Any manufacturer, distributor or retailer who wants to sell a
product or service knows that association with a successful
athlete, team or sports event will help to sell what is being
offered and build its brand reputation. This article looks at value
and sports sponsorship.
Sports sponsorship is often referred to as an "indirect" form of marketing. It seeks to create an association in the minds of the potential consumer between the brand and the admirable qualities of the team or athlete.
Whilst the potential consumer is unlikely actually to believe that if he, say, wears a particular brand of t-shirt he will perform like the best tennis player in the world, nonetheless when he comes to make his purchasing decision he may well be influenced to purchase that brand of t-shirt because he saw that tennis player win a tournament wearing the same brand.
The UAE Government, the Governments of the seven UAE Emirates and many international and local companies know that by sponsoring the best of world sportsmen, sporting teams, sporting events, musicians, concerts and other events, they enhance and build the reputation of the UAE, their Emirates and their companies on the world stage. That enhanced reputation can sell more airline tickets, fill more hotel rooms and restaurants, create more jobs, attract investors and quality business partners, and stimulate the wider economy.
Many companies operate entire sponsorship departments and have sophisticated teams managing their sponsored properties. The purpose of sports sponsorship is, one could say, well known and understood. However, the value or benefit of sports sponsorship is not always recognised or monitored, and is even harder to measure at a single point in time or across a relationship lasting years. For instance, the New Zealand Rugby Union recently announced an 11-year sponsorship by adidas, one of the longest sponsorships ever at that elite level. According to media reports the terms of the relationship are confidential, but no doubt one of the key ongoing issues will be how do each of the parties ensure that they continue to receive value as the markets, team prospects, television audiences, results and crowds change over time?
It is the authors' experience that traditional sponsorship agreements provide for a fixed sponsorship fee, normally payable annually for the term of the agreement, and a set of sponsorship benefits, some expressed in general terms (using phrases like "opportunities for brand exposure") and some specific (100 tickets, for instance). However, it has also been the authors' experience that this traditional model is increasingly inadequate for sponsors and right-holders alike, particularly where sponsorship budgets are under scrutiny in difficult economic times.
Two key issues have emerged. First, ensuring that a sponsorship agreement incorporates an agreed means for valuing the ongoing benefit of the sponsorship for both parties. This includes the incorporation of periodic key performance indicators so that the parties can keep track of progress either during a season, during the course of an event, or over the course of years. Second, ensuring that a sponsorship agreement incorporates mechanisms which allow the parties to alter their respective rights and obligations depending upon the performance of the sponsorship. The mechanisms might be either or both of pre-determined "step-ups" or "step-downs" on the one hand, and a general structure for re-negotiation of key terms during the period of sponsorship on the other hand.
Each sponsorship arrangement is different and has to be assessed on its own merits. However, it is interesting to recount a few examples of matters in which the authors have been involved to illustrate the above points. In one case a sponsor, an international fast food chain, agreed on a mechanism by which the value of its sponsorship of a cricket series was to be assessed on an ongoing basis using an "eyeball test" - how many viewers were watching each of the matches at the venue and on TV. In another case a sponsor agreed to a tiered sponsorship fee for each of the four years of the term where the fee went up or down to agreed levels depending on the assessed "penetration" of the sponsor's brand in its target market. In yet another case, a sponsor insisted that it have the immediate right to terminate if any player on the sponsored team engaged in public immoral behaviour, because of the perceived adverse effect on the brand.
Sports sponsorship generally had a tough year in 2009. Perhaps it was as a result difficult circumstances, coupled with an increasing range of diagnostic tools, which are compelling sponsors and rights holders to want more from their sponsorships. As lawyers our role has been, and will continue to be. to assist the client with the negotiation and documentation of these sometimes complicated arrangements in terms which will serve the parties for years to come.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.