What is the function of a sponsorship agreement?
A sponsorship agreement is a contract between a sponsor and a person, team or event under which the sponsor pays for marketing rights.
Sponsorship takes place in sport, music, the arts and other industries. It is an effective way for a sponsor to promote its image by connecting it with a well-known individual, a successful team or a high-profile event. This creates brand awareness through increased media exposure. By carefully targeting sponsorship, it can be used to establish a brand’s reputation and the way people perceive it.
For the person or business who is sponsored, sponsorship can enhance their own reputation and profile in the same way. It also creates another form of revenue.
What types of sponsorship are there?
The usual types of sponsorship are sole, multi, venue and official supplier status. In sole there is only one sponsor. In multi there are many. There can be several tiers of multi-sponsors with different rights and levels of exposure attaching to each of them. These tiers are often described as primary or secondary, platinum or gold and so on. Venue sponsorship is also described as having naming rights and is commonly used for large sporting venues and events. Where there is more than one sponsor, each sponsor will want to ensure that it has exclusive sponsorship rights in its brand sector.
What are the key provisions?
It is important to set out in sufficient detail what has been agreed in relation to certain key issues, including the following:
Territory – what areas are included in the agreement? This could be worldwide, a country, a city or any other definable area.
Duration – how long the agreement should last depends on the type of sponsorship involved and the level of commitment offered. Duration could be limited to one year for an annual event, one season for a sports team or several years for high profile talent from sport or entertainment.
Fee – the fee can be a simple cash amount or the provision of goods or services. It could be linked to certain events or performance and be payable in stages. For agreements lasting more than one year, the parties should consider whether to include an option to review the fee at regular intervals. They might also want to include an option to reduce the fee in the event of a significant change of circumstances.
Rights – the key right is for a business’ brand name to be displayed or for their products to be used by the person who is sponsored. The agreement should set out precisely what size and position of advertising the sponsor is entitled to and in what circumstances their products should be used or mentioned. A sponsor is likely to want to use promotional pictures and film footage of the sponsored person. Any rights to do so should be set out. It is also common for the sponsor to be entitled to corporate hospitality such as free tickets and access to VIP areas.
Intellectual property – the person who is sponsored should ensure that they are granted a licence to use the sponsor’s intellectual property such as their trade mark.
Termination - sponsors will want to be associated with a successful and uncontroversial person, team or event. They should reserve the right to suspend or terminate the agreement for bad performance or unacceptable behaviour.
Are there any restrictions?
There are restrictions in relation to gambling, alcohol and tobacco, so it is important to check whether sponsorship is permitted in order to avoid the agreement being invalid or being liable to any penalties.