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Commercial Question

Show me the money!

updated on 24 May 2011


What are the key elements of a sports sponsorship deal?


Sporting events are watched every year by millions of people around the world. Corporate bodies often regard sponsorship of these events as a more effective and lucrative way of promoting their brands than other more conventional methods of advertising - particularly because they are able to target their desired customers and because they provide a constant platform from which to deliver marketing messages free from competitor advertising.

The sponsorship agreement is the key document underpinning any sponsorship deal, and sets out the rights granted by the rights holder/event organiser to the sponsor in return for the sponsorship fee or other benefits (commonly termed 'value-in-kind'). Sponsorship agreements are becoming more complex - and onerous for organisers to fulfil - as sponsors are demanding greater protection. The sponsorship fee for high-profile sports events can be in the millions; to get a maximum return on its investment it is therefore vital for the sponsor to secure as comprehensive a rights package as possible.

Sponsors' rights
An event organiser will first need to decide whether to appoint a sole sponsor or a series of separate sponsors and, if the latter, how the available rights will be shared between them. A common structure is for one to be appointed lead sponsor, with a number of others appointed as secondary. This hierarchical structure is advantageous for the organiser, as greater sponsorship revenues are likely to be generated.

A lead sponsor will want to ensure that its investment is protected by restricting the organiser from granting rights to its competitors; it does this in the sponsorship agreement, where it ensures that it has the right to exploit the majority of rights (and possibly limits the number of other sponsors the organiser can appoint) so that it remains dominant for the duration of the deal. Secondary sponsors may have access to a smaller proportion of the rights available or may have rights that are restricted to one event within a series.

There is no such thing as a proprietary right in a sports event in English law, therefore it is not possible to simply grant a sponsor 'sponsorship rights to an event'.  Rather, a sponsor is granted one or more benefits that are protected by way of contracts, IP rights and other legal mechanisms.

Naming rights, and use of marks and designations
Lead sponsors often have the right to name the event or have their name incorporated into the event title and logo; for example, the FA Cup sponsored by E.ON. A lead sponsor may also have the right to use a designation such as 'official sponsor/partner/supporter' in order to show an association with the event; the title, logo and designation would then be used in all marketing material including the official website and programme, and media promotion.

Supply rights
Depending on the nature of the sponsor's products or services, the agreement might include the right for the sponsor to have its products or services available for purchase at the event - for example, beer at a stadium.

Advertising and branding rights
There are numerous ways in which the sponsor may want its branding displayed in and around the event venue. The main focus of spectators' and, more importantly, broadcasters', attention is the pitch, track or field - the playing surface and perimeter boards therefore offer prime advertising space. Player tunnels and dug outs, scoreboards and marker flags are also positioned for maximum visibility and can be branded. Hospitality areas, such as restaurants and corporate suites, and the venue entrance are also important advertising spaces.

Merchandising rights
The agreement may entitle the sponsor to manufacture or license the manufacture of branded 'premiums'; low-cost products to be given away free of charge for use in competitions or for distribution outside the venue.

Broadcast coverage and use of footage
The sponsor may seek to broadcast the event to ensure that its branding is not only visible to the spectators attending the event, but also those watching on television. Once a sponsor has determined that a broadcast agreement is in place, it may seek certain protections around that broadcast; for example, that the event will receive a minimum level of TV coverage domestically and/or internationally, and will be of a certain quality. The sponsor may also want an option to acquire commercial airtime during event programming and the right to use event footage, video stills and player imagery in future promotional activity.

If the organiser controls the athletes, it may grant access to them through personal appearances or by providing imagery for promotional purposes - subject to the athletes being contractually bound to provide this right.

Presentation rights
Following the event, the sponsor may be granted the right to have one of its representatives attend the prize giving, and to have its branding on the presentation and interview back-drops. The sponsor may also negotiate the right to use the trophy for a specified period of time.

Sponsorship fee
The sponsor and organiser will agree a fee, normally a cash sum, which will reflect the rights being granted. Sponsors may also offer value-in-kind - ie, goods or services - as part of the consideration. Payment dates are often contentious, with the organiser frequently preferring up-front payments and the sponsor preferring performance-related fees.  Where up-front payments are agreed, a repayment mechanism can be included in the agreement whereby the organiser refunds the sponsor a proportionate amount if it fails to deliver a material right granted under the contract.

In practice, payments are often made in instalments linked to key performance stages or periodic dates covering the term of the contract.

The sponsor will often be granted a licence to use the organiser's trademarks and logos to promote itself as an official sponsor. Similarly, the organiser will need a licence to use and display the sponsor's trademarks and logos. Such a licence will normally be non-exclusive - to permit both parties to continue using their own logos and to enter into or continue to perform under existing sponsorship agreements for which the use of a logo is a key term.

Ambush marketing is an unauthorised association by a corporate body with an event, which creates the illusion that the corporate body is an official sponsor. The official sponsor will seek to negotiate as much protection against ambush marketing as possible by; for example, placing restrictions on the inclusion of adverts from competitors in marketing materials or on athletes not to display the logo of their personal sponsor during the event.

And finally…
In addition to the commercial opportunities, sponsors can usually secure a certain number of tickets and corporate hospitality packages for the event itself.

Luisa Zukowski is a second-year trainee in the sport department of Bird & Bird LLP.