Effective Sponsorship Agreements: Essential Guidelines for Sponsors
A sponsorship agreement is a long-form contract that serves as the foundation for the relationship between a sponsor and a rights holder or property.
The sponsorship agreement provides legal protection, sets expectations for how the relationship will function, and defines the consequences if any party fails to meet their commitments.
Despite the best intentions of legal counsel, sponsorship agreements are often inadequate.? Why?? Because a sponsorship agreement is the foundation for a complex relationship.? It’s unlike most other contracts a sponsor’s organization would contemplate, draft or execute.? The relationship between a sponsor and a rights holder is dynamic, fraught with risks for the sponsor, and governs a volatile set of assets.
There are a set of fundamentals for how a sponsors should approach its long form agreements.? Here are just a few:
Rule One: Use Your Own Template
Use your own paper.? Develop and consistently use your own template (we can assist with this).? Using your own paper not only makes it easier for your inside or outside counsel to review (they’re not having to look at a different agreement each time you renew or add a property partner), but your template bakes in your mandatories (around indemnification, insurance, confidentiality, force majeure).
The exception to this is that most professional sports clubs/teams are required to use an approved league sponsorship agreement template as part of their franchise agreement with the league.? This helps the league and the team/club manage the sponsorship assets that both have control over.? Moving off a league approved template is possible, but it slows down process and challenges the confidentiality of the parties to the agreement because the league then needs to approve the off-template agreement.?
?Lock Business Terms
Before moving to a long-form agreement, codify the business terms in a Letter of Intent (LOI) as soon as possible after reaching alignment on deal points with the rights holder.? Ideally, you have an LOI in place within two weeks of alignment to deal points.?
Beware the Second Negotiation
The back-and-forth between the sponsor and the rights holder during the sponsorship agreement process is often referred to as the 'second negotiation'.? Deal points can be reversed, protection and value can be eroded, sometimes in the interest of ‘getting the deal signed’ quickly (see above on LOI importance).? Rights Holders often exploit the second negotiation with intention.? Once the deal points are agreed to, don’t let the second negotiation erode value or benefits.
Modernized Force Majeure
Many sponsors found that the force majeure clauses in their agreements were inadequate during the COVID-19 pandemic.? Pandemics, impacts from climate change, geopolitical issues, and more, should all be well contemplated in a sponsorship agreement.
Define Make Goods and Penalties
A sponsorship agreement should clearly outline what happens if elements of the value proposition cannot be delivered.? Having this as part of the sponsorship agreement creates shared understanding between the parties for what make goods and penalties will follow.? Rights holders will want language around make goods and penalties to be vague, providing them flexibility in the moment when aspects of the sponsorship agreement can’t be delivered.? A sponsor should want specificity around failures in value delivery (failures that don’t constitute as material breaches).? Having this specificity makes the discussion between the parties around make goods and penalties pro quo and helps protect the quality of the relationship when value isn’t delivered, whether through fault of the rights holder or not.
Need help developing a sponsorship agreement template tailored to your business or rethinking your approach to sponsorship agreements? Contact us at [email protected] for our unmatched expertise.