What is a Sponsorship Agreement?
A sponsorship agreement is a legally binding contract between a sponsor and an organization. It is a written contract between the sponsor and an entity (such as a nonprofit, for- or not-for-profit corporation, government agency, etc.) that describes the terms and conditions of a sponsorship or a potential sponsorship.
Typically, a sponsorship agreement includes any alphanumeric combination of the following: the event or activity taking place sponsored by the sponsor, the time period of the sponsorship, a description of what the sponsor receives in return for the sponsorship, any fees to be paid by the sponsor to the organization being sponsored, and any other restrictions on the sponsor’s use of the event or activity .
A sponsorship agreement may specifically delineate the territory for the sponsor. The territory may be limited to a specific state, region, country, or it may be global in scope. A sponsorship agreement may also contain a limited exclusivity provision granting the sponsor a period of exclusivity during which no other sponsors in the same industry will be permitted to sponsor the subject activity or event.
Essential Components of a Sponsorship Agreement
An agreement will typically include the terms of the sponsorship, including the sponsorship fee, payment schedule and whether there will be any royalties based on revenue derived from the sponsorship (for example, royalties for the use of a trademark or other intellectual property). It should also set out the obligations and rights of both parties, including branding obligations (for example, the use of sponsor marks on promotional materials or staffing and displaying a booth) and marketing obligations (for example, advertising the sponsor’s brand on websites).
Whether the sponsorship is exclusive or non-exclusive should be defined and if it is a limited partnership term, an early termination clause should be inserted. Sponsorship agreements can also pitch rights and exclusivity when it comes to global branding.
Finally, like any other agreement, dispute resolution, governing law, waiver and indemnification clauses are always included in sponsorship agreements.
Advantages of Utilizing a Sponsorship Agreement Template
As a standard form agreement, a template offers several advantages to parties drafting a sponsorship agreement. First, it saves time. At the very least, a template can save the drafter valuable time by providing a scaffold from which a first draft can quickly grow. It’s always faster to revise than to draft from scratch.
Second, it promotes consistency in drafting. If you are negotiating a number of similar agreements, a template allows you to apply the same terms in every agreement without the need to redetermine those terms.
Finally, even for parties preparing a single agreement, a template often accommodates deal specific negotiations by including guidelines, qualifications and other caveats to ensure that the parties have the flexibility to insert the details of their deal. In particular, because a template allows the drafting party to apply all limits, guidelines and other deal specific language on a single page, a template can promote the outcome that is most likely to result from negotiating some terms but without revising an entire agreement.
How to Personalize Your Sponsorship Agreement Template
Once businesses have the basic sponsorship agreement template, it is essential for them to customize it to meet their own specific needs. For instance, they may wish to change certain clauses or add additional terms. Their need to customize the sponsorship agreement will depend on the nature of the event, the type of partnership and the scope of their sponsorship agreement. Here are some tips to help a business draft the right sponsorship agreement:
- A business may wish to add clauses that describe precisely how the sponsorship funds should be spent. For example, if a sponsorship deal between a business and an organization requires that funds be used to undertake a specific project, it is crucial for the sponsorship agreement between the parties to specify the amount each party will contribute to the project and how that money should be budgeted and spent. As an added precaution, the sponsorship agreement should specify that any funds not used for the project should be returned to the business.
- If a business wishes to earn advertising space as part of the sponsorship deal, it should stipulate this provision in writing in the sponsorship agreement. In particular, if an organization will need to place a business’ logo or its corporate colors on its web site or on the product packaging , this should be agreed to in the writing. Even details such as when the advertising will begin and end should be specified in the agreement.
- To avoid any potential misunderstandings, a business should include clauses that discuss the date and time when the sponsorship agreement will take effect and when it will terminate. Additionally, if the sponsorship agreement involves any option for extensions, the business should ensure that this is also included in the sponsorship agreement. Also, options for terminating the agreement before the termination date should be clearly described.
- The business should consider including a clause that specifies the treatment of any confidential information that the business or organization may provide to the other. This will ensure that sensitive information is not inadvertently disclosed.
- Finally, a business should include clauses that allow it to seek any legal remedies in the event that there is an issue with the sponsorship agreement. For instance, if the business believes it has not been provided enough space for its logo, it should have the option of seeking some financial compensation for this breach. It is also important for the business to receive written notice from the organization if it intends to violate the sponsorship agreement. Under the right circumstances, the business may be able to seek an injunction to prevent the organization from breaching the agreement.
Common Pitfalls to Avoid in Sponsorship Agreements
Even the best drafting cannot prevent every potential dispute. Some of the most common errors that we see are with respect to the basic terms that should be part of a sponsorship agreement:
Amount or Terms of Payment: Too often, the terms of payment for a sponsorship can be unclear or missing altogether. While some parties default to a series of recurring installments, each sponsorship relationship is unique from the next and may require a specific payment plan to align with significant milestones (e.g., a particular event). Contracts should also be clear regarding when installments are due and by what method (e.g., check, wire transfer) payments will be made.
Termination Rights: Clearly define the consequences of a violation of the contract. For example, if terminations can be with or without cause, what constitutes each? Or if the offending party has a right to cure, what is the timeline for a cure? If no cure is possible, what are the penalties? Even if the relationship runs on an indefinite basis, contracts should include a convenient method for both parties to terminate the agreement upon giving advance notice.
Compliance with Law: Without contractual protection, there is nothing to prevent a sponsor from later deciding that its sponsored event does not need sponsorship any longer. In order to protect yourself, you can include a compliance with law clause that entitles you to terminate the agreement in the event the sponsored event becomes illegal or is not covered by a valid permit or license.
Indemnification Provisions: Almost any contract includes an indemnity clause, but it often is limited to third-party claims only. The clause should specifically include breaches of the contract. At minimum, any indemnification provision should be mutual and carve out claims where the other party was at fault.
Exclusivity: Most exclusivity clauses are poorly written and are subject to a variety of interpretations. To avoid miscommunication, define exactly what exclusivity entails and how long the exclusivity will last. Also consider the duration of exclusivity following the termination of the contract (i.e., "perpetual rights").
Intellectual Property Infringement: It is not uncommon to have multiple parties attempting to exercise rights over the same trademark, name, or logo. The contract should clearly explain whether the brand will be registered or how it will be protected.
Amendments: You need to specify in your contract how the agreement can be altered. Some agreements permit oral modifications, while others require written amendments signed by all parties.
Sponsorship Agreement FAQ
How much does a sponsorship agreement cost?
The particular circumstances of the agreement (i.e., what’s being sponsored, how much is it worth, whether it’s a partial sponsorship, whether there are incentives) can make sponsorship agreements vary widely in cost. However, bearing in mind that sponsorship agreements are common in the world of marketing and advertising, a template version can often be purchased online for around $500. A fully customized version will typically cost much more than this, although the exact cost will depend on factors such as the complexity of the agreement and the region where it’s being enforced. For example, you would expect an agreement drafted for use in Sydney to cost more than a comparable agreement for Melbourne, both of which are in Australia, given the difference in the economies of these cities .
How long is the typical duration of a sponsorship agreement?
Generally speaking, both parties to the sponsorship agreement will want it to have a finite duration, although in some cases, it may be indefinite. However, the expiration of the sponsorship will likely coincide with either the expiration of the event or the completion of the project being created or carried out under the agreement. An accurate duration of time is reasonable, in that it provides an equal opportunity for both parties to determine whether the continuation of the relationship is beneficial.
Should I specify dispute resolution in the agreement or leave it open-ended?
As the sponsor, you may want to include a specific dispute resolution method in the agreement to limit the possibility of litigation. However, the parties may decide to go to court if they’re unable to resolve the dispute among themselves.