Sports Law

CUBBING ISSUES BETWEEN SPONSORS AND SPONSORED ENTITIES.

?

Introduction

The sports industry is fast becoming a growing industry, which accommodates various professionals from all works of life. Sports law, affects sports at every level, from little league teams, to the highest level of professionalism in whichever sporting fields. It becomes crucial to note that due to this growing nature of sports, it has become paramount to find a medium to regulate the activities within the sector, as it is evidently distinct from other works of life. Though disputes may seem similar, they’re different in the world of sports. Owing to this fact, legal professionals within the industry have developed the legal framework that pertains to sports, and the developing issues that evolve from the sector, as disputes which arise in this sector, may not be treated or adjudicated on, in normal/national courts. Hence, further establishing its distinctiveness.

In time past, the idea of sports was like water in a pool (restricted flow and enclosed space). But in the past few decades, it can now be likened to a fountain (flowing and no longer enclosed), as we have seen various bodies like the Federation of International Football Association (FIFA), Confederation of African Football (CAF), National Basketball Authority (NBA), come into the picture, and events like the World Cup and Olympic Games, being organized. The growth can also be seen in players signing contracts, teams having relationships with governing federations and the governing federations having connections with the governments of countries. It is thus, these complexities that have led to the growth and emergence of sports and its regulatory schemes[1].

Ambit of Regulations in the Sports Sector

The sports sector, is and involves all matters that are associated with Olympic or professional athletes, not leaving out amateur and youth sports as well. A wide variety of regulations, influence the sports industry, such as; regulations on personal injury, contract, crimes, intellectual property and athletic administration[2]. Thus, it is an amalgamation of laws and regulations that apply to athletes and the sports they play, that defines the ambit of these regulations in the sector. It is hence, not a single topic, with generally applicable principles.

Issues in the Sports Sector.

Owing to the massive growth and complexities in the sporting sector, it definitely leaves it with a lot of issues and disputes, hence the rising need for sports lawyers. Some of these issues, include, but are not limited to; technology integration, hyper focus on negative stories, taxation, commercialization, doping, sponsorship, etc. While these will be dissected in subsequent articles, the main focus of this article is on the issue of sponsorship, relating to issues between sponsors and sponsored entities (in sports).

Cubbing the Issues that Arise Between Sponsors and Sponsored Entities in Sports.

A sponsor for purposes of this discourse, is a person or organization that pays for, or contributes to the costs involved in staging a sporting event, in return for a gain (either monetary, publicity or goodwill). Thus, in a more conceptualized view, sponsorship is the act of supporting an event, activity, person or organization, financially, or through the provision of products or services.[3]

On the other hand, sponsored entities in simple parlance, refers to the person or organization that is being sponsored. Sponsored entities in most cases, are also right-holders, having some form of legal right(s) in something.

Sponsorship occurs at all levels of sports, from individuals to teams and leagues. However, not only the big leagues or most of televised sports, such as the Tour de France, Champions league, Formula 1 or Olympics, receive sponsorship. For instance, school teams may have a sponsored kit or promising students may obtain scholarships, while elite athletes may earn big bucks to wear certain wears or use branded equipment. Logically, the amounts of money paid and the media coverage or publicity are correlated. It must also be noted that an entity can have more than one sponsors (as is most times the case).

The types of sponsorship that exists are:

a.??????Individuals – Performers might display a logo, wear a particular brand or endorse products. Brands on the other hand, pay for training, competition, travel cost etc.

b.?????Teams - A team or club, may wear a kit, display banners or carry a company name for the team or venue. The sponsor in turn keeps his end of the deal.

c.??????League, Body or Tournament – In this case brands fund the running of competitions, cups, leagues, while they create massive publicity, improve facilities, and the organizers allow the use of the sponsored product/services.

In the course of this article, issues might cut across the various kinds of sponsorship mentioned. In an attempt to proffer cubbing mechanisms to problems that may arise from this form of relationship in the sports industry, it is important to note that investments in commercial sponsorship as a marketing communications tool have expanded rapidly in the last two decades. And often than not, we have witnessed the falling apart of sponsorship deals between a sponsor and a club, individual or association. These issues, seem rampant, but are the resultant effects of failing to acknowledge what may seem minute, but crucial in contract formulation between sponsors and the sponsored entities. These issues will be dissected below and possible recommendations given to each.

Sponsorship Exclusivity

While scholars have identified numerous corporate objectives for sports sponsorship, differentiating the brand from competitors, is a distinctive tactic essential for realizing a competitive advantage[4]. Sponsorship exclusivity, stipulates that a sponsor will not be rivaled by a competitor, for products or services given or rendered to the sponsored enterprise. This means that if there are for instance two energy drink companies, ‘A’ and ‘B’, and a sporting entity ‘C’, if ‘A’ and ‘C’ agree that ‘A’ will be a sponsor to ‘C’, it is taken that ‘A’ should not be rivaled by ‘B’ or any other energy drink company, as pertaining to the sponsorship of ‘C’. This is thus the concept of exclusivity.

However, this is not where the issue lies. The problem arises when ambush marketing becomes present. This becomes the case, where a competitor engages in another sphere of sponsorship, in the same sponsored enterprise. An afforded instance is the Pepsi & NASCAR[5] case. In this instance, after NASCAR driver, Jamie McMurray, raced to victory, in an event title, sponsored by Pepsi Co, McMurray proceeded to the winner’s circle to chug his own sponsor’s signature beverage, Coca-Cola Classic (a big rival of Pepsi Co), in front of a myriad of photographers and video crews[6]. Although Pepsi had secured an exclusive sponsor position with the race promoter and venue, Pepsi’s bitter rival, Coca-Cola, was able to steal the images of the winner’s circle by affiliating with a driver and team competing in the event. Another example, can be seen in the 2014 World Cup, which was sponsored by Coca-Cola but also turned out to be some sort of ambush marketing, with some players (the likes of Lionel Messi and Paul Pogba) carrying out adverts for Pepsi Co (Coca-Cola’s rivals), within the same tournament.

Thus, to mitigate this form of sponsorship clutter within a product category of rivals, key attention must be given to the drafting of the agreement of sponsorship. Questions pertaining to absolute or limited exclusivity must be answered, restrictive clauses must be invoked, full disclosure of any other sponsorship agreements between competitors in that tournament or event, must be made, as well as the extent of rights thereto. Proper analysis between the various parties involved in organizing, hosting, promoting, and competing within the sports event is necessary to contractually outline the sponsorship rights, relationship and ensure the absence of conflicting sponsor affiliations. Relief events clauses in individual sponsorship/endorsement is also necessary, to avoid unnecessary disputes and escape payment of damages, that may arise on the account of non-performance of duties of such individual(s) to their sponsors, during the time of such event or tournament.

Further, for this type of contractual relationship (sponsor and sponsored entity), contracts alone are not sufficient assurances of success in sports sponsorship. Contemporary sponsors expect the professionalism of relational orientation, where communication, trust, commitment, and mutually derived benefits are emphasized despite the associated transaction costs[7]. When these relational qualities are deemphasized and partnerships break down, sponsors are willing to pursue extensive legal action to protect their exclusive rights. The case of MasterCard v FIFA[8], is illustrative of this. A synopsis of the case, is that MasterCard entered into a sponsorship agreement with FIFA in 1990, that would span over 16 years and 7 World Cup competitions, to secure exclusive sponsorship rights, in the ‘payment services’ product category of the World Cup tournaments around the globe and thus, invested nearly $100million for this. A year to the end of this contract, FIFA reached out to VISA, MasterCard’s primary competitor, offering them the opportunity of sponsorship. VISA inquired into the sponsorship agreement between FIFA and MasterCard, which FIFA denied, saying there was no existing agreement in place. MasterCard was oblivious of what FIFA was doing and, in a bid, to renew the sponsorship rights, made an offer of $180million, which FIFA accepted but did not end their mischievous schemes there. FIFA disclosed the offer of MasterCard to VISA and pressured them into matching or beating MasterCard’s offer as opposed to the $160million VISA initially proposed. VISA increased their offer to $180million in cash and $15million in kind. FIFA accepted but kept MasterCard in the dark about all these. MasterCard subsequently knew about this when VISA officially released a statement on reaching an agreement with FIFA, and on this account, instituted an action against FIFA. FIFA was ordered to specifically perform the contract with MasterCard for which they had reached an agreement that would span from 2007 – 2014. But MasterCard decided to part ways with FIFA upon the damage payment of $90million mainly because the relational qualities stated above were absent, as seen in FIFA’s conduct. Also, the case of AT & T Mobility LLC v NASCAR[9], is not far-fetched as regards these disputes. Thus, heed must be given to the recommendations given, supra.

Sponsorship Fees

This may sound too minute to cause a dispute between sponsors and sponsored entities, but in fact, is not. Often than not, sponsorship agreements are rushed into, with the excitement of the benefits that accrues thereto, and disregarding key elements that could cause disputes. For instance, let’s say there is a sponsorship agreement between Chicago Bulls (a basketball club) and Motorolla (a tech brand), and flowing from this agreement, Motorolla agrees to pay Chicago Bulls, the sum of $50million for their brand promotion, publicity and exclusivity. To avoid lurking possibilities of a dispute on this, the agreement must spell out the nitty-gritty of whether the whole of that sum will be paid in cash or kind (maybe through supply of jerseys, kits, tech products etc.) or both. Also, if Chicago Bulls were to get demoted to a lower division of the league, or to switch into a rugby team, would payment of the $50million still be feasible? Most times, these questions are left unanswered, when it comes to sponsorship fees. Thus, to cub incessant disagreements that may arise, certain elements, such as; the payment type (cash, kind or both), parameters that define payment (such as club performance) if any, must be unambiguously stated.

Morality and Frustration Clauses

When we talk about morality, we are simply differentiating the right, from the wrong, from an objective point of view. Morality clauses are necessary to be invoked. This is because one of the aims of sponsorship is to build goodwill. The question becomes, what would happen, if the sponsored entity does something that would bring a wrong reputation to all those associated with it? A vivid example would be the case of Mason Greenwood (a soccer player) and Nike (a brand for wears)[10]. A brief summary is that Mason, was arrested and charged with allegations of attempted rape, assault and coercive and controlling behavior in January 2022 and had been in detention for a year, until the case was discontinued and all charges dropped, early in 2023. Prior to the discontinuance, Nike had called off its sponsorship agreement with Mason, based on all these and certain revealed evidence. The point here, is the fact that Nike, was able to this without any payment of damage to Mason, because clauses like these, existed in the agreement. Thus, an inclusion of morality clauses is also an effective cubbing mechanism for disagreements that may arise if things were to go south.

On the other hand, frustration (unforeseen circumstance) clauses are necessary to, to determine the extent of sponsorship payment to. This needs to be, because while the past has happened, and the present is known, the future remains uncertain. Thus, sponsors and sponsored entities, should create room for this while reaching an agreement. A relatable example, would be the outburst of the Covid-19 pandemic in 2020, which left the world of sports, teams, organizations, individuals and their sponsors quite devastated. We can now see that the need for frustration clauses cannot be overemphasized. Questions on how things will lie between sponsors and sponsored entities if such was to happen, need to be popped in negotiations. Another recommendation would be carrying out insurance for unforeseen circumstances. When this is done, sponsors and the sponsored will not have to bear the full burden of payment or non-payment, as the case may be.

The Concept of Intellectual Property

For sporting giants, like the Yankees, Manchester United Football Club, F.C Barcelona etc. (all of which frequently feature in the Forbes top 10 most valuable sports team in the world), multimillion dollar sponsorship deals are not just routine, but expected, alongside the team or event rights. However, individual athletes hold valuable individual image rights that they understandably want to exploit. And most of the times, the individual’s interest in exploiting their own image rights, will not align with that of the team or sponsors. It is as a result of this that disputes are usually birthed.

In order to solve this, full disclosure, defined parameters, social media policies and due diligence in drawing up the agreement has to be in place, because athletes, teams and bodies are constantly leveraging on various intellectual property rights, to also boost revenue and enhance status. Let’s say for example, that James is a basketballer and registered with the Chicago Bulls, and that Pepsi Co is their main drink sponsor, but Coca-Cola wants to sponsor James alone and not the team, to leverage on his fame. Can you now see a collision there? The truth is, James has the right to exploit his image and fame but if he does, there would be an inhouse dispute as to which brand really has the endorsement of the club. Thus, an insight to this is necessary to avoid collision of rights and increase enhancement of duties.

?

Conclusion

Sponsoring a sports team, event or athlete, is one of the most effective ways to market your product or service. According to a study by the Independent Evaluation Group (IEG), sports sponsorship generates an average Return on Investment (ROI) of $6.20 for every dollar spent. That’s significantly more than other forms of marketing or advertising. By conceiving of sports sponsorship relationship, the corporate partner and sports enterprise are encouraged to take a deliberate, collaborative approach to instigating a partnership that emphasizes a mutual understanding of both parties’ objectives and commitment to a long-term vision, as strategic alliance approach is thus more important than ever in this competitive promotional environment.

???

[1] https://www.thelawyerschronicle.com/an-overviw-of-sports-law-and-practice/

[2] https://sbemp.com/what-is-sports-law/

[3] Wikipidia- what is sponsorship

[4] Cornwell, T.B., Roy, D.P., & Steinard, E.A (2001). Exploring managers’ perceptions of the impact of sponsorship on brand equity.

[5] National Association for Stock Car Auto Racing

[6] ibid

[7] Joe Cobbs; Legal battles for sponsorship exclusivity: The cases of the World Cup and NASCAR.

[8] 464 F. Supp. 2d 246, 2006 U.S. Dist. LEXIS 88103 (S.D.N.Y., Dec. 6, 2006)

[9] 487 F. Supp 2d 1370, 2007 U.S Dist. LEXIS 36299 (N.D. 2007)

[10] https://www.goal.com/nike-and-mason-greenwoods-contract/