Sponsorship in the context of sporting teams and major events has become increasingly sophisticated, with more complex arrangements being negotiated and agreed to meet the demands of the sponsor, whilst protecting the interests of the rights holder.

In this guide we identify some of the issues that should be considered in sponsorship arrangements, including before entering into and whilst negotiating the documented agreement. Where a rights holder ultimately lands in relation to each issue will be, at times, a matter for negotiation. The relationship between the sponsor and the rights holder, as well as the respective risk appetite of each of these organisations will also be relevant factors in determining the final form of the agreement.

Sponsor benefits

  • What benefits is the rights holder granting to the sponsor? These need to be clearly specified and ideally referable back to objective measurements. A common cause of conflict between sponsors and rights holders is a lack of clarity regarding benefits. In drafting these benefits consider not only the "what" but also the "how" and "when".
  • Where a benefit relates to the sponsor being granted the right to leverage and activate their association with the rights holder (for example through on-site activations and pop-ups at events), the rights holder should consider if such benefit is granted not just the right, but also obliges the sponsor to run promotions and activations. Depending on the strategy behind the sponsorship arrangement, having a sponsor that is not required to leverage and activate its relationship with the rights holder should be avoided where possible.
  • Are there any matters on the horizon which are likely to impact the delivery of the benefits? If so, incorporating a mechanism to deal with known issues likely to arise during the term of the sponsorship is a good idea. An example of this may be a change in venue for a particular year due to redevelopment works.

Sponsor exclusivity

  • Is the sponsor granted exclusivity in a particular business category? If so, then commonly such exclusivity will be granted through:
    • exclusive designation rights being granted to the sponsor (ie "exclusive technology partner of..."); and
    • the rights holder being restrained from contracting with any competitor of the sponsor. Where this occurs, take time to ensure clear drafting in relation to the definition of the business category and the relevant competitor provisions.
Fee structure
  • What consideration is the sponsor providing to the rights holder? Is it wholly a cash payment, contra product or a combination of both? Is the provision of consideration a matter of timing (ie quarterly payments of $x over each year of the term) or is it linked in with performance (ie only payable in circumstances where KPIs are met) - or a combination of both?
  • Is reference in the agreement to consideration inclusive or exclusive of GST?
  • Can the sponsor sell products at the event? Does the agreement have a provision dealing with royalty split on sales? If there is a right to sell products at the event and royalties are payable on sales by the sponsor, then commonly the rights holder would have a right to audit the sales data retained by the sponsor as a means to ensure it obtains full payment.
  • Rights holders should ensure clarity over when the fee is to be paid and otherwise be wary of arrangements structured with back end payment terms, on a short term basis with relatively unknown sponsors.
Intellectual property
  • All sponsorship agreements should have adequate protections for the rights holder's intellectual property in the form generally of a licence being granted to the sponsor regarding use of the right's holder's logo. Such licence should contain clear guidance as to what is to occur after the sponsorship agreement has concluded, either by expiration or earlier termination.
  • More and more we are seeing the development of new intellectual property as part of the sponsorship agreement (for example this might be a jointly created App). Where an outcome of the sponsorship agreement is the development of any new intellectual property, it is important that the agreement clarifies and addresses which party owns any such intellectual property.
Governing body rules
  • If the rights holder granting the sponsorship operates in a professional league structure, then consideration and close regard must be had to ensure that any sponsorship agreement is cognisant of and consistent with any relevant governing body rules.
Sponsorship term
  • A sponsorship agreement is no different to any agreement in that it should provide certainty as to the term.
  • Where the agreement covers the issue of further terms, a number of matters need to be considered - and potentially addressed. This includes which party has discretion to exercise a further term or does a further term require the agreement of both parties? Is there to be a good faith negotiation period, or a first and last right of refusal process? What is to occur in relation to the fee for a further term - does this automatically increase by CPI or some other amount/formula previously agreed by the parties where the further term is exercised or is it a matter for agreement of the parties?
Termination
  • Termination provisions remain important. There are times where either party may want to terminate a sponsorship arrangement, and poorly drafted termination provisions can be limiting. In considering this issue, should there be:
    • termination rights with cause (breach) on notice?
    • termination rights for convenience without cause?
    • a right to terminate where a party's conduct gives rise to a reputational issue which can result in loss being suffered by either party?
    • termination rights based on one party suffering an insolvency event?
  • Otherwise, any termination provision should make clear and address the consequences of termination (which might potentially cover payment of the sponsorship fee on a prorated basis - such provision being informed by the payment structure under the agreement).

In summary

Dealing with issues relating to sponsorship arrangements between rights holders and sponsors in the abstract, and in the absence of fully appreciating commercial realities (including related to bargaining power) is relatively speaking quite easy.

The above hopefully identifies some (but not all) of the issues that should be considered in all sponsorship arrangements, including before entering into and whilst negotiating the documented agreement. Where a sporting organisation falls in relation to each issue will, at times, be a matter for negotiation. The risk appetite of an organisation may also be relevant. Ultimately what should be apparent from the above is that sports sponsorships have become increasingly sophisticated with more complex arrangements being negotiated and agreed to meet the demands of the sponsor whilst protecting the interests of the sporting organisation.