If you are an entry level athlete who is lucky enough to be given a sponsorship deal, or you are a company who wishes to sponsor someone, for example, a boxer or bodybuilder at the early stage of their career, the next important step is having a meticulous sponsorship agreement in place.
What is sponsorship agreement?
In a basic sponsorship deal, the sponsor seeks to acquire certain benefits when sponsoring the sportsperson, for example, branding and marketing purposes, increasing media exposure in order to boost sales volume, reducing tax, etc.
From the sportsperson’s perspective, the main benefit is that they have funds to cover the costs in training, joining and organising events.
Why having a sponsorship agreement is important?
Sponsorship agreement is not as familiar as other commercial agreement such as sales of goods agreement, business purchase agreement. Therefore, from our experience, we observe that in almost sponsorship deals which are of small value, both parties often agree on the sponsorship on informal basis, for example, verbally, via email, or just an offer letter to sponsor.
Not having sufficient terms and conditions governing rights and obligations of each party could lead to potential disputes relating to the interest of both parties in the future.
Key considerations when drafting a sponsorship agreement
The objectives of each party under the sponsorship deal
Before entering into a sponsorship deal, both parties need to identify what their objectives are, particularly, the ultimate purposes each party wishes to achieve from the sponsorship deal as those objectives would decide the type of sponsorship agreement, the key terms and conditions.
The Branding and other key benefits
One of the key clauses in sponsorship agreement is a clear definition and the scope of branding. This could be sponsor logos and where to place them, sponsor products and services, platforms, channels and events for branding.
The Sponsorship fees
The clause about sponsorship fees, also called sponsorship payment, is an integral part of every sponsorship deal. The sponsor would wish to pay the sponsorship fee based on certain conditions, such as the extent of brand exposure or the success of the sportsperson who has received the sponsorship. Therefore, the sportsperson has to be aware of this clause, whether it is a condition to payment or not.
Intellectual property rights
During the sponsorship, it is unavoidable that the sponsor or the right holders (the sportsperson) uses and shares ideas, marketing and branding materials to each other. Therefore, the parties should include in the agreement the clauses help protecting the ownership of those intellectual property rights.
Avoid negative publicity
Having the company brand attached with a specific sportsperson or a club means the sponsor’s brand will enjoy certain benefits if the right holder succeeds in the future, but it also means that the brand of sponsor can suffer the damage if the sportsperson or the club engage in any activities that might have negative impact on the brand images.
Therefore, in order to protect the sponsor from negative publicity, a ‘moral clause’ should be included in the contract which gives the sponsor the right to terminate the sponsorship agreement if there is any misconduct, unethical behaviour from the sportsperson.
Impact of Covid-19
As a consequence of Covid-19, many sport events were cancelled, delayed, or limited the audience capacity.
Also because of Covid-19, the sport events those traditionally organised offline are now shifting to online and streaming platforms. Those changes have a huge impact on both sponsor and the right holder in a sponsorship deal.
In order to mitigate the risk of uncertainty in the time of Covid-19, we often advise our client to include the exemption from liability clauses for both sponsors and the sportsperson. By doing that, while the sportsperson/club can be released from liability if they are unable to fulfil their obligations because of Covid-19, the sponsor can also count on that clause to suspend or cease to pay the sponsorship fee.
At NIDO, with experience in drafting and advising on all kinds of commercial contract, we are confident that we can provide advice and agreement covering all possibility that you need to have in mind when you enter into a sponsorship deal whether you are the sponsor or the athlete / sportsperson.