Sports Law Update

Sponsorship Agreements – Avoiding the Common Traps

Recently, we have acted for a number of sporting clubs and sporting venues experiencing costly disputes in relation to sports sponsorship agreements.

Frequently, we see clubs and venues fall into similar traps and we have described some of these in this article, along with some suggested remedies:

1. Defining Benefits

Issue:  Clubs and venues sometimes fail to clearly spell out or clearly define in detail the benefits and rights to be provided to sponsors.  For example, short-hand or terms not widely understood are often used – this can cause ambiguity and problems later on if disputes arise.

Tip: These terms are perhaps the most important. An agreement should spell out in as much detail as possible the benefits and rights available to the sponsor.

For example, you should pay close attention to terms relating to advertisements, websites, naming rights, signage, use of logos and photographs and ancillary rights (such player appearances, tickets, hospitality and access to the membership database of the rights-holder).

2. Scope of Exclusivity

Issue: As far as possible, sponsors invariably want the relevant sponsorship platform to be free of other brand names or “clutter”. Sponsors can be disappointed when they perceive that that their sponsorship is “diluted”.

Tip: It is essential that clubs and venues offering sponsorships clearly define these degrees of exclusivity.  For example, a rights-holder may grant a sponsor “product category exclusivity”.  It is also important to clearly describe the sponsor’s competitors who are to be excluded from the particular category. Without careful drafting, the dividing lines between who are and are not competitors can become blurry.

3. Ambush Marketing and Other Conflicts

Issue:  Opportunistic third parties may attempt to create a public association with the rights-holder.  Conflicts can also arise between the rights of a team sponsor and rivals seeking to sponsor individual players.

Tip:  If appropriate, clubs and venues should include terms which provide the sponsor comfort in these areas.

4. Material Adverse Events

Issue: The unpredictability of sport and the behaviour of its protagonists, combined with intense media focus, can impact on the value of sponsorship rights.

Tip: Rights-holders should aim to limit the ability of the sponsor to rely on so-called “morality clauses” to terminate the sponsorship agreement. This is a common negotiating point, as sponsors will often seek assurances that the rights-holder will not tarnish the public’s view of the sponsor’s brand.\

5. Heads of Agreements

Issue:  Too often in the rush to “get the deal done”, only a barebones heads of agreement is prepared between the parties to a sponsorship transaction.

There may be a lack of clarity around the benefits to be provided and other key issues, such as whether the heads of agreement are binding.

Tip: Clubs and venues should invest the time to prepare detailed and binding terms, as this will reduce the risk of costly disputes later on.

6. Other Issues

As with any commercial agreement, it is important that sponsorship agreements address:

  • fees (are they upfront, in a lump sum or instalments?)
  • rights upon breach (for example, what happens if all benefits cannot be provided?)
  • rights to renew
  • regulations and third party rights (for example, governing sporting body regulations and rights)
  • indemnification
  • force majeure

Taking a thorough and thoughtful approach to preparing these documents can help in achieving profitable sponsorship agreements, even when the unforseen happens.

Should you require our assistance, please do not hesitate to contact Tom Read.

This article should not be relied on as specific legal advice.

 

Tom Read

Head of Litigation

T +613 9670 0722

F +613 9670 0622

tread@bsplawyers.com.au