Sponsorships can take many forms. One of the common types of sponsorship is providing products, services or money to the sponsored party in exchange for exposure of the sponsor’s business. In order to avoid disputes, such arrangements should be documented in a legally enforceable sponsorship agreement.
You should negotiate and agree the terms of your sponsorship agreement prior to commencement of the arrangement. Below are some of the common terms that your sponsorship agreement should include.
Commencement Date and Term
It is important to agree when the arrangement will start and end. Depending on the situation, it may be a one-off sponsorship for an event or it may be an ongoing relationship for a fixed term, capable of renewal as the agreement permits.
Sponsorship Payment and Benefits
The agreement should particularise what it is that the sponsor will pay or provide to the sponsored party and what it is that they will receive in return for their sponsorship. This should be carefully considered and documented in as much detail as possible, including when and how such payments will be made, and the benefits delivered.
This might include for example a one-off payment of a lump sum of money in exchange for inclusion of logos on marketing material and mentions of the business being a sponsor at an event. The parties are free to negotiate whatever they wish as the sponsorship payment and benefits, however such agreement should be clearly documented in the sponsorship agreement to avoid future disputes.
Exclusivity
To protect their potential return on investment, a sponsor may wish to lock out their competitors from also sponsoring the sponsored party. For example, an accounting firm may sponsor a specific event with the aim of gaining exposure of their business to the attendees of the event and converting some of those attendees into new clients of the accounting firm. If a second accounting firm also subsequently sponsors the event then attendees may then elect to contact the second accounting firm instead of the first. To avoid such competition, the first accounting firm may seek to contractually bind the sponsored party from gaining sponsorship from another accounting firm. Exclusivity rights such as the above should be clearly and carefully documented in the sponsorship agreement.
Intellectual Property
Both the sponsor and the sponsored party will likely have their own existing intellectual property at the time of entering into the sponsorship agreement. In order to fulfil their obligations under the sponsorship agreement, the parties may need to use each other’s intellectual property (such as logos for example). In order to do so, appropriate intellectual property licenses should be set out in the agreement. The agreement should also clearly document who will own any new intellectual property created as part of the arrangement.
Liability and Indemnity
Depending on the circumstances of the sponsorship and the parties to the agreement, it may be necessary or desirable to include certain indemnities or limitations on liability to protect one or both of the parties. For example, the parties may wish to include in the agreement an obligation to indemnify each other (or one party depending on the circumstances) from a breach of the agreement by that party. This might include for example, misuse of the other party’s intellectual property.
Termination and consequences of Termination
It may be necessary for a party to terminate the sponsorship and accordingly termination rights should be included in the agreement, including how much notice must be given and how that notice is to be delivered to the other party. The agreement should also set out what will happen if one party has fulfilled its obligations and the other is yet to do so. For example, where a lump sum payment has been made by the sponsor and the sponsored party is yet to provide all of the sponsorship benefits. It may be appropriate in that case to return some of the payment made by the sponsor and this should be clearly documented in the agreement.
Final Thoughts
In order to avoid disputes, loss and potential claims, it is important to give proper consideration to the terms of any sponsorship and ensure that it is documented and signed prior to commencement of the arrangement. Once you have identified a sponsorship arrangement, contact us for assistance with negotiating and documenting your sponsorship agreement.