Demystifying the Sponsorship Contract
Some of us may over rely on lawyers and not seek to understand the basics ourselves; others who don’t feel they have a budget for lawyers may bypass that expertise altogether. The ESA Breakfast Briefing ‘Demystifying the Sponsorship Contract’ told us why we all need to be aware of legal pitfalls in sponsorship.
Firstly, we need to set parameters for communications and approvals e.g. where use of imagery needs to be approved. This needs to include the approvals process, who will do what and within what timeframe, how detailed feedback and amendments need to be and what happens in the circumstance that no response is received.
These seem like fairly basic elements but discussing these and agreeing them at the start, builds a good foundation for the sponsorship relationship, which our research has found is highly important to the sponsor’s satisfaction in particular and their likelihood to renew contracts.
When it comes to the ‘Schedule of Rights’ there needs to be clarity on exactly what will be delivered e.g. what does ‘prominent position’ mean? The perception of prominent by the sponsor and sponsored property might vary greatly and so this needs to be discussed and documented too, to manage everyone’s expectations.
‘Make up’ rights for any assets that aren’t delivered and escalation procedures were the two other key pitfalls detailed by the panel. In all these points, by ensuring everyone has the same understanding and expectation at the outset reduces the likelihood of issues arising, as everyone knows the parameters within which the relationship is operating. You can then put the contract to one side and move on to the activation and relationship management phase.
The panel then moved on to talk about circumstances for having to cancel or postpone an event and what happens if that situation arises. The first piece of advice was to make sure you know the circumstance under which you can cancel or postpone and be within the terms of your insurance.
The case study given was that of the 2001 Ryder Cup which was scheduled to take places just a couple of weeks after the 9/11 attack on the World Trade Center in New York. The organisers considered postponing as a sign of respect but would have been liable for the costs, which would have been significant enough to put it out of business. The American team refused to travel to the UK for the event and so the European Tour were able to postpone the event without incurring those huge losses, but it had to be exactly the same event: same location, same teams, same personnel, event the branding and trophy had to say 2001, despite being then held in 2002.
Understandably, ‘threat of terrorism’ now appears as standard in sponsorship and event contracts.
Reputational damage was another key area where contracts can be inadequate. The terms of this need to be very clear as to what either side would consider causing disrepute. It was noted that this is requested by as many rights holders as it is brands, with either side now requesting ‘suspension rights’ to allow time to consider their final position.
The final area covered was technological innovation and how we can be specific in contracts now about things that might not exist in 5 years time and who is responsible for implementing them. Sponsors can put a lot of pressure on rights holders to utilise all available technology, which may be beyond their resource capacity and capability. The simplest advice given was that a sponsor could expect to receive ‘new assets’ if other sponsors of the same property are, i.e. if the rights holder has implemented them for one sponsor, they can do so for all.
Even covering just these few points it’s clear that the level of detail needed in sponsorship contracts requires an expert to be involved. But equally the rights holder and sponsor interests need to be fairly represented too. A clause that is written in the best way legally might just not work for either party and so lawyers need to work hand in hand with the representatives of both sides to ensure a contract that works well for all and provides the means and understanding for long-term relationships.