How to negotiate sport sponsorship agreements — tips for NGBs and rights holders

As the Manchester 2023 Para Swimming World Championships gets underway, sports law specialist Matthew Lavelle considers seven key aspects that sports event rights holders should be aware of when negotiating sponsorship agreements.

Establishing lucrative sponsorships

Sports event rights holders — like national governing bodies (NGBs) or international federations — are instrumental in the world of competitive sports. They serve as the backbone of competitions, leagues, tournaments and championships by owning and controlling the legal and commercial rights to events. With control over broadcasting, advertising spaces, merchandising and ticket sales, rights holders can also establish lucrative sponsorship partnerships.

In turn, sponsors play an integral role in ensuring an event’s success. For example, they provide essential funding, elevate brand recognition and contribute to the sport’s overall growth. However, rights holders need to apply a thoughtful approach to establishing a mutually beneficial sponsorship agreement.

Here, we shed light on seven key aspects that rights holders should consider when entering into any sponsorship agreement.

1. Granting rights to potential sponsors

Firstly, you need to ensure that you can grant the rights that a potential sponsor is seeking.

This can involve:

• physical assets (such as the aquatics centre and surrounding facilities)
• intellectual property (such as event logos or footage)
• promotional partnerships.

You must verify your ability to provide these rights, particularly if the event venue and/or facilities are leased, or if prior commitments could affect whether such rights can be granted.

2. The delicate balance of exclusivity

Sponsors often seek exclusivity, so it’s essential that rights holders consider these terms. Importantly, you should assess how any proposed exclusivity conditions relate to current and future agreements.

For instance, apparel brands might seek to exclude their competitors — which could have far-reaching consequences if this hasn’t been precisely defined. You must therefore ensure that granting exclusivity doesn’t unintentionally limit you from engaging and collaborating with other suitable companies in the future.

3. Financial considerations — the cash fee

The financial aspects of a sponsorship agreement require your careful attention. It’s important to establish clear terms for payment timings and (if possible) ensure that payments are made in advance. To mitigate financial risks, you may wish to look into the possibility of obtaining a guarantee from the potential sponsor’s parent or other group company.

In addition, financial protections could address late payment interest, tax considerations and exchange rate risks for international sponsors. It’s recommended to include a ‘no right to set-off’ provision to prevent the sponsor from arbitrarily withholding part of the sponsorship fee due to alleged non-delivery of rights or other breaches of the sponsorship agreement.

4. Maintaining control of promotional activities

A key component of any sponsorship agreement is the promotional activity undertaken by the sponsor. As these actions often involve the use of the rights holder’s intellectual property, you must maintain a degree of control over such activities.

For example, this could involve:

• requiring prior approval for promotional plans
• insisting on a minimum promotional spend
• exerting influence over individual promotions
• preventing sponsors from associating with third parties without the prior written consent of the rights holder.

5. Defining scope and duration

The duration and geographical scope of the sponsorship agreement can significantly impact its value and effectiveness. You should consider how long you’re willing to commit to an agreement, whether you need options to terminate or extend the term and how to respond to sponsor requests for negotiation or matching rights.

The territory for which rights are granted — be it local, regional, or global — also needs your careful consideration.

6. Ensuring legal compliance

The rights granted by the rights holder and the responsibilities taken on by the sponsor must abide by all relevant applicable laws. This includes international and national laws, regulations, rulings and the codes of conduct of relevant legislative and regulatory bodies.

You should also consider compliance with the rules of related sporting bodies (like international federations) to prevent potential breaches and sporting sanctions. It is important to ensure that compliance remains from the date of signature and through any subsequent legal changes.

Likewise, agreements with sponsors shouldn’t conflict with the requirements of any broadcaster. Importantly, sponsors should be obliged to comply with all relevant advertising and promotional laws, including industry codes of conduct.

7. Preparing for dispute resolution

Even the most well-drafted agreements can’t completely rule out the possibility of disputes. It’s therefore essential to include clear provisions for dispute resolution in the sponsorship agreement. Determine beforehand whether disagreements will be settled through mediation, arbitration or court proceedings.

It’s also crucial to clarify jurisdictional issues. Specify which country’s laws will govern the agreement and where any legal proceedings will take place. This can help to avoid complex legal dilemmas and ensure a quicker resolution in case of any disagreements.

Implementing effective sponsor agreements

To sum up, there are many areas that sports event rights holders should carefully consider before entering into any agreement with a sponsor. Implementing a well-drafted agreement can help to establish a mutually beneficial partnership that supports the success of your event.

Of course, this is not (and should not) be taken as an exhaustive list of all matters that need to be considered by a rights holder. We recommend that you seek specialist legal advice whenever entering into such agreements.

If you need specialist advice on sponsorship agreements from specialist sports lawyers, talk to us.

We advise NGBs, international federations and other sports rights holders and clients on all manner of commercial agreements.

Find out more about our partnership with the Manchester 2023 Para Swimming World Championships.