Sponsorship agreements: key points for effective contracts

Sponsorship deals can attract new audiences and are a common way to build brand awareness and achieve visibility. While the opportunities for sponsors and athletes are great, so too are the consequences when problems arise. This article highlights some key issues for sponsors and sponsored entities to consider when entering into sponsorship agreements.

Clear description of the rights

Parties should ensure there is absolute clarity in the agreement regarding what rights are being granted. As organisations become more creative in generating new types of sponsorship, it can be helpful to include detailed descriptions or renderings that provide a visual representation of the rights.

Payment structure

Performance-linked payments and bonuses provide the sponsor with greater assurance that the deal is correctly valued. Similarly, they protect athletes from having their achievements undervalued if they outperform expectations. A commonly negotiated provision in football sponsorship deals is the right to terminate or renegotiate rights on relegation or promotion (particularly from the English Premier League), a factor which may greatly impact the worth of the sponsorship rights. Value-in-kind deals are also common, with sponsors providing products and/or services as part of the commercial arrangement. In such cases, it might be appropriate to include provisions that protect the sponsored entity against inferior products and/or poorly performed services.

Termination

In addition to standard rights for termination for material breach, the parties may require protection against damage to reputation. This is particularly important when dealing with individual athletes. Whilst sponsors will want the broad right to terminate where there is a risk to their reputation, it can be helpful to include objective triggers for termination such as a criminal charge, doping violation or a lack of appearances. For long-term deals, the inclusion of a break clause, which allows one or both parties to terminate without cause, can provide a clean exit.

IP Rights and Exclusivity

It is important for both parties to define and limit the scope of the IP rights being granted. If these rights are not protected under the contract, it raises the potential for misuse which can lead to an erosion of brand value. It is now market-standard for parties to issue strict guidelines as to how their brand can be used (often alongside prior approval rights for each new use).

Exclusivity

These provisions are generally drafted to obtain exclusivity over a certain right (eg shirt sponsorship) or to exclude competitors within the sponsor’s industry from diluting the rights obtained by the sponsor. The parameters of what constitutes a "competitor" must be clearly stated and expressly identifying competitor companies can provide certainty.

Liability

Sports organisations may try to exclude liability for the actions of their players and other key staff. There are also certain liabilities which a party may want to keep uncapped, particularly around infringement of their IP.

Force Majeure

A “force majeure” clause protects a party if they are unable to perform their obligations due to factors outside of their reasonable control – for example, a pandemic or a natural disaster. This clause needs particular attention if the sponsorship concerns a large one-off event; the contract should cover what happens if the event is cancelled or rearranged (for example, the sponsor might be refunded or granted alternative rights of a similar value).

Data Protection and Marketing

Publicity and marketing communications will be a central part of most sponsorship agreements. Both sponsors and sponsored entities should be conscious of the rules concerning electronic direct marketing (eg emails and other "inbox" messaging) and ensure that they have a lawful basis for sending the communication, particularly where marketing lists are shared. If athletes are being paid to promote products and services via their social media feeds, they will need to make clear that the content is sponsored, otherwise they risk breaching advertising rules. 

Agency fees

Sponsors may be introduced by agencies for commission. It is important to also consider the terms of the agency agreement when entering into the sponsorship agreement to understand how commission is structured in respect to the sponsorship deal, including on any renewal or future extension of the rights.

In summary, sponsorship agreements are becoming increasingly complex as sports organisations and individuals seek to maximise their revenue. Poorly drafted agreements can lead to commercial risk. Please get in touch if you would like further information on how we can assist.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2024