Sponsorship is a great way to
raise your profile and increase revenue, but what should you address when
setting up such a relationship? We will discuss the top ten points to consider
Sponsorship property and restrictions
Sponsorships may take many forms.
Is the company sponsoring your charity, a particular program, an event or a
service? [This article uses the industry
term "property" to describe anything being sponsored - charity, program event
or service - Ed.]
It is essential to accurately describe what you believe
you are offering for sponsorship to ensure understanding and to clarify your
In addition, you should specify
any territorial or media restrictions (for instance you may want to limit the
rights being granted to the Internet only or restricted to Canada) and
placement issues (i.e. whether you are offering signage inside a building or
outside signage as well).
Your sponsor will generally want
you to use its trade-marks in association with the event, program, building,
etc. being sponsored. The marks that you may use should be clearly set out in
writing, along with the design that should be used for the marks (including
size, fonts, colours), the markings and notices that should be used in
association with the marks (i.e. "® Trade-mark owned by ____ and used under
license") and where they can be used (for instance can they be used on
merchandise, in publications, on websites, etc.). It is important for a
trade-mark owner to control the use of its marks in order to maintain their
distinctiveness and resulting validity.
The sponsor will likely want the
right to approve materials bearing its marks before they are put into
circulation. The sponsor may also want the right to use the marks of the
charity or event being sponsored, so that should also be addressed in the
agreement. If there is a new trade-mark being created (i.e., the new Lightbox
theatre complex that was sponsored by Bell
for the Toronto International Film
) then you should specify who owns that new mark (in the case of Bell
Lightbox, Bell owns the mark).
There will often be opportunities
to create merchandise in association with the sponsored event or building. You
should ensure that the parties are clear on who has the right to design,
manufacture, distribute and sell this merchandise, whether any restrictions are
being placed on the price that it can be sold for, and where it can be sold
(i.e. territory, type of retail establishment, online sales). Also, are the
revenues associated with such merchandising going to be shared?
Sponsor's products and services
There may be an opportunity to
use your sponsor's products or services in other capacities. For instance, if a
telecommunications company is sponsoring your building, it may also ask as part
of the deal that you and your affiliates use its services. Or a household
product manufacturer sponsoring your facility may ask you to use its products. Such
partnerships between organizations can go beyond the sponsorship itself.
Is the sponsor going to be
exclusive, or can others also sponsor the same property? This is important to
set out right from the beginning. Even if you do not grant exclusivity for the
property as a whole, the sponsor may negotiate category exclusivity that will
at least keep out its competitors.
In this case you want to
carefully define the category - for instance is "soft drinks" specific enough?
Or does the sponsor want exclusivity for all non-alcoholic beverages? You may
also ask your sponsor to provide a list of the competitors that it would
consider a breach of its category exclusivity. Finally, your sponsor may
negotiate a right of first refusal for related categories and the right to
approve other sponsors.
These can be payable in one lump
sum or in instalments. In some cases the consideration may be payment in kind,
for instance through the sponsor offering your charity free or discounted
products or services.
Instalments are preferable to a
lump sum from the payer's point of view as they allow the sponsor to attach the
payments to milestones that must be met before payment. They also allow a
sponsor to cease making the payments if the event does not take place, and to tie
the amount of the payment to the success of the event, i.e. attendance levels.
But for the party being sponsored, a lump sum in advance would be preferable.
The sponsor will want you to
provide certain representations about the event, facility or program such as
when and where the event will take place, how often it will take place, how
long the event will be, and its quality, timing, attendance, publicity spend
If your building is being
sponsored, your sponsor will expect representations about where it will be
built, when construction will start and be completed, the architect that will
be used, approval over plans, etc. The sponsor will also want guarantees that
you will comply with all laws and obtain all necessary approvals for the
building or event, and that you will not infringe the rights of any third
party. The sponsor will also seek representations that you have the right to
enter into this agreement and make these grants.
The parties should determine who
will assume liability for third party claims such as accidents that might occur
at an event or in the building being sponsored. Each party is advised to take
out specific insurance to cover its liability in this regard. The sponsor may
seek indemnities from the organization being sponsored for any such liability,
or at least put a cap on its liability. You will want to try and resist
assuming any liability. The parties should also determine who will conduct any
court proceedings involving a third party and who can negotiate settlements and
enter into settlement agreements.
Right to terminate
This can be tied to the
representations. For instance, the sponsor may want the right to terminate the
sponsorship of a recurring event if the event does not attract a certain number
of viewers, or the event is not televised on a national television station, or
the events in the building do not attract the requisite audience numbers.
The sponsor should also have the
right to terminate if there is some scandal or other adverse publicity
involving the charity or event being sponsored, or if the company putting on
the event is in financial difficulty or is acquired by one of the sponsor's
In addition you should address
what happens if the event has to be cancelled due to an "act of God" such as an
outbreak of disease or a weather disaster. Does the sponsor forfeit its money
or will it receive some sort of reimbursement? Sometimes it is more practical
to negotiate that the sponsor will be entitled to sponsor the next event with
no payment, or with a reduced payment.
Term and renewal
You should consider what rights
you or the sponsor wish to have to renew or extend the agreement. The contract
should allow for these issues to be addressed six to eight months before the
expiry of the term to allow you to find another sponsor if necessary.
In a renewal, the challenge is to
determine the fees that will be payable for future periods, as they may change
depending on the success of the event. If a company requests a right of first
refusal for future sponsorships, then it has the option to match another offer
that you might receive. This gives you more flexibility in setting new terms for
the new period, but does create some uncertainty for the existing sponsor.
This is just an overview of the
main issues to consider in negotiating and drafting a sponsorship agreement.
Each agreement is unique and will have its own considerations, but this list
provides a starting point.
© McMillan LLP 2011
E. Groom is
a partner in McMillan LLP's Toronto
office. She is a member of the firm's Intellectual Property and Technology Law
Group, Advertising and Marketing Group and the Competition Law Group. She can
be reached by phone at (416)
865-7152 or by email.