SPORTS MARKETING

Law report
ISBN: 978-1-905685-26-
Price: 
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Sports Sponsorship & the Law

Executive Summary

Sports sponsorship has matured in the past 15 years from an offshoot of marketing that was little more than a branding exercise, to a sophisticated business platform, which has seen global rights costs exceed $40 billion.

Because sponsorship now encompasses so much more than simply sticking a logo on a shirt or perimeter board, the need for specialist legal advice has also grown exponentially.

Definitions of sponsorship vary and the practice has been described as, ‘an investment in cash or in kind activity, in return for access to the exploitable commercial potential associated with that activity.’

Regardless of the terminology, sponsorship is no longer merely a ‘media buy’, nor is it solely the prerogative of the marketing department. For many companies it has become a business platform with activation taking many different forms including the fostering of B2B relationships and enhancing internal communications.

Sponsorship of sport is, as discussed, now very big business and as the value of rights fees inflates, companies are increasingly eager to achieve a return on their investment, particularly in the economic downturn.

Sponsorship legal protection

However, not all sponsorships are successful. Companies have to ensure that the sponsorship is a congruent fit with the sponsee, that objectives are realistic and clear, and that the sponsorship is re-evaluated over its life span. Finally, it is more important than ever to evaluate and manage risk and to ensure that legal protection is in place from the outset.

This report examines the issues that need to be considered both from the perspective of the sponsors and the sponsees, to ensure the optimisation of opportunity and the continuation of a mutually beneficial relationship for all the interested stakeholders.

Listed events

First, Simon Bernholt and Andrew Danson of Olswang LLP, highlight the uncertainty surrounding the future of Listed Events in the United Kingdom and examine the views of those organisations that believe the listed events system does not benefit their respective sports and those that do. They propose that many sports governing bodies would prefer the independence to run their sports as they see fit. This would provide control over whether or not they could, if desired, charge higher broadcast fees that could be reinvested into sport at both a grass roots and elite level.

Alcohol and betting sponsorship

Peter McCormick OBE and Zoe Ward of McCormicks Solicitors, undertake a review of alcohol and betting in sponsorship. They note that external intervention from domestic and European legislative bodies, regarding such advertising, has adversely affected the revenues of European countries and sports competitions alike. The article also opines that the reduced commercial opportunities, due to the restrictions on alcohol and betting sponsorship, will lead to a reduced value of sponsorship and dilution of the brand presence that the sponsor sought to achieve.

It further argues that self-regulation, as advocated by the European Sponsorship Association, works and is effective in the delivery of sport sponsorship. The authors say  that the new Audiovisual Media Services Directive is welcomed by many countries because it gives them more individual scope on how best to adopt the provisions into their own legislative framework.

Individual endorsements

Craig Giles of Bird and Bird LLP examines the key issues that should be considered by companies when sponsoring an individual, team or an event. The article specifically reviews such provisions as:

  • Product category exclusivity
  • Restriction of the number of other sponsors an individual may have
  • Disclosure of the identity of such sponsors
  • Protection from upstream conflicts through early identification of areas of conflict
  • Apportioning of risk for non-delivery of the sponsorship rights
  • Ensuring that the agreement provides a sufficiently wide basis for termination should this become necessary

The article also charts the Court’s approach in the UK to the enforcement mechanism of negative covenants and its considerations when assessing whether to grant a negative injunction in sports cases.

Conflicting endorsements

George Castro and Chris Sweeney of Teacher Stern LLP examine the considerations to be borne in mind by sponsors, to ensure that an athlete’s personal endorsement does not conflict with that of his or her team. The article uses the example of football as its focus. In particular it analyses the interplay between the right of a player to exploit his/her commercial value from a personal endorsement, as against a club’s right to exploit the commercial value of the player in his/her role as an employee of the club.

There is also an examination of the way in which sponsors deal with potential conflicts and the issues that a sponsor should consider when approaching a player to represent the brand. This emphasises the need to perform due diligence on existing contracts relating to that player; the need to have an understanding of the rules and regulations governing the sport in which they are participating; and the need to research the most suitable type of sponsee to promote its brand.

Morality clauses

Warren Phelops of K & L Gates LLP examines the risk assessment that has to be undertaken by sponsors prior to entering into sponsorship agreements. He stresses the importance of having an overall understanding of the anticipated benefits, costs and risks. In particular he looks at the very contemporaneous issue of the so-called, ‘Morality Clauses’, which generally obliges both sponsor and sponsee to refrain from actions which will harm the reputation of the others and often outlines the consequences if they do.

The article also examines the difficulty in drafting clauses for certain conduct which may be considered to be morally dubious or publicly reprehensible, yet not illegal, or alleged but not proven, in addition to enforcement mechanisms and consequences for the breach of such a clause.

Sponsorship termination

Jonathan Crystal of Cloister Chambers provides an analysis and expanded case study of a landmark judgment, assessing the consequences of breaching a sponsorship agreement for Eithad Airways (sponsor) and Formula 1 Team Force India (sponsee). The crux of the judgment turned on the fact that Eithad Airways failed to notify Force India that it was in breach of the sponsorship agreement, and failed to allow it an opportunity to remedy the breach. Therefore, the Court held that Etihad Airways had terminated the agreement without just cause and awarded millions of dollars in damages for wrongful repudiation of the agreement, payment of a constructor’s championship bonus and the loss of a chance of the bonus points.

Sponsor boycotts

Alastair Cotton of Farrer & Co discusses the issue of fan boycotts and in particular their relevance to sponsors. In the summer of 2010, Manchester United supporters group MUST called for the club’s fans to boycott its sponsors in an attempt to pressurise the Glazer family to sell the club and thus remove the debt burden.

Should such boycotts succeed, they would obviously be very detrimental to sponsors. Cotton argues that most current sponsorship agreements contain very little direct protection for sponsors given that the actions are initiated by an outside third party. Although general disrepute clauses might offer some protection, Cotton suggests that sponsors would be advised to draft more wide ranging protection with, in some cases, specific clauses. He also highlights the difficulties faced<

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