Top 10 things to consider for sponsorship agreements

publication date: Dec 20, 2011
 | 
author/source: Sharon Groom
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 below.

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 rights.

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).

Trade-marks

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 Festival) then you should specify who owns that new mark (in the case of Bell Lightbox, Bell owns the mark).

Merchandising

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.

Sponsor status

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.

Fees

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.

Representations

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 and advertising.

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.

Liability

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 competitors.

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

Sharon 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.

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