Sponsorship Agreements: Terms and Considerations

What Is a Sponsorship Agreement?

What is a Sponsorship Contract?
When we refer to a "sponsorship contract" we mean an agreement that is entered into between a sponsor and an event owner. The term sponsorship will be considered to be defined as the financial or in-kind support of an event in return for a right of association with the event. The term "event" can include an exhibition, conference, convention, trade show, festival, sporting event, sporting team, club, tour, venue, location or any other similar activity or event. Events are often organised to generate income from sponsorships . A sponsorship contract is usually the key document in that process. Sponsorship contracts can also involve sponsors and teams, individuals or clubs. For example: a sponsor may be interested in supporting an individual athlete, or the Australian rugby union national team.
Sponsorship contracts are generally important because: It is important to define the terms used in a sponsorship contract, as the term ‘sponsorship’ can be defined differently by different people. A sponsorship contract is not the same as an endorsement agreement, advertising contract or licensing agreement.

Key Components of a Sponsorship Agreement

When it comes to the drafting of sponsorship agreements, the subject matter should always dictate the format used. There are different forms of sponsorship contracts suited for a variety of different types of transactions. A simple sponsorship agreement could be a one-page letter agreement, while more complicated sponsorship agreements in the media industry, sporting, leisure and cultural industries usually entail lengthy legal documentation. Nevertheless, once the form of the contract is decided and before a sponsorship contract is signed, there are certain basic terms that should be included in every sponsorship contract. These include the following: Information regarding the parties involved. This may include the name of the corporate sponsor, full particulars of its business and, if the sponsor is another corporate entity, the name of the holding company or parent company. Definitions. All the defined terms in the agreement should be in bold and should be clearly defined. The terms and duration of the agreement. It should be clear in the agreement that the sponsor is bound by the terms of the sponsorship agreement and for how long. Territory. Where the sponsor is the proprietor of a publication, the zone, state or territory in which the sponsor publishes the publication should be clearly defined. The deliverables. This will include the rights and benefits that the sponsor is purchasing from the event owner, including but not limited to recognition of the sponsor’s trade name, logos, signage, links, use of any branded websites and radio, television coverage, exposure through aviation, municipalities, transportation, telecommunication, the Internet, health clubs, domestic and foreign media, the hospitality industry and retail outlets. The payment provisions. The contract will specify the payment schedule, the amount of the sponsorship fees, and what currency these fees are denominated in. How the sponsor will protect their brand and trademarks. Termination and cancellation clauses.

How to Write a Sponsorship Agreement

Drafting a Sponsorship Contract is best thought of as part of that process. It’s certainly important to have a written agreement, but after the negotiation process is in full swing and the results of those discussions can be clearly seen. Prior to that, many of the provisions will simply be placeholders or even worse will be inaccurate or misleading as the result of what is being discussed at the time. Rather than confusing the reader, I’ve decided to avoid placing examples of contract terms into this post until they accurately reflect my experience with the usage of a specific deal. That will be for a future post, the drafting will indicate that it is now a draft of an executed deal, at least though the closing.
Although there’s no "master template" for sponsorship contracts, there are some basic conventions that you should be aware of beforehand:

• Be Clear and Specific – In sponsorship contracts, vagueness is the enemy. From the outset, ask yourself how clear one party would like the contract to be before signing. When in doubt, always lean towards specificity. It’s also a good opportunity to provide perspective from the outset. For example, rather than just stating what rights are granted to a sponsor, state clearly how their actions would affect the parties if it impacts attendance, revenue, etc. The parties can then weigh these factors when moving forward. Then, when the parties are clear about what the contract means, they can dig into the specific language itself.
• Get the Other Party’s Input to the Deal – Frankly, you’d be amazed at how many people fail to ask what another party thinks about the deal. From the outset, a client is rarely going to see a deal equally (even more so if they have a particularly strong mindset) and probably places too much emphasis on certain parts of the deal. The goal is not to "get the rights granted and exclusivity locked up" before you send a draft to the other party, but to understand both sides of the deal by putting together a cohesive draft that not only reflects your desires, but the goals of the entire agreement. Don’t try to push a deal through without understanding how both sides feel about the agreement. The result may be a poorly-drafted contract that won’t be honored by either party and will dramatically delay the closing.
• Don’t Use Templates without asking – Templates are a fantastic way to save time, but they’re not appropriate for every deal. It belies the complexity of a deal when you’re reading a contract but doesn’t make it any less present.
• Make it Presentable – Contracts aren’t inherently hard to read, but they’re often presented poorly. Headers, numbering and break the content into sections that are easy to understand. This makes the process of reading a contract much easier to understand.
• Re-Read, Re-Read, Re-Read – Before sending a contract, re-read it several times for obvious grammatical mistakes as well as to ensure that it accurately reflects the parties’ intended deal. You’d be shocked by the number of times that I’ve received contracts in my office that are simply erroneous. (We all make mistakes, including myself, so don’t feel bad!)

Negotiating a Sponsorship Agreement

While the proposal outlining the objectives and performance expectations of the sponsorship will provide a framework for the contract negotiations, it is often the contract negotiation process that will set the tone for a successful and long-term relationship. It is critical for both the sponsor and the sponsored property to understand the terms of the contract to ensure and protect the business value behind the sponsorship. The objective of the negotiation process should be to arrive at a balanced deal that can be reasonably fulfilled by all parties.
A good starting place for an effective negotiation is for both parties to explore and understand each other’s genuine needs, objectives and wants. In this context, needs refer to what the party must receive from the relationship, objectives refer to the recipient’s overall goals, and wants refer to what the recipient would like to have as part of the relationship. As the relationship unfolds, new needs, objectives and wants may emerge, often during contract negotiations. Therefore, it is necessary for both parties to remain flexible to ensure that the contract remains a mutually beneficial arrangement.
As in most business agreements, the parties must be concerned about the legal, financial and public relations implications arising from the contract. Both parties should also ensure that any potential conflicts between their respective internal departments have been resolved . Silos among the various departments of either the sponsored property or the sponsor can result in a badly negotiated contract that fails to meet the needs of both parties.
Negotiation of a sponsorship contract will often require an upfront investment of time, resources and money. For example, sponsors typically negotiate a contract that provides them with a free use of seats, while the sponsored property would rather sell the seats. Therefore, the sponsor should also consider the opportunity costs associated with the arrangement and offer some benefit to the sponsored property. Sponsored properties should also consider the value of a package when deciding whether to negotiate with a sponsor. The value of the package can often be enhanced through the negotiation process.
The parties should also ensure that the sponsorship contract is clear about the deliverables of each party. Good measurement techniques should be included in the contract to provide an objective basis for identifying which party is responsible for a shortfall when those deliverables are not met.
In negotiating a sponsorship contract, other than making sure that the contract includes all the performance deliverables, it is advisable to ensure that the contract includes the following clauses: While there are many other clauses that can be included in a sponsorship contract like termination, indemnification, dispute resolution and assignment clauses, these clauses are a minimum requirement for a good sponsorship contract.

Legal Considerations in Sponsorship Agreements

When finalizing a sponsorship contract, there are key legal considerations. Because sponsorship contracts usually involve the use of intellectual property to promote the product or services, both parties should consider IP rights and register trademarks to protect their respective interests. For example, if an event organizer will be using the sponsor’s name, logos, taglines, etc. as its brand, the sponsor should ensure that all of those identifiers are registered as trademarks in Canada and around the world, depending on their planned scope of use. Trademarks are generally territorial rights, so registration is needed in each jurisdiction where IP will be used. Consideration should also be given as to whether pending registrations can be expedited. Conversely, it is important for event organizers to review the sponsor’s trademarks, and negotiate permission to use the sponsor’s IP in a manner that is reasonably expected and customary based on the scope of the sponsorship being provided and in accordance with advisory trademarks, where applicable.
Liability and indemnification clauses serve to protect sponsors from liability of third party claims (for example, negligence or other improper conduct) arising from the promoter’s use, and to further protect sponsors from being forced to indemnify or reimburse promoters for loss of sales, cancellation, relocation, or other costs. Sponsors should negotiate to be protected for liability that arises from any "act or omission" of the promoter or (its) agents under the control of the promoter where the liability is also contributed to by the sponsor’s own acts or omissions.

Tips for Managing Sponsorship Agreements

Keep the lines of communication open to ensure expectations are understood and clients and sponsors are on the same page as the sponsorship progresses. Regularly request and review reporting from your sponsors to ensure they are adhering to the sponsorship contract terms and obligations. Transparency and open communication will make it easy to address any concerns or issues as they arise. If expectations are not being met , work to find a solution that meets the sponsor’s needs while achieving results for your client. If necessary, host a post-event wrap-up with your client, sponsors and any third parties to discuss the event success and make plans to improve the relationship moving forward.