Sponsorship contracts, beware the fine print

Sponsorship is exciting, whether it's seeing your brand front and centre of a major sporting event or entertaining guests at a live music festival. One not particularly exciting thing is pouring over clause 13.2, section 3, paragraph 4, of your sponsorship contract.

Getting the most out of a partnership starts by negotiating the best possible agreement for your company. Fortunately, The Sponsor has taken the time to uncover six key points to help you maximise the value of your contract and reduce the risk should things go awry.

1 Agreement Length

For most teams and events, finding new sponsors is hard. You may initially be wary when your partner tries to sign your organisation up for a longer-term deal. However, if you are at the point of negotiating contracts, we can assume the research and due diligence conducted of the team or event you intended to sponsor is thorough. If so, consider the opportunity to reduce your investment cost by making a longer-term commitment. Turning a three-year deal into a four or five-year partnership can reduce the annual cost of sponsorship by as much as 25%, providing a valuable boost to your activation budget.

2 Break Clauses

For even the most well-researched new partnership, there remains an element of risk. This is particularly true when sponsoring sports teams that can suffer a decline in media coverage and attendance due to relegation or failure to qualify. You will no doubt have set minimum KPIs to measure the performance of your partnership over time, so why not consider de-risking your investment by inserting break clauses should the most basic of these KPIs not be met?

3 Staggered Funding

Another essential factor to consider introducing to your sponsorship contract is staggered or performance-related funding. Like a break clause, performance funding allows sponsors to pay a lower initial cost with additional instalments should certain KPIs be met. Typically, these arrangements work well when partnering with teams or athletes competing in a knockout competition. If the partner is eliminated in the first round, the sponsorship cost you pay reflects the awareness you received. Similarly, if the team makes it to the final, be prepared to pay a higher sponsorship fee with add-ons for the brand awareness generated.

4 Exclusivity

Avoid the possibility of your sponsorship being diluted by your partner bringing in competitors. Which brands are and are not competitors of your business is a grey area, and your sponsorship partner will be keen to keep it as murky grey as possible. Define the brands you consider falling into this category by their services or by providing a blocklist of names. To further reduce the risk of competitors piggybacking on your investment, consider extending the exclusivity period after the expiration of your agreement if possible.

5 Intangible Assets

Brand logos and marks have many uses in your sponsorship activation. Be sure to know precisely what is and is not covered under your agreement and, where possible, maximise the scope of marks available to use in your campaign. Similarly, ensuring complete protection of your marks by setting strict brand guidelines covering how and where your logo can be displayed at various touchpoints is essential to maximising your partnership’s visual identity.

6 Termination

The clause you hope you will never need; termination is your emergency exit from a partnership that negatively impacts your brand. From Tiger Woods to the more recent racism scandal involving racism at Yorkshire Cricket Club, partnerships can sometimes backfire, resulting in a PR crisis; see our articles What to do when your sponsorship backfires and The brand ambassador checklist.

Should unforeseen circumstances happen, your sponsorship contract must have the option to sever all ties with your partner immediately. Seek to make your termination conditions as broad as possible, and always keep in mind the Charles Stross quote, “if my business partner was possessed by a brain-eating monster from beyond spacetime tomorrow, what is the worst thing they could do to me?”