Whether you are looking at sponsoring your local junior sports club or an event, a sponsorship arrangement can be an exciting prospect and a great marketing tool for your business. A sponsorship arrangement can develop your brand awareness, allow you to directly engage with potential customers and increase sales. It is best practice to formalise any sponsorship arrangement between your business (as the sponsor) and the sponsored party in a well-drafted sponsorship agreement. This article outlines:
- what a sponsorship arrangement is; and
- some of the key terms to include in your sponsorship agreement.
What is a Sponsorship Arrangement?
A sponsorship agreement sets out the terms on which a sponsor (your business) will provide support towards sponsored parties, such as:
- an event;
- a club;
- a community group; or
- an individual.
For example, many sports clubs, including not-for-profits, rely on sponsorships from local businesses. Often, sponsor businesses provide the main source of financial support for the club to reach its goals. In return, the sponsor business may get:
- its name and business logo on the sports club’s jerseys;
- a sign of your business at their home ground field; or
- free advertising in newsletters and media coverage.
Additionally, festivals or events can rely on free products provided by the sponsor to give away to participants. The sponsor can build brand awareness from the participants, the participants get free products, and the festival or event has made its participants happy.
Key Clauses in a Sponsorship Agreement
It is important to have a sponsorship agreement where you set out the rights and obligations between the parties. In the agreement, you can confirm all commitments made to each other. A sponsorship agreement may also manage any risk and mitigate future disputes with the sponsored party. It is crucial to understand the following aspects when discussing the arrangement with the sponsored party.
Term of Sponsorship Agreement
Your sponsorship agreement should outline the length of the sponsorship arrangement. You might consider whether the sponsorship agreement should go for a longer term or whether the arrangement simply occurs once for a short period.
For a longer-term sponsorship agreement, you may be entering a 12-month arrangement with a sports club. Alternatively, you may decide to sponsor a one-off charity football match.
What might this look like? You may agree to sponsor a local swim team for one swimming season (such as a three-month competition season). Your sponsorship agreement may have an option for you or for the club to extend the agreement for another season (e.g. another three months in the subsequent competition season). There might be some details about how the sponsorship arrangement could come to an end.
Exclusivity
Exclusivity clauses in your sponsorship agreement can put you at a commercial advantage. However, these clauses can be a double-edged sword. An exclusivity clause gives you, as the sponsor, exclusive rights to the club, event, or individual you are sponsoring. If you are the sole sponsor of a club or an event, there will be no competing products or businesses to take the focus off your business. If the sponsored party can accept sponsorship from other businesses, think about whether that includes your competitors.
For example, if you are a soft drink supplier, you might not want to feature on a sports jersey with another drinks manufacturer, but an electrical company might be okay.
How could you manage the above situation? In the exclusivity clause of your sponsorship agreement, you want to define or describe what a competitor looks like for your sponsor. So, if you are a soft drink supplier, you might include something along the lines of, ‘You will not accept sponsorships from another soft drink supplier.’
Payment
One key detail to negotiate with a sponsorship arrangement is payment. Two key questions should come to mind:
1. What benefit am I providing the sponsored party?
You might want to discuss how you will calculate a sponsorship fee or the benefits you will be providing them. For example, you might agree that, for a sporting club, you could give a sponsorship fee. You might even specify that the sponsorship fee you provide goes to new sporting equipment.
Alternatively, if you are a supplier of sports equipment, you can decide to provide new equipment for the team.
2. How am I providing these benefits to the sponsored party?
You should also consider how you will give the benefit to the sponsored party. Will the sponsorship fee be paid in a lump sum or instalments?
Sponsorship Agreement Benefits
It is essential to also set out the benefits you will receive as a sponsor in the agreement. For example, the benefits may include your:
- printed logo on the jerseys of the sports club; and
- logo on any marketing material and social media posts the club creates.
You must ensure that both parties are on the same page about these benefits in exchange for payment. Further, ensure your sponsorship agreement is as specific as possible to mitigate any issues arising from the benefits agreed upon.
Intellectual Property
If you provide your logo or any other intellectual property of your business to the sponsored party to use, your sponsorship agreement should detail:
- who owns the intellectual property; and
- when and how the sponsored party may use it.
For example, you may provide the sports club with a non-exclusive licence to use your intellectual property for certain purposes and the terms set out in the sponsorship agreement.
Additionally, you do not want your logo to be distorted or changed by the sponsored party. Further, you may want to approve any marketing material with your name on it prior to release by the sponsored party. This will ensure that your brand is not adversely affected.
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Termination
You should consider why either party may want to terminate the agreement. You should outline:
- how the agreement may be terminated;
- how much notice each party should give the other; and
- the consequences of termination.
For example, your sponsorship agreement may terminate after 12 months or if a sports team loses the grand final. You may detail how there will be 2 weeks’ written notice and, in that time, the sponsored party is to remove all of your intellectual property (i.e. your logos and other branding) from their jerseys, their merchandise or any other items.
Continue reading this article below the formKey Takeaways
Sponsoring another party is a great marketing opportunity to boost your business profile and income. When negotiating a sponsorship arrangement, you should ensure that the negotiations are accurately reflected in a properly drafted sponsorship agreement. A well-drafted agreement can also assist both you and the sponsored party to benefit from the arrangement. It can also serve to prevent any future disputes by ensuring everything is clearly set out.
If you have any questions or need assistance with drafting or reviewing a sponsorship agreement, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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