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Sponsors usually select people who can represent them in their target market. Receiving sponsorships often proves that you are excelling in your field and that your skill or expertise is known to create influence. Sponsors, on the other hand, use this opportunity as a way to market their names or products. It is a win-win situation when done between the right parties and regulated in the proper legal manger. To make sure that both parties receive benefits from this undertaking, a sponsorship agreement is created.
What is a Sponsorship Agreement?
A Sponsorship Agreement outlines the legal details between a sponsor and the person sponsored. It regulates their relationship and provides for the terms and conditions of one party’s service, in exchange for the other party’s payment of a fee.
Why do I need a Sponsorship Agreement?
While it sounds convenient to just enter into verbal agreements, it can become troublesome when you want to demand the performance of the other party’s obligation but you do not have the agreement on paper. Securing a Sponsorship agreement is important because it protects the interests of both parties by setting out the legal rules, what benefits they will receive, and what their consequent obligations are to each other. This secures that both parties will deliver what is agreed upon.
What are the key clauses in a Sponsorship Agreement?
To protect your interests in the Sponsorship Agreement, the following clauses must be taken into consideration:
- Exclusivity – An Exclusivity Clause is a major part of a Sponsorship Agreement. This is often included to protect the interests of the sponsor, to ensure that the other party will not enter into agreements with the sponsor’s competitors. This will tie the person sponsored to the sponsor’s company requiring the former to promote only the latter’s products.
For example, a basketball player entered into a sponsorship agreement with a basketball shoe company requiring the athlete to only wear the company’s basketball shoes and not wear other brands (think MJ (#23) and Nike – you get the picture?).
- Obligations – It is necessary to know what both parties’ obligations are to the agreement. Everything a party is required to deliver, what they can or cannot do, must be indicated in the agreement. Common obligations are:
- The person sponsored should use the sponsor’s products at designated times, usually in events and tournaments;
- The sponsor shall deliver the agreed products for use of the person sponsored; and
- The person sponsored must protect the reputation of the sponsor by not using a competitor’s products and not saying anything that will defame the sponsor’s name or act in a way that could bring the sponsor into disrepute.
Using the same example above, the company will provide the basketball player with several basketball shoes for him to use. The basketball player will then wear the company’s basketball shoe products on and off the court. Further, the basketball player is required to post photos on his social media of himself wearing the basketball shoes. In turn, the company will pay a fee for his marketing services.
- Term of the Agreement and Termination – Like most agreements, you will need to know how long you will be tied to the Sponsorship Agreement. You should check if it includes the options available for extending the agreement or for automatic renewal, and when either party is required to tender notice.
An indispensable part of the agreement is how the agreement will be terminated and what, if any, either or both parties are required to give to terminate the agreement. It must also state what the consequences are for pre-terminating the contract.
The term of the agreement between the basketball player and the company is 12 months. Should there be no discussion as to the extension, the sponsorship is automatically terminated. In the event the company decides to extend the sponsorship, they shall inform the basketball player a month before the end of the term of the agreement. The basketball player reserves the right to accept or decline the extension.
- Sponsorship Fee – The Sponsorship Agreement must have this clause to rid the parties of any legal issues in the future. Some essential points that should be found under this clause are:
- How much is the sponsorship fee;
- When and how are the fees paid;
- Are there any additional payments contingent to the happening of an event (e.g. if the athlete wins more races do they get bonuses? Talk to Lance about that); and
- Possible suspension of payment of fees upon breach of the agreement.
Here is a basic example – In return for wearing the sponsor’s sneakers, a sponsorship fee of $150,000 will be given to the basketball player upon commencement of the agreement. A fee of $25,000 will also be paid to the basketball player each month. If the basketball player wins the MVP award, an additional payment of $500,000 is payable.
In the event the basketball player violates any terms of the obligation, the monthly payments will be suspended and if the agreement is pre-terminated, the guilty party shall pay damages in the amount of $10,000.
- Intellectual Property – Sponsorships should include terms regarding the use of the sponsor’s name, logos, and other intellectual property rights. It should also state whether the sponsor owns the rights to the photos and the social media posts showcasing the sponsor’s products.
The basketball player is required to post photos of him wearing the company’s products in his social media account. The parties agree that the company owns, or will own, the intellectual property rights to those photos and may repost them on their own social media pages if they please.
- Liability – Like every other agreement, we want to be protected when things go wrong. A sponsorship agreement should set out whether there are any limitations to liability and if so what amounts.
Sponsorships can be exciting and beneficial to both the sponsor and the recipient. A well-drafted Sponsorship Agreement can help guarantee that both parties benefit greatly from this venture. If you have any questions please get in touch.
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