I recently presented to an enthusiastic audience of young professionals at British Equestrian, the national governing body for horse sports in the UK. The vast majority of questions surrounded sponsorship agreements and their potential impact on those being sponsored. To my surprise, many riders and trainers will enter into these multi-year agreements without knowing the pros, or most importantly, the cons. Here, I aim to highlight some of the key issues you should review before signing.
The basics: what is sponsorship?
Sponsorship is a form of marketing where one (sponsor) provides another (sponsored party) a reward by way of goods, money or services in return for certain rights permitting the sponsor to promote their brand and products in connection with the sponsored party or event.
A sponsorship agreement governs the obligations of both those involved.
I am being sponsored: what do I need to look out for?
This section of the agreement is generally taken for granted. As a sponsored party you will want to ensure that the counter-party entering into the agreement has the ability to pay you. Checking the details of the parties is vital, especially if you’re dealing with a company within a group. I recommend carrying out a quick Companies House search if you are engaging with a registered entity. Financial information will be available for most companies online and a quick check can help limit the risk of a sponsor being unable to pay you.
Term and renewal
The first question to ask yourself is whether you are comfortable with the term being offered. If the term relates to a specific event, and therefore a very short period, I suggest negotiating a fee which reflects the true value of the event, rather than the short timeframe in which you are being sponsored.
Additionally, in agreements of this nature it is common to have an initial fixed term followed by an automatic renewal. For example, you may be contracted into an initial 12 month period which could renew automatically unless you cancel before the agreement’s expiry. If anything causes concern, raise it with the sponsor.
It is important to note whether you, as a sponsored party, have the express right to terminate the sponsorship agreement. If so, make a note of the trigger events for this. As a bare minimum, I recommend including the contractual right to terminate for non-payment of sponsorship fees.
Where the sponsor has the right to terminate, you should think carefully about any possible right which could result in sponsorship monies being reduced.
Finally, what happens after termination? If you’ve been given equipment or products as part of your deal, will you have to return these to the sponsor and in what condition must these be returned?
Sponsorship fees, penalties and exclusivity
Sponsorship fees can be the biggest point of negotiation/contention within a sponsorship agreement. In general, fees will either be fixed or dependent on the occurrence of an event, appearances or how well a sponsored party does (in a competition based setting).
A sponsored party should check:
- the currency in which it is paid
- note whether any deductions will be made to the payment such as taxes
- the timing of payments and payment mechanics
- whether any indemnities and warranties have been included which require payment of damages and compensation over and above the fees paid under the sponsorship agreement
- any provisions preventing a sponsored party from having other sponsors.
An article about contracts wouldn’t be complete without mentioning force majeure. A force majeure clause deals with events which are outside the control of the parties. It is important to note that many force majeure clauses include epidemics and pandemic.
Where a sponsored party’s sponsorship is conditional upon the sponsor being able to sponsor at an event, if the event is subsequently cancelled, the sponsor could potentially rely on this clause to suspend its obligation to pay. For example, where a dressage competition is unable to go ahead due to Covid-19, a sponsor relying on a force majeure clause could potentially avoid or at the very least delay its obligation to pay under the agreement.
Read the small print!
There are a number of considerations which must be borne in mind before signing on the dotted line. Above all, don’t be tempted by the lure of the sponsorship fee without first having a basic understanding of what you are contracting into.
For a high level review, you can ask a solicitor to provide you with an estimate for providing commentary on your existing sponsorship agreement or any agreement you are considering.