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Sponsorship Agreements:
Creating a win-win for businesses and advertisers

published in McAfee & Taft tIPsheet | November 1, 2016

By Chase Webb and Rich Johnson

Sponsorships are not only a revenue generator for businesses, but a powerful way of boosting the visibility of brands. It’s why major stadiums and venues often bear the logo of a leading brand, or why you’ll see a soft drink company touting itself as the official beverage of your favorite sports team. With sponsorships come the need for sponsorship agreements, which govern the legal relationship between a business and advertisers. They lay out everything from the costs of the sponsorship to how the brands will be seen and used.

Sponsorship agreements begin with a thorough analysis of the goals of the sponsorship. What are the business and the advertiser trying to get out of the sponsorship? Generally, sponsorships are about creating associations between a business and an advertiser in the minds of consumers. In order to maximize the benefit of the sponsorship relationship, advertisers want as much flexibility as possible in terms of how, when and where they are able to use the intellectual property of the business, but the business has an interest in protecting the use of its intellectual property (as does the advertiser with respect to the advertiser’s intellectual property).

However, from the business perspective, protection and control of intellectual property are important. Requiring approval of advertising reduces the risk that an advertiser uses the business’s intellectual property in a manner that damages the reputation and associated goodwill of the business. Businesses may be hesitant to allow advertisers unrestricted use of their intellectual property because the advertiser’s use of their intellectual property creates an association between the advertiser and the business. In light of this public association, the parties should consider whether a morality clause is appropriate. This type of clause allows either party to terminate the agreement if the other engages in acts of moral turpitude that become known to the general public and could harm the business reputation of the party.

For advertisers to protect their interests, the sponsorship agreement should clearly delineate how the advertiser can use a business’s intellectual property and how the advertiser’s intellectual property will be displayed. The sponsorship agreement should describe how, when and where the advertiser may use a business’s intellectual property as well as, how, when and where the advertiser’s brand will be used by the business. For example, the sponsorship agreement can lay out where the advertiser’s brand will be displayed and if and when it will be used on television and radio ads by the business. For instance, if the sponsorship opportunity is in association with the World Series, the agreement can lay out what inning the brand will be shown or mentioned and for how long.

One frequently and heavily negotiated part of a sponsorship agreement is exclusivity. Businesses and advertisers likely have conflicting objectives when it comes to this issue. The business may want to generate more revenue, making the idea of multiple advertisers within a specific business segment appealing. On the other hand, an advertiser may feel that the business’s association with competitors dilutes the benefit conferred by the sponsorship. The agreement will have to address these competing interests in a way that maximizes the benefit each party receives from the sponsorship by carefully weighing the benefits realized through exclusivity against the associated costs.

Due to the complex branding and marketing strategies of individual businesses and advertisers, there is no one-size-fits-all sponsorship agreement. To be effective, a sponsorship agreement needs to be tailored to create an individualized relationship that considers the objectives of the business and the advertiser. As such, businesses and advertisers should consult with legal counsel familiar with sponsorship agreements to assist them in drafting and negotiating provisions that fit their overall branding and marketing strategies.