Sporting clubs and competitors might be focusing on the next few weeks as competitive seasons across Scotland and beyond approach their climax, but it's also important to be looking ahead towards sponsorship arrangements for future seasons. Ciaran Harkness, a solicitor in our Corporate team, explores some key considerations to bear in mind when agreeing commercial terms with sponsors.
Sponsorships are an increasingly important aspect of the sporting world, with revenue received from sponsors often vital to the effective running of clubs and competitions. In many sports, sponsorship is also incredibly important for individual athletes. The increasing importance of sponsorship revenue, combined with recent high-profile issues surrounding sponsorship agreements, mean that it is more important than ever for clubs and athletes to have carefully drafted agreements with sponsors which are sufficiently thorough to protect both parties.
The points set out below are by no means an exhaustive list of things to consider when agreeing terms with sponsors, but should serve as useful pointers to help things move in the right direction.
Clarity is key with sponsorship rights
There are a wide array of rights a sponsor could receive in return for their sponsorship fee - ranging from the simple ability to market themselves as a sponsor of a particular athlete or club, right through to event tickets and hospitality rights. There is of course no "one-size-fits-all" approach to what rights should be offered to sponsors, but it's important to ensure both parties are clear as to exactly what rights are being offered. Any limitations to the exercise of those rights should also be made clear.
For example, a sports club might offer a sponsor a fixed number of hospitality tickets for matches at their home ground, with the intention that these are used throughout the duration of the sporting season in question. In order to avoid any risk of confusion or conflict with a sponsor, both parties should have a clear understanding of:-
- the number of hospitality tickets which are to be made available to the sponsor;
- the number of tickets which can be requested for any specific match;
- the process for requesting tickets (e.g. any period of notice required and who the request should be made to); and
- any limitations which are put in place on this right - for example, if any particular games are excluded from eligibility, or if the tickets are subject to availability.
Use exclusivity carefully
A sponsor might also pay a higher fee for exclusive use of certain rights - meaning rights which are exclusive to them either within their own specific sector or even generally. Any such rights should be handled extremely carefully, to ensure that no potential conflict arises between sponsors and avoid not only reputational damage but also the potential risk of costly litigation. Clubs and athletes should ensure that they are aware of exactly what rights have been given on an exclusive basis and to which sponsors, to ensure that there is no potential overlap which could cause them to be in breach of an existing sponsorship agreement.
Competitions often also have their own sponsors and participating in those competitions will often entail certain obligations. For example, competitors may be obliged to display branding of the competition sponsor at their stadium. Care needs to be taken when setting out exclusive rights to allow for situations like this, as otherwise all parties can quickly become bogged down in negotiations or even legal action.
Be aware of the rules and regulations
Many sponsors use their sponsorship as a means of advertising themselves to the public. Accordingly, it is also important to make sure that any sponsorship rights granted by a club or athlete comply with advertising rules and regulations. For example, there are a wide array of companies in the gambling and alcoholic drink sectors who advertise themselves through sporting sponsorships. There are several regulations which therefore could limit the rights available to such a sponsor - for example, being unable to sell replica kits to children with that sponsor's brand. Some competitions may also put in place their own bylaws in relation to certain types of sponsor branding and advertising.
A sponsorship agreement should provide for limits on performing sponsorship rights imposed by legislation or competition bylaws (whether or not that legislation is in force at the time the agreement is entered into or comes into force during its term). It's useful to know at the outset of commercial negotiations what rights you can offer to different types of sponsor.
Team designations - an important distinction
It is becoming increasingly common for sports clubs to operate more than one team, for example having both a men's and a women's first team - and even academy teams. Each of these teams can have their own separate sponsors. It is important, however, to set out clearly to a sponsor which team they are receiving sponsorship rights in relation to (and what teams they aren't receiving rights in relation to).
Hope for the best, but prepare for the worst
For many sports clubs, promotions and relegations through the leagues are a part of the journey. If a sponsorship agreement runs for multiple seasons, care should be taken to ensure both parties have an agreed approach for handling either eventuality. In some instances this might be calculating an amended sponsorship fee in order to account for promotion or relegation - however sponsors may also look for the right to terminate an agreement in the event that a club is relegated. Agreeing an approach from the outset can avoid unnecessary stress - and allow a club the opportunity to keep their focus on the pitch when it matters most !
Force majeure is your friend
The world has started to return to normal since the dark days of lockdown, however the days of matches played in empty stadiums - if being played at all - are still a recent memory. While we hope that cancelled tournaments and cardboard cut-out fans in stadium seats are a thing of the past, it's important to be prepared for any eventuality. This means that every sponsorship agreement should contain a "force majeure" clause, which sets out what will happen if the parties to the agreement can't fulfil their obligations due to events beyond their control.
Our sports law team has extensive experience with the drafting of bespoke sponsorship agreements for both individual athletes and sports clubs. If you would like assistance with the drafting of any sponsorship agreement then please don't hesitate to get in touch.
The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers. Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.