What Is a Sponsorship Agreement? (2019 Update)
Are you considering becoming a sponsor, or are you looking to be sponsored? Find out in this article what a sponsorship agreement is and why it's important.
Whether you’re thinking about becoming a sponsor or you want to be sponsored, sponsorships can be great for both parties. However, no matter how much you stand to benefit, it’s important to know the legal obligations you’ll be subject to.
In this article, we’ll discuss what a sponsorship agreement is, and how to make sure it runs smoothly.
Sponsorship agreements set out the legal rules between the sponsor, and the sponsored party. It’s important they both the sponsor and the sponsored person or organisation understands what their legal obligations are. You can set out these terms verbally or through a written agreement.
Terms to Consider
Length of the Agreement
The simplest part of a sponsorship agreement on the surface has a surprising amount of depth to it. Potential terms include:
- Options for either side to extend the agreement, including notice periods
- Automatic renewal clauses that extend the contract if an event happens
You agree with the Emus to sponsor them for 12 months, with an option in October to extend the agreement by another 12 months. If the Emus win the premiership, then you will extend the agreement.
Business is an incredibly competitive field. Adding an exclusivity clause in your sponsorship agreement gives you an advantage. An exclusivity clause means that the other party cannot get any other sponsors.
You are the only sponsor for the Emus jerseys under your sponsorship agreement.
Method and Timing of Payments
Your sponsorship agreement should clearly lay out how payments are processed. Whether you want a lump sum at the beginning of the arrangement, or money paid every month, this expectation should be communicated at the beginning. Doing so can save you the time and expenses of legal proceedings.
Payments can also be based on events happening. For example, a championship trophy by a sports team may lead to more money being paid by the sponsor.
You will be paying the Emus $1200 upfront every 12 months, valued at $100 per month. The Emus receive a $1000 bonus if they win the championship.
Obligations and Benefits
This is the nitty gritty of any sponsorship agreement. After all, a sponsorship agreement only works if both sides stand to benefit. All key benefits should be present in the agreement, including what is expected in exchange for financial support. Some obligations to include may be:
- Act professionally at all times
- Promote the sponsor when possible
- Avoid talking negatively about the sponsor
The Emus are placing your company logo at the front of their jersey at a specified length and width. They are be putting your logo at the bottom of all communications the public receives.
Intellectual Property Clauses
Most sponsorship agreements generally require intellectual property to be used by another party. Sponsorship agreements should therefore include terms about when intellectual property can be used and who owns it.
The Emus under your agreement are only allowed to use your company logo on their shirts and communication materials when you are sponsoring them, but not otherwise. You remain the owner of all intellectual property rights regarding your logos.
Termination of Agreement
You never expect or think about it, but any good sponsorship agreement should have arrangements for what happens if things go wrong. Arrangements may include the end of the agreement, and whether money is repaid.
Your agreement with the Emus says that they can terminate the agreement with one month notice, but have to pay back the money for any months left in the year. The Emus have to pay your company $800 back for terminating the agreement in August, as there are four months left in 2019.
You want clauses that protect yourself if things ever go wrong. Liability includes whether your agreement has a dispute resolution clause limiting court involvement. You may also want to limit any liability by containing it to the agreement value. Alternatively, you may want public liability insurance to protect themselves from any negative actions from the other side.
The Emus refuse to put your company logo on their jersey. You however, can only claim up to $1000 worth of damages due to a clause in the agreement.
Sponsorship agreements unlock a whole new world of revenue and exposure to your business by partnering with other companies. You still need to take great caution to make sure the terms are specific to receive the best advantage. If you want further advice on drafting a sponsorship agreement which suits the needs of your business, it’s worth speaking to a business lawyer for further advice.
Dhruv is a Legal Tech Intern working in the content team at Lawpath who is highly curious about how technology is changing the legal landscape.