Faster, higher, stronger—the challenge of sports sponsorships

Faster, higher, stronger—the challenge of sports sponsorships

We recently asked Craig Giles, associate at leading sports law firm Bird & Bird, 'what complications arise when sponsors seek to develop a campaign in the sports sector?'

And then this happened:

And this:

Did nervous sponsors contribute towards Mr Blatter's decision?

At the moment, we don't know.

Whatever the reason, the ESA makes a valid point:

So what do you need to know if you are advising a client which is looking to enter into a sponsorship arrangement? Things, as we have seen, can go from 'fantastic' to 'challenging' very quickly indeed.

Craig Giles explores some of the important challenges that face sports sponsors below.

How does sports sponsorship differ from other forms of sponsorship?

What distinguishes sports sponsorship from other types of sponsorship is the wide-range of opportunities available. You can decide to sponsor:

  • a team
  • an event, championship or league
  • a venue or arena
  • an individual
  • sporting content, such as a television programme

Each type of sponsorship carries its own potential risks and rewards.

Ultimately, a sponsor will need to decide which property is the best fit with the sponsor’s brand, and offers the greatest exposure in the territories and to the demographics that the sponsor wishes to target.

What are the key issues for rights holders?

Before commencing the sale of any sponsorship packages, a rights holder should undertake a rights assembly exercise to identify the rights that it has available to offer.

The rights holder will also need to consider whether it needs to take any steps to protect those rights or to acquire additional ones from third parties—for example, by obtaining rights to use player imagery, or purchasing advertising inventory around a stadium.

The rights holder will then need to consider how best to structure its sponsorship programme in order to secure its desired goals. It is common for rights holders to operate a hierarchy of sponsors—with those at the higher tiers, such as the title sponsor of a league, being offered a greater range of rights than those at the lower tiers.

It is also common for rights holders to require some of their sponsors to provide goods or services as ‘value in kind’ as part of the overall consideration under the sponsorship agreement. This can help the rights holder by enabling it to obtain the key products or services it needs in a cost effective way, as well as benefiting from the specialist knowledge or expertise of the sponsor—for example, in order to design a bespoke playing kit, or procure technology for a stadium.

However, the rights holder will also wish to ensure appropriate safeguards are in place if issues arise in the quality or delivery of those products or services, such as the right to source alternatives from another supplier, or making arrangements to ensure there is no interruption to the rights holder’s business if the sponsorship terminates.

What are the key issues for sponsors?

A sponsor will need to determine where it sits within the rights holder’s sponsorship hierarchy, and the degree of exposure its brand is likely to achieve as a result of the sponsorship.

Sponsors will also generally require a commitment that the rights holder will not grant rights to a competitor. This is typically achieved by defining an exclusive product or service category for the sponsor, such as ‘sports goods’ or ‘alcoholic drinks’—usually accompanied by detailed specifications of which products or services fall within that category and which are excluded.

The sponsor will also wish to obtain commitments from the rights holder that it will take action against competitors seeking to ‘ambush’ the sponsor’s rights by claiming or implying an unauthorized associated between the competitor and the rights holder.

In addition to reviewing the rights offered by the rights holder, the sponsor will need to take into consideration how it intends to activate those rights and the costs it will incur in doing so.

The sponsor will also wish to consider what protections it requires in the event the sponsorship is not working out as planned. This could involve the right to receive a fee reduction if the rights holder’s sporting performance falls below that expected, or possibly a right to terminate the arrangement.

What regulatory requirements may apply to the sponsorship relationship?

This will very much depend on the nature of the sporting property and the area of business of the sponsor.

However, it is likely both rights holders and sponsors will require familiarity with the Broadcast Committee of Advertising Practices Code and the Committee of Advertising Practices Code (click here for details), and the Ofcom Code—in particular Section 9 which deals with sponsorship in television programming.

In addition to general laws and regulations, sponsors will need to be aware of any sport-specific regulations that could affect the sponsorship relationship. For example, sporting rules may contain requirements about how a sponsor’s logo can be depicted on playing kit, or contain prohibitions on players undertaking personal endorsement activity during the course of a tournament. Rights holders will also need to be aware of any industry-specific regulations applicable to the sponsor—in particular in highly regulated industries such as gambling services.

What disputes commonly arise surrounding sports sponsorship?

A common cause of dispute is the rights holder failing to deliver the agreed rights. This is sometimes the result of the rights holder over-promising, or promising to deliver something that was outside their control. Such disputes can sometimes be avoided by including a pre-agreed compensation mechanism in the contract—for example, requiring the rights holder to deliver replacement rights or to offer a fee reduction.

So-called ‘morality clauses’, such as a contractual assurance from a party that its conduct will not result in reputational damage to the other party’s brand or image, remain a hot topic. These can be subject to detailed negotiation at the contract stage.

There have also been some high-profile cases concerning rights holder failing to honour the exclusivity commitments in their sponsorship contracts, or obligations to offer a sponsor an opportunity to renew the relationship at the end of its term.

What forthcoming developments can be expected in this area?

While it is unlikely there will be any legal developments regarding sponsorship as a whole, the sponsorship of sport by businesses operating in certain industry sectors is likely to become increasingly regulated—in particular in respect of the gambling, fast food, and alcohol industries.

Recently there has also been a trend for sponsors to require more tailored packages of rights that provide the sponsor with better opportunities to engage with its target audience—e.g. by securing commitments for players to use the sponsor’s products, or for the rights holder to deliver ‘money can’t buy’ opportunities for the sponsor’s customers. It is likely that this trend will continue to develop.

So what do you think? As always, do let us have your thoughts below.

Interviewed by Ioan Marc Jones. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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