Mills & Reeve sports seminar review - Part 3 (Sponsorship Deals - Opportunities and Pitfalls)
On 16 May 2017, the sports team held its latest sports seminar, featuring three panel discussions, including one on ‘Sponsorship Deals – Opportunities & Pitfalls’. It was chaired by Mills & Reeve’s Head of Sports, Mark Hovell, who was joined by Ben Blanco, the Head of Sport and Entertainment Marketing at Samsung UK, Richard Liddell, a sports specialist barrister from 4 New Square Chambers, London and Mark’s colleague Paul Knight, a commercial and IP Principle Associate in Mills & Reeve’s Manchester office.
It was acknowledged that businesses loved to be associated with sport… until things went wrong! Ben explained that businesses were typically looking to raise awareness of their brands by aligning them with a particular sport, club or athlete (Samsung worked with Chelsea many years ago as its shirt sponsor, by way of an example) or the businesses were looking to engage with that sport’s, club’s or athlete’s fan base. The days of simply putting a logo on a shirt were long gone, as businesses and sponsored parties are working collaboratively to ensure the businesses achieve their objectives.
For this reason, much of the hard work is done before any deal ever gets to the lawyers to draft documents (but the lawyers that are involved at the early stage can really add value) and Ben highlighted just how important it is for both sides to be crystal clear on what the objectives are and who has what responsibilities.
Ben also told us about the ‘Samsung Slider’ that would be on show at Twickenham a few days later. The Samsung Slider provided the best seats in the house (4 of them, on a train track that moves up and down the touchline, pitch side, keeping up with the play) that could only be accessed as part of a prize draw for fans at the ground who tweeted about Samsung UK, thereby promoting Samsung to all their own followers.
Many clubs are becoming rights holders these days and how they can utilise their fans' data and grant access to these fans to sponsors is becoming a key in unlocking commercial revenues. Paul warned that the GDPR (the EU General Data Protection Regulations) is having an affect here, as well as the growing legal minefield around e-privacy, but well prepared clubs will be able to continue to monetise their growing connections with their fans.
As well as keeping up with the legislation, it was just as important to keep up with the innovation shown in some campaigns and the platforms being used to promote goods and services by businesses and sports. Flexible drafting was crucial. Paul recommended building in frequent meetings between the business and the sponsored party to ensure both could make the most of opportunities and build a long relationship. It was recognised that there might be constraints (an individual athlete has to be focused on performance in their sport first and foremost; it was more about how to make the most of the time the athlete could commit).
Future proofing also looked at change of image – whether it’s a player with ever changing hairstyles (including those that shave off their ‘mo’ or ponytails!) or one that changes clubs mid-contract, or indeed a club changing kit supplier mid-contract. On the one hand, a business can’t stop this, but the sponsored athlete may have to be available to re-shoot promotional materials and the like.
A particularly interesting discussion topic was, like with all contracts, how do businesses work out what to pay and how do they monitor if they’re getting value for the money? With something like a business sponsoring a football club’s shirt, it wasn’t just about looking at what Adidas paid Manchester United for example - although Ben confessed that would indeed be a factor! A lot of science went into this process and also the benefit of many years’ experience in the industry. Key Performance Indicators (KPIs) are agreed and built into the contracts. These days, there are reductions linked to sporting performance, and Manchester United’s Adidas deal was an example of this.
Having a panel with 3 lawyers on it meant that we also focused on what happens when things go wrong! We talked about athletes that were seen using a competitor’s brand of goods to the business that was sponsoring them, and noted how rarely we saw the business sue the athlete. Richard noted that most businesses would rather avoid the bad publicity and stigma of a public spat and Paul stated that many contracts would not only provide for a period of suspended payments whilst the business investigated the issue, but could also lead to termination, with a claw back provision. In the old days, some businesses might have been tempted to simply remove the logo from their competitor’s products, stick their own on in place and carry on!
Where things get really interesting is around morality clauses. Whose morality are these clauses judged on? Is it a reasonable person’s, or is it merely down to the opinion of the sponsoring business? How many affairs does an athlete need to have for it to be a violation of a morality clause? Why do some sponsors (or even Sports Governing bodies) stand by their athletes, whilst others run for the hills? Well, it could come down to the contract wording, it could come down to the strength of relationship between the business and the sponsored athlete. We also discussed reverse morality clauses. What happened if you were sponsored by Enron?
Richard looked further at what a business could sue a sponsored athlete for. A return of payments, or loss of profits? We inevitably talked about Lance Armstrong. Could Trek ask for its money back? Would Armstrong say it benefited all the way with bike sales while he was winning, albeit against the rules? Were people returning the bikes they bought? Were sales dropping now, long after their relationship with Armstrong had ended?
The final points were on issues that get lawyers excited – choice of law and dispute resolution clauses. Arbitration was seen as best, mainly for speed and confidentiality. Not too surprisingly for a UK seminar, English law was the preferred law of choice.
Mills & Reeve specialises in advising sports and other rights holders on commercial matters, including sponsorship and endorsement. If you require any assistance with this, please do not hesitate to contact Mark Hovell or Paul Knight.
This is part 3 of a 3 part series summarising the panel discussions held during the sports seminar on 16 May 2017. Make sure you also read our summaries on the panel discussions held on brand engagement in a digital era and the latest developments on image rights.