The legal perspective of a Sponsorship Agreement in Sports

Posted on 27 Jun 2018, by Kyriakos Constantinou

Undoubtedly, a Sponsorship Agreement established in the sporting industry nowadays constitutes a challenging and very promising area for the parties involved as it has the ability to provide to the one party, i.e. the Sponsor, substantial benefits and new avenues to promote its product to prospective customers and simultaneously offers to the other party, i.e. the Sponsee, tangible and immediate results as the capitalization of its brand name will lead to the Sponsor receiving added recognition.

It also provides a great opportunity for entities to enter and link their business in a domestic and/or foreign country. Especially in a country like Cyprus, where sports attract the attention of the majority of the population, a Sponsor can achieve a high return on his investment and thus achieve its business and strategic goals for expansion in other territories as well.

A sponsorship in the field of Sports can take many forms, with the most common being:

1.       Event Sponsorship

2.       Stadium/Venue Sponsorship

3.       Shirt/Kit Sponsorship

4.       Championship Sponsorship

Inevitably, the attractiveness of the field of Sponsorship in Sports has raised the standards of the negotiation process and its final product, i.e. the sponsorship agreement. Therefore, the new trend and the opportunity for companies to be involved in Sports Sponsorships, in order to advertise their products and/or their companies has raised certain issues regarding the drafting, negotiation, renewal and termination of a sponsorship agreement, since the clarity that characterizes the relationship of a Sponsor and a Sponsee depends to a great extent on the successful reflection of their verbal understanding in the sponsorship agreement.

Nowadays, this area (sponsorship agreement) has become even more demanding and challenging than ever since the complexity of each case shows that there is no standard approach. Hence it is important to understand the dynamics surrounding the sponsorship relationship and deviate from the “one size fits all” solution as the customized approach is considered to be the only safety net. Only with this mindset can we achieve the conclusion of a Sponsorship Agreement that will provide sufficient legal protection to the Parties for all possible scenarios, e.g. ensure the maximum return of the investment of the Sponsor on the one hand and simultaneously address the challenging possibility of a non-successful sponsorship through the inclusion of “escape” clauses. These are issues that need to be addressed from the outset of an agreement in order to avoid entering into the time-consuming procedure of a dispute.

The complexity of this field emphasizes the need for securing the services of a qualified sports law expert. An indicative and certainly non-exhaustive outline of the essential issues that must be taken into consideration, for the drafting of a sponsorship agreement and that must be adjusted on the particularities of each case, is the below:

a.       Duration of an agreement: in order for both parties to ensure that this sports-commercial relationship will continue for a period that reflects sufficiently their benefit and their general goals.

b.       Termination clauses: which will provide the option to any party for a ‘’legal escape’’ from a non-beneficial agreement (e.g. in the event of negative publicity, which is also associated with the issue of “moral” clauses, etc.).

c.       Right of First Negotiation: which will provide the option to the Sponsor for the first negotiation and/or renewal of any sponsorship agreement before allowing the bid from any other sponsor.

d.       Right of Last Match: which will ensure that the last act and/or decision will be on the Sponsor’s part, who will have the option to “match” any bid from any other third party.

e.       Exclusivity clause: in order for the Sponsor to be secured that no further agreement regarding the specific sponsorship will be signed by the Sponsee and any third party (in certain cases this is also linked with the nature of the agreements and the issue of the prohibition of anti-competitive agreements).

f.  The definition of the obligations of each party.

g. The definition of the benefits that will derive for the Sponsor and the respective variations.

h. The payments and their variations.

The aforementioned list is an indication of the areas that must be taken into consideration in order to minimize the Sponsor’s risk and at the same time maximize the efficiency and outcomes of the sponsorship. Of course, other specific issues will need to be addressed as well, such as the scenario where a rival Sponsor is indirectly linked with the Sponsee.

As can be seen, the potential benefits of Sponsorship in Sports are countless as they can also lead to a route that sometimes exceeds the national barriers. For instance, the kit-sponsorships on the shirt of football and/or other sport teams which represent their country at a European level (such as Champions League, Euroleague, etc.).

Also, the provisions and limitations of a country’s legal framework need to be analyzed. In our case, the flexibility of the common law system which applies to our legal system, constitutes a decisive factor for choosing Cyprus Law as the governing law of a sponsorship agreement. Furthermore, under the Cyprus Law there are no unreasonable prohibitions regarding the nature of certain sponsorships. 

Specialized legal advice from a sports lawyer can outline the comparative advantages and undertake the drafting of a sponsorship agreement with the maximum legal protection, taking into consideration the challenges at a national and international level as well. Our firm can act as an intermediary and a legal representative of any of the parties and offer legal guidance in order to achieve the desirable balance between the aims of the parties involved. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought on your specific circumstances. For further information, please contact Kyriakos Constantinou at Kyriakos.constantinou@Kyprianou.com