Drafting a sports sponsorship contract? Think small print

Risk of ’guerrilla marketing’ is always in the mind of a sponsor

In September a successful five-year brand partnership between the Dublin GAA and AIG Insurance was announced. At the same time Rory McIlroy had his sponsorship dealings scrutinised in the High Court in relation to a dispute with his former management. In recent weeks Adidas announced that its long-standing position as rightsholder for the FIFA World Cup would be extended to 2030. As with any sector, deals are done, parties sometimes fall out, legal disputes arise and the rights and wrongs of contracts are debated. Lessons can be learned from the paths walked by others.

Sponsors pay to promote their products, logos or brands alongside brands that are attractive to their target audience. In the sports industry sponsorship is huge business. Sponsors pay large amounts of money to secure brand placements alongside high value brands such as the Olympic rings. Sponsorship deals also arise in all sorts of other areas, including the media, venues and the arts. Some sponsorship opportunities are unusual. In 2012 Red Bull sponsored Felix Baumgartner in his successful 128,000ft sky dive. The Red Bull branded video of the dive has been viewed over 35 million times on YouTube.

Sponsorship agreements are the same as any other commercial contract. Their purpose is to record the terms of the deal which the parties, the sponsor and the brand owner, strike between them. While the contracts tend to be quite bespoke, tailored to take account of the sponsorship opportunity and the benefits for the sponsor of linking with the brand, there are some topics that often need to be dealt with in those documents.

It is important for a sponsor to document how much it is to pay for the opportunity, and what it gets for the payment. Sometimes sponsorship agreements involve one-off or fixed payments. But they often contain more complex payment provisions, linking the success of the relationship to the amount of money paid for the deal. The value of a sponsorship deal is not always agreed purely in terms of cash payments. Sometimes sponsors provide prizes, carry on marketing campaigns or contribute products.

Before a brand owner embarks upon a sponsorship programme it should have taken appropriate legal steps to protect its brand. It should apply for registered trade marks in the jurisdictions in which the brand has value. Sponsors will look to see that a brand owner that has properly protected its brand from a legal perspective as this means that the brand owner will be able to protect the sponsorship opportunity from those who might seek to opportunistically exploit it in an unauthorised fashion.

Brand owners will try to ensure that they fully leverage their ability to make money or to otherwise benefit from sponsorship opportunities. On the other hand, sponsors often want exclusivity. Sponsors do not find their brand sitting alongside a competitor brand in relation to the same sponsorship opportunity. Often the brand owner will split up sponsorship opportunities into various categories. A lot of time and effort is spent detailing and scoping out the exclusive nature of sponsorship arrangements.

The risk of ambush or guerrilla marketing is always in the mind of a sponsor. Where time and investment is put into an exclusive sponsorship deal, the sponsor will not want to find that a competitor successfully diverts the attention of the target audience away from the sponsor. Often, as part of the contract, the sponsor will oblige the brand owner to take legal action to defend and police the sponsor’s rights secured as part of the contract.

As a sponsor, it is very important to ensure that it secures all the rights that it needs to fulfil its marketing plans. Even some of the big brands do not think this aspect through fully. In 2012 Samsung found itself embroiled in a legal dispute with various athletes in respect of its Olympic Genome Project, a media campaign allowing people to identify their links to famous Olympians via Facebook. Samsung did secure the all-important sponsorship rights from the International Olympic Committee regarding use of the Olympic brand, but did not seek permission to use athletes' images from athletes; it consequently found itself in court.

Sponsorship agreements must anticipate that sponsors often need to take quick and public steps to disassociate themselves from a brand which has been damaged. Sponsors generally secure a right to terminate deals when certain trigger events occur. Lance Armstrong lost eight sponsors (including Nike and Trek) in less than 12 hours during October 2012 when news about drug-taking hit the headlines. It is important, when drafting sponsorship agreements, to think about all the eventualities. It is also not unusual for brand owners to seek termination rights for similar reasons.

To prevent sponsorship deals making bad press, brand owners and sponsors alike need to think carefully about what their contract contains, and what might happen in the course of the relationship. They should take the time to put the foundation stone, a thoughtful sponsorship contract, in place.

Deirdre Kilroy is a partner in Dublin law firm LK Shields