This article has been written by Neha Mallik, studying at Vivekananda Institute of Professional Studies, affiliated to Guru Gobind Singh Indraprastha University. This article gives an understanding of Sponsorship Agreements and its essential elements. It also highlights the anatomy of the Sponsorship Agreement and its relevance.
Table of Contents
Introduction
Are you looking for a sponsor, or have you ever thought of becoming a sponsor? If you are a big company, you would have surely sponsored an event at some or the other point of time, and if you have ever organized a big event, you must have needed sponsors for sure. From sports tournaments or leagues to book fairs or competitions, these events need sponsors. Sponsorship is a marketing technique that benefits both parties, be it the sponsor or the event organizer.
The sponsors generally provide financial support to the organizers and get multiple benefits in return, such as brand promotion, marketing, and various rights, including the right to sell their products, etc. Sponsorship is a complex deal that leads to many legal obligations and issues. No matter how many benefits you get, you may end up having trouble if you have not gone through the terms of the Agreement properly. It is imperative to include all the essential clauses in the Sponsorship Agreement to make sure your event goes smoothly. In this article, we will discuss the Sponsorship Agreement and the vital provisions of the Agreement. We’ll also discuss when it is required and the benefits it gives to the parties.
What is the Sponsorship Agreement?
The Indian Contract Act, 1872, generally governs the sponsorship agreements. It lays down the legal obligations and duties for both the sponsor and organizer. It is essential to define the roles & responsibilities of both parties in order to make the event successful.
The Agreement sets out all the arrangements, including sponsorship fees, use of intellectual property rights, cancellation and postponement procedure, and other such things. If the parties rightly draft the terms of the Sponsorship Agreement, it would be a win-win situation for both. It is a very flexible agreement considering the needs of both parties. It must be noted that the sponsorship proposals must be clear as the terms of your Sponsorship Agreement are based on the proposals.
What is the importance of the Sponsorship Agreement?
- The sponsorship agreements give legal validity to all the arrangements and proposals you make.
- If you frequently organize events, then you can have a standard sponsorship agreement for each sponsor, but you need to make sure that both parties are comfortable and fully understand their obligation.
- The level of participation of a sponsor is again an important factor deciding the need for a Sponsorship Agreement. The participation level of different sponsors varies from sponsor to sponsor. Some sponsors simply deliver their products to the event, some only give their brand name to make the event more profitable, and some sponsors have a major sit-down dinner enjoying the whole event. Complex participation of sponsors needs a Sponsorship Agreement for sure.
- The Sponsorship agreement secures the needs and interests of both parties.
- A well-drafted agreement will avoid all the confusion and end up building a stronger contractual and personal relationship between the parties.
- It also helps in the promotion of brand name and trademark.
- The Agreement bifurcates the duties and liabilities of both parties.
When to use the Sponsorship Agreement?
The document is required by the event organizer or the sponsor for two primary reasons. Firstly, to outline the package of the deal and secondly and most importantly, to legally bind both the parties. Any of the parties can initiate the drafting of the contract, and then the terms can be negotiated as preferred.
The Sponsorship Agreement must-have for:
- Events where the location and timing is different;
- Sports tournaments and leagues;
- Fairs and exhibitions;
- Shows and college functions & fests.
In the sponsored events, the sponsors usually promote and advertise their brand name to increase profitability. The sponsor can receive numerous rights by entering into a well-drafted Sponsorship Agreement.
Anatomy of a Sponsorship Agreement
A sponsorship agreement has numerous clauses keeping in mind the requirements and feasibility of the parties. But there are some standard provisions which must be included in the Sponsorship Agreement as they are the essential elements of the Agreement. Have a glance at the following:
Parties
Identifying the correct party is very important for a contract. If there is any third party participating for the purpose of sponsorship, it is necessary to include his name in the Agreement to identify his legal obligations and limitations.
Definitions
It is important to clarify all the essential terms used in the contract. The definition clause includes the meaning of the terms mentioned in the contract. Say, for example, indemnification, Intellectual property, branding, etc. This clause helps the parties to make inferences on the specific terms of the Agreement.
Duration
The term of the contract generally depends upon the sponsor. He is the one to decide whether he is available for the proposed term or not. He may negotiate according to his feasibility until the parties reach a specific term period mutually.
The term/duration clause can be seen in almost every contract. When the parties finalize an agreement, they decide for how long they would be contractually obligated to each other to avoid confusion and conflicts.
Sponsor Obligations
Furthermore, the organizers try to ensure that the sponsor would follow certain obligations to smoothly run the event. The obligations are:
- Comply with all the rules and regulations set out by the organizer.
- Being respectful towards the staff and other members in the event.
- Adhere to restrictions upon the use of Intellectual Property Rights.
- Adhering to other such restrictions as mutually agreed by both parties.
Organizer Obligations
Organizers are also expected to meet out numbers of legal obligations set by the sponsors in exchange for the sponsorship fees. The obligations vary with the sponsors and the type of sponsorships they are providing. There are certain common obligations which can be seen in almost every Sponsorship Agreement. These include:
- Complying with the law;
- Promotion of the products and services of the sponsors;
- Providing extra security and services to the sponsors as agreed;
- Granting Intellectual Property Rights to the sponsors;
- Adopting a professional approach towards the members of the Sponsor Team;
- Avoiding any behaviour or practice which may harm the reputation and goodwill of the sponsor.
- Other obligations specified in the Agreement.
Sponsorship Fees and Payment Terms
This is a very simple yet essential clause in the Agreement. Generally, the parties decide as to what should be the sponsorship fee. The fee is based on the Sponsors and their level of participation in the event. Certains conditions are mentioned in the clause regarding the increase in the fees on the occurrence of certain events for e.g., winning a team or extra tickets sold for the event.
This clause also specifies the time limit within which the payment should be made and also includes the method of payment; if the amount has to be paid in instalments or in a lump sum, it should be specified in the agreement.
Intellectual Property Rights
The sponsorship allows the parties to use the intellectual property rights, trademarks of each other. This clause grants the sponsor rights and licenses to use the logo, trademark, attributes, etc. This is a standard provision that is included in all the Sponsorship Agreements. The clause should be read properly in order to eliminate all the ambiguity that may arise during the event or in the future. It is essential to specify the ownership status of the intellectual property of the parties.
Cancellation by sponsor
The clause highlights the conditions as to when the sponsor can cancel its sponsorship. This clause should be read and appropriately negotiated as it can exploit the rights of the organizers.
Postponement and Cancellation/Termination
This is the most important provision which highlights the procedures and grounds for postponement and cancellation. The provision specifies what the procedures and grounds for termination are and what will happen post-termination? Sometimes the termination clause gives the right to the sponsors to terminate the agreement upon the relegation of the event organizers or damage of reputation. The provision also indicates what to be done in case of any breach. This clause should be consciously negotiated to avoid any conflict later.
Some of the grounds for termination or cancellation of the contract could be as follows:
- Unauthorized use of funds.
- Damage the reputation of the brand name.
- Refusal to audit the financial statements.
- Violation of any clause of the agreement.
Use of Branding
The clause states the right of the organizers to incorporate the name of the sponsors on all the possible elements. For e.g.: the clothes of participants, bands, posters, display screens, conferences and many more. The extent of usage of the brand name depends on this clause. It not only helps the organizers to increase their revenue and business but also promotes the brand of the sponsors.
Confidentiality
It is a standard provision that is included in every sponsorship contract, irrespective of the sponsors and the level of participation. This clause binds the party to keep all the finance-related matters and contractual dealings, including sponsorship fees confidential. The clause wholly depends on the understanding of each party as they share their private and non-public information.
Don’t miss out the common clauses which may have loopholes
Force Majure
This clause is an utmost necessary clause in the Sponsorship Agreement. Sometimes the lawyers forget to include the clause or do not bother to read the clause carefully, which leads to many problems in the future. So it is essential that the clause is thoroughly read by both parties.
The clause helps parties to free from the liability to pay for the loss in case of an Act of God or other external force that cannot be foreseen. The common examples are earthquakes, wars or riots, terrorist attacks, strikes, or any change in the law. The clause also gives parties the right to terminate the contract in case the Force Majure event prolongs or extends for a certain period.
Exclusivity Clause
This clause means that the party cannot get any other sponsor for their event. This clause gives an advantage to the sponsors for being an exclusive sponsor for the whole event. If this clause is in the Sponsorship Agreement, you must read it thoroughly.
Indemnity
The sponsorship contract must include an indemnification clause wherein they agree to pay the other party any loss suffered due to the negligence, misconduct, or any omission on the part of another. It is a key remedy that provides numerous benefits in case the party suffers a loss. The procedures and conditions for indemnification must be cleared to avoid delays and conflicts. It is also important to limit the indemnification so as to protect the parties from exploitation.
Dispute Resolution
The provision is very important and should not be missed in the contract as it outlines how the parties would resolve a dispute which may arise during the event or in the future. It is a very common clause that most of the lawyers forget to include in the contract. It states that in the case of any dispute between the parties, which course should be taken: whether they should go for negotiation, litigation, arbitration, or mediation. The rules must be set out with the agreement of both parties.
Governing Law and Jurisdiction
Sometimes it so happens that the sponsors only give their brand name and are not physically present in the event as they are from different countries or states. If any issue arises, it is important to outline the laws which would govern the contract. It is also important to identify the jurisdiction where the proceeding would be initiated. If there is a Jurisdiction clause in the Agreement, parties can quickly initiate the proceedings without any delay.
Few tips to avoid conflicts with your Sponsors:
- You should agree on the terms of sponsorship with your sponsors in advance because if you do it haste, you may forget some important terms which can create issues later.
- You need to keep your sponsor updated and provide all the news, developments, and news of the changes in the event.
- Make sure that you have a written Agreement with proper registration and stamp duty paid.
- Clarify all the rights and obligations in the contract to avoid confusion.
Conclusion
The Sponsorship agreement is a lengthy and complex document. Having said that, the document provides benefits to both parties if drafted accurately, capturing all the rights, responsibilities, and obligations of the parties. Despite the complexity, the sponsorship provides a win-win situation for both the sponsor and the organizers as long as they know the key provisions.
Today, this area has become more demanding, with new challenges unlocking a new world of revenue. Having a sound understanding of the anatomy of the Agreement is a must to avoid disputes, confusion, and ambiguity. I hope this article has helped you understand the Sponsorship Agreement, its relevance, and its key provisions. So from now onwards, whenever you are hiring a sponsor or being a sponsor, you must discuss the above clauses with your partner to ensure your event goes off without any hitch.
References
- https://lawpath.com.au/blog/what-is-a-sponsorship-agreement
- https://sponsorshipcollective.com/how-to-write-a-sponsorship-agreement-5-things-for-every-sponsorship-contract/
- https://india.findlegalforms.com/product/event-sponsorship-agreement-india/
- https://www.mondaq.com/cyprus/Media-Telecoms-IT-Entertainment/724760/The-Legal-Perspective-Of-A-Sponsorship-Agreement-In-Sports
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