Sporting clubs and representative organisations require funding to be able to operate, maintain facilities and provide opportunities for the athletes that are part of those clubs to compete in the various competitions and leagues in which they participate. There are several ways in which these clubs and organisations receive funding, one of which is through sponsorship agreements with corporate partners. Sponsorship agreements play a vital role in fostering mutually beneficial relationships between the sponsors and the sponsored party. Within these agreements are several key clauses and considerations that delineate the terms, expectations and benefits of the relationship. Understanding and addressing these matters is essential for both parties to establish a solid and mutually beneficial foundation for their relationship.
Rights and Benefits
In any sponsorship agreement, the sponsor will receive certain rights in exchange for a sponsorship fee or for the provision of certain benefits. These rights may include branding and advertising (by including the name and logo of the sponsor on the team’s kit or on signage) and may also include promotional opportunities for the sponsor.
The agreement should set out, in detail, the benefits and deliverables that the sponsor will be providing to the sponsored party. In particular, the sponsor would seek to be dealing with issues that may include the placement of a logo on the sponsored teams kit, any rights relating to the placement of signage around the club’s grounds and even hospitality benefits.
Payment
Leading directly on from the rights and benefits contained in the sponsorship agreement, is the payment of the benefits to the sponsored party. Invariably, agreements of this nature will generally include the payment of an amount of money. It is important to determine how the funds will be paid. Will the sponsorship fee be paid in monthly instalments or a single lump sum?
Conversely, the benefit might rather be the provision of sporting equipment. This may be the preferred method by which a sponsor provides the agreed benefits to the sponsored party, especially if the sponsor is a sporting equipment company.
In addition to the set payments in terms of the agreement, the parties may also agree to include provisions dealing with additional financial contributions or bonuses based on specific performance metrics being met. This particular provision is more prevalent in sponsorship agreements for professional sports teams, however, there is no reason why it cannot be included in a sponsorship agreement for your local club.
Exclusivity
Sponsorship agreements will generally include an exclusivity clause. The inclusion of an exclusivity clause within your sponsorship agreement provides a substantial advantage from a commercial perspective. However, it is important to recognise their inherent complexities. These contractual provisions bestow upon you, as the sponsor, exclusive privileges in relation to the club or organisation that you are sponsoring. Assuming the mantle of the sole sponsor effectively precludes the presence of competing products or enterprises, enhancing the visibility of your brand. Importantly, a comprehensive evaluation is warranted regarding the sponsored entity’s autonomy in pursuing sponsorship from alternative entities, particularly those with potential competitive ramifications.
Skilfully navigating the situation where the sponsored entity may approach other potential sponsors requires the meticulous and careful delineation of the parameters of what or who constitutes a competitor within the exclusivity clause. For example, you may specify that the sponsored party shall refrain from seeking sponsorships from other companies that operate in competition with the sponsor, leaving the sponsored party free to seek sponsorship from companies that do not compete with the sponsor.
Intellectual Property Rights
It is critical to ensure that the ownership and usage of intellectual property of the sponsor are adequately dealt with. The protections required, should not be overlooked when preparing a sponsorship agreement.
The sponsor may provide the sponsored party with a non-exclusive licence to use their intellectual property for certain specified uses on the terms set out in the agreement. The sponsor will want to ensure that their logo or branding is not distorted or altered by the sponsored party. Accordingly, the sponsor will want to ensure that all marketing material which contains the sponsors logo or name is approved prior to any release by the sponsored party. Any non-exclusive licence that is granted is likely to be mutual. A club, team or sporting organisation will also have intellectual property that they will want to protect.
Term
At the heart of any agreement, is the duration. It is important to determine upfront how long the parties intend the relationship to endure. Do the parties wish to make provision for the extension of the agreement through the granting of options to extend to the sponsor? These questions are central to establishing long lasting relationships.
Termination
An issue that is often overlooked in many agreements, is the right to terminate. It is necessary to determine when the right to terminate vests, which party may terminate, the grounds on which the right to terminate may be invoked and any notice periods required for termination. Famous examples include the termination by wealth management company Magellan of a 3-year sponsorship deal with Cricket Australia in response to the ball-tampering scandal in 2018 and the termination by ASICS of a sponsorship agreement with Israel Folau for breaching Rugby Australia’s code of conduct for making discriminatory statements. In addition to reputational harm as a reason for termination, a sponsor may want to build in provisions related to the performance of a team or club as a reason to terminate a sponsorship agreement.
Furthermore, the parties need to determine what happens to any benefits already provided and whether there is a right to claw back any such benefit (particularly if the benefit has been paid to the sponsored party in a lump sum, especially if the agreement is terminated prior to the end of the agreed duration).
Conclusion
Sponsorship agreements are the backbone of countless successful relationships between sponsors and the clubs, teams or sporting organisations which they sponsor. Not only does it raise the profile of the sponsor’s business and brand, but it also assists the club, team or organisation in reaching their objectives by providing much needed funding or even sporting equipment. Ensuring a sustainable relationship between the parties requires careful consideration and negotiation to establish a mutually beneficial partnership and to avoid any future disputes.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific circumstances. It is intended for information purposes only and should not be regarded as legal advice. Further professional advice should be obtained before taking action on any issue dealt with in this publication.
To obtain professional advice in relation to sponsorship agreements, and sports law in general, please contact Kyle Venter at 07 3001 2947 or kventer@bennettphilp.com.au or Chris Lillie at 07 3001 2950 or clillie@bennettphilp.com.au.