Sponsorship is about supporting an event, activity, person or organisation through the provision of products, services or financial assistance. Unsurprisingly, many tend to associate sponsorship arrangements with philanthropic endeavours. However, sponsorship and philanthropy are two distinct concepts and need to be recognised as such. While both premise the desire to promote the welfare and business of others, the driving force behind each is entirely different. Philanthropic efforts are benevolent and undertaken without any expectation of an in-kind reward or benefit being received in return. Sponsorship arrangements, on the other hand, include an expectation of a commercial return.
Therefore, sponsorship agreements should be treated with the same degree of scrutiny and scepticism as any other commercial contract. This is particularly the case in corporate sponsorship arrangements where the contracting parties are business entities.
Businesses enter into corporate sponsorship agreements for a variety of reasons, e.g. to obtain naming rights, increase their brand awareness, promote their products/services and leverage the resources and assets of the other contracting party against their processes. The type of reward that is to be received under the arrangement will largely determine the form and substance of the engagement. Having said that, there are terms common to all corporate sponsorship agreements. A well drafted corporate sponsorship agreement should address each of the following terms and ensure that they correctly reflect the intended sponsorship arrangement.
At the outset, a sponsorship agreement needs to set out clearly what the sponsorship term is, that is what is the length of the engagement? In this regard, it is important to consider whether the relationship is for a fixed term or is ‘evergreen’ (automatically renews). If the engagement is for a fixed term, the parties also need to decide whether they wish to afford each other a right to renew. If they do, an appropriate renewal mechanism needs to be drafted into the agreement. These are all commercial issues that must be discussed and agreed upon before execution of the formal document. Leaving anything to chance leaves the door open for miscommunication and conflict.
Exclusivity of the arrangement
A second relevant consideration is the exclusive or non-exclusive nature of the alliance. Exclusivity refers to a state of being limited or restricted from undertaking a particular course of action. When speaking of exclusivity in the context of commercial sponsorship agreements we are referring to each party’s ability to engage in activities which may detract from, compete with or be inconsistent with the purpose of the sponsorship arrangement. For example, if a clothing retailer enters into a corporate sponsorship arrangement with a charitable institution, they may require the charitable institution to refuse offers of sponsorship from other clothing retailers or manufacturers. In this regard, the parties’ arrangement would be partially exclusive. By the same token, it could be an essential term of the contract that neither party will accept any other offers of sponsorship. In such a case, the parties’ arrangement would be wholly exclusive. In circumstances where the parties are happy to allow one another to enter into sponsorship arrangements with others, the engagement would be seen to be non-exclusive. Whether or not a sponsorship arrangement should be exclusive or non-exclusive is a commercial matter for the contracting parties to decide.
As mentioned earlier, the thing that distinguishes sponsorship arrangements from philanthropic endeavours is that, unlike the latter, the former comes with an expectation of receiving an in-kind reward. Accordingly, it is of vital importance that the agreement reflects the consideration (payment) that is due. The consideration can take the form of a fixed or variable sponsorship fee that is payable from one party to the other, or the in-kind exchange of goods and services between the parties. Irrespective of what form the consideration is to take, the parties must clearly set out a mechanism by which to quantify, record and, if relevant, make payment in respect of the same. A poorly drafted consideration clause is one of the most common causes of disputes in a commercial context.
In the context of any arrangement that involves collaborative efforts, it is important to distinguish between background intellectual property and project intellectual property. Background intellectual property is intellectual property which is made available to the collaborating parties (sponsor and sponsee) during the term of the sponsorship. It usually comprises of intellectual property which has been created before the date of the sponsorship or separately and independently of the engagement during the term of the sponsorship.
Project intellectual property, on the other hand, arises from a collaborative relationship or is developed by the collaborating parties during the undertaking of their respective sponsorship obligations. It is important for a corporate sponsorship agreement to reflect that background intellectual property will remain the property of the contributing party to the exclusion of the others. On the other hand, project intellectual property can be jointly owned by the parties or owned by one or more parties and licensed to the rest.
Collaborative endeavours inevitably lead to a disclosure and sharing of the parties’ confidential information. To minimise the threat of disclosure, it is important to identify what information is confidential and to what use it can be put.
Termination can happen automatically, e.g. upon expiry of the term, or occur upon the occurrence of a specific event or condition. If you wish to retain the right to terminate the arrangement in specific instances, this needs to be clearly set out. Think about whether the circumstances upon which the agreement can be terminated should be wholly mutual, or partly mutual and early unilateral. Also, consider the fairness of such provisions.
When engaging in a sponsorship agreement, the most important thing is drafting clear and comprehensive terms into the contract.
If you would like to know more about corporate sponsorship agreements or if you need a corporate sponsorship agreement drafted or reviewed, why not contact our team of LegalVision contract lawyers. We would be happy to assist and answer any questions you may have.