will become a sponsor of a governing body of a sport. For example Adidas is a sponsor of the world governing body of football – FIFA. This means that all FIFA clothing will be made by Adidas as well as their logo appearing on promotional material.
Sponsorship of events – at this summers World Cup the already existing FIFA sponsors will also be present as will the companies who are sponsoring the event. This means that all billboards surrounding the pitch will display the names of the various sponsors as will any promotional material associated with the event.
Sponsorship of sportsmen and women – often the individuals involved within the sport will attract different kinds of sponsorship. Most commonly a sponsor of an individual footballer will provide that player with his sports equipment such as football boots – his so called tools of the trade.
What should be contained within a sponsorship agreement?
Written formal agreement
Often sponsorship agreements are concluded on an informal basis such as when a company agrees to sponsor their local football team for a short period such as one or two matches. In top class sport however a formal agreement must be established in order to protect both the interests of the sponsor and the other party.
For an individual player if there is a sponsorship agreement in place it is easier to know the full extent of the sponsors payment and other obligations under the contract. In certain cases it may be necessary for the sponsor to wish to terminate the contract whereby the behaviour of the individual being sponsored could lead to damage the reputation of the sponsor. This is particularly important when an individual sportsman may be involved in a scandal away from the sporting arena which could ruin the family image of a certain brand which may be sponsoring them.
Often a sponsor of a sporting event will be provided with the exclusive use of the trademarks and name marks associated with an event. The organiser of an event will have to undertake a full rights protection and enforcement programme to ensure that other companies are not infringing these rights by using the trademarks or similar marks which may lead the public to believe that they are an official sponsor of the event.
Products Provided by the Sponsor
The sponsor will also provide the event organiser or sponsored party with their products to be used by that event organiser or party. For example the FIFA sponsors such as Sony will provide their products to be used by FIFA and a sponsor of an individual athlete will provide them with footwear and other equipment.
The following things should therefore be included in every sponsorship agreement:
The definition of the benefits accruing to the sponsor
Variations in those benefits (particularly where there is a long-term arrangement)
The payments due under the agreement
Variations in those payments (again, this is particularly relevant where the arrangement is long-term)
The circumstances in which the trademarks may be used
The rights of the parties to terminate the agreement
Issues arising out of sponsorship agreements
There are many issues that can arise following sponsorship agreement established in the sporting industry such as ambush marketing and conflicts between individual sponsors. For example a sporting goods company may sponsor a particular team whereas a rival sporting goods company may have existing sponsorship agreements with the players playing for that particular team. As stated previously the individual players are able to gain their own sponsorship in relation to their tools of the trade such as their football boots. There is however a grey area when concerned with a goal keepers gloves and the head gear often worn by rugby players. Often sponsors of the teams feel that these do not constitute tools of the trade and should therefore carry the logo of the team sponsors. The sponsors of the individual players feel that it is the opposite.
Exclusivity of Contracts
Often sponsorship agreements provide exclusivity in relation to certain products. For example for the 2006 World Cup MasterCard was an official sponsor of the tournament and consequently if you wished to purchase tickets to the event you would only be able to use a MasterCard.
Is this legal?
This policy received much criticism from German consumer legislation and consequently many event organisers who have agreements such as this with credit card providers will have their sponsor as the preferred card to use but will provide other options so as to not fall foul of Article 81 EC prohibiting anti-competitive agreements.
Entitlement to renew the contract
As sponsorship agreements in the sporting industry will only last for a specified period of time such as a certain amount of seasons for a club or player of for the four year cycle of the world cup for a body such as FIFA it is often preferable to include an entitlement to renew the contract. In certain cases this has led to legal battles.
Recently a world governing body of a particular sport was seen to go behind the back of its existing sponsor in signing an agreement with a rival sponsor ignoring the existing sponsors entitlement to renew the contract.
What was decided in this case?
In this case an injunction was handed down stopping the governing body to switch to the competitor for a period of 8 years. In practice, however, the existing relationship was already soured due to the conduct of the governing body meaning that the new agreement was able to go ahead but vast sums of compensation were required to be paid by the governing body to the original sponsor.