This article is written by Sourav Chakraborty, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
Table of Contents
Introduction
You might be knowing about Red Bull if you are an energy drink lover or MotoGP enthusiast you might have certainly heard or seen the name Red Bull almost every time, that’s only because of the sponsorship marketing strategy adopted by Red Bull which makes Red Bull always visible in front of his targeted audience as a result creating a strong brand image and popularity.
In modern times Sponsorship has become one of the prominent mechanisms to capitalize the neoteric market, because it not only provides financial support to the organiser but also gives a valuable opportunity to the sponsor to create a brand image and target audience at large by creating product fidelity. Recently Drona Sports a motorcycle race organising company has signed an sponsorship extension to its partnership with iconic energy drink company Red Bull and in this article we will briefly discuss about the important clauses both the parties should take care of if they draft a sponsorship agreement and will understand what exactly is sponsorship agreement as well as we’ll also analyse the sponsorship marketing strategy of Red Bull.
Brief about red bull and Drona Sports and why they would require to make a sponsorship agreement
Red Bull is an Australian energy drink company created in 1987. It holds the highest market share in the world by selling close to 7.5 billion cans in a particular year. Dietrich Mateschitz, an Australian entrepreneur, was very much inspired by Chaleo Yoovidhya’s energy drink named Krating Daeng which was first introduced and sold in thailand. Dietrich Mateschitz took some ideas from that energy drink and added some of his own ingredients so that it customises with the taste of the surrounding peoples. Red Bull was founded in 1987 in Fuschl am See, Austria with Chaleo as their first partnering company. Being an Australian company Red Bull always shows influence in sporting events as its a well known fact that the country has always been known for its significant skills as well as possessing supreme sporting culture all over the globe.
Red Bull was smart enough to identify that extreme sports was not getting enough media attention, and that was the main reason why Red Bull started griping individuals and teams ownership who are involved within extreme sports in order to endorse the sports side by side promoting its own brand. This sponsorship marketing strategy of Red Bull emerged as a major success, the company was able to grab the attention of many excited extreme sports enthusiasts and connected many exciting and engaging sports with their caffeine-filled drink. This is how Red Bull created its product image using sponsorship as their sole marketing strategy.
Drona Sports was established in Madrid, Spain, with subsidiaries in Barcelona and Rome, the company was founded in 1988 and became the organiser of the FIM Road Racing World Championship Grand Prix (MotoGP) in 1991 holding the exclusive merchandising and television rights. Over the years the company carried out its growth by being the superior in sports management, marketing and media, gradually developing itself as one of the prominent program promoters for riders across the globe. Drona Sports is a motorcycle race organising company which rigidly believes in devoting quality in motorcycle racing, showcasing it as one of the grand sports all over the globe.
Every event organised in a large scale requires a huge amount of funding and that’s why they require sponsorships so that the organisers during the middle of the event need not have to face the scarcity of funds. The organisers who organise these large scaled events require strongly committed sponsors and Red Bull has emerged as one of those prominent and strongly committed sponsors for Drona Sports, they have been a constant partner of Drona Sports for nearly 20 years since 2005. Red Bull was the title sponsor of the US GP at Laguna Seca and also worked with Drona Sports as co-organisers of the Red Bull MotoGP. We all know that Red Bull has shown a very powerful commitment to sports globally and it’s their marketing and sponsorship strategy that has made them diverse from many other brands providing new opportunities in sponsorship and marketing for others to admire. From the initial stages itself Red Bull didn’t invest a lot of money in advertising campaigns rather invested on actual sports and sporting events that have taken the brand to reach new heights, through effective sponsorship and marketing the iconic energy drink created the public image of the brand which served as the majority of success.
If Red Bull and Drona Sports agree upon signing a sponsorship agreement then it will create a lucrative opportunity for both the parties as it will clearly serve the interests of the duo. It will provide an outstanding opportunity for Red Bull to carry out its sponsorship marketing strategy in order to create a brand image and globally establish its product loyalty whereas it will provide the necessary financial support to Drona Sports in order to grow their sport and conduct all its large scale events smoothly. Thus, originating a profitable condition as well as fulfilling the desire of both the parties involved.
What exactly does the sponsorship agreement mean?
Sponsorship Agreement is a type of a Marketing Agreement which creates a profitable opportunity for both the organiser and the sponsors entering into the Agreement. Sponsorship Agreements are considered to be very complex Agreements but can create a lucrative opportunity for both the parties if drafted with clarity of roles and responsibility. Being an efficient marketing tool, it provides an opportunity to the organiser to connect with the right brands and products as well as the sponsors can also enhance their relationship with the targeted audience while also building a connection with the organiser’s audience, members, fans or donors. Sponsorship Agreement serves meaningful ways for companies or sponsors to participate in events and access or attract their targeted audience.
The sponsorship agreements state the legal rules between the sponsor and the sponsored group. Both the sponsor and the sponsored party or organization must understand their legal obligations because it increases clarity and reduces the chances of disputes between the parties involved. We can set these terms orally or by written agreement. It provides a well-balanced circumstances for both the parties, the organiser can make the use of the sponsorship fees for smoothly carrying out the event and to meet all business goals without any fear of experiencing an impecunious state during the ongoing event whereas the sponsors gets an adequate amount of collaboration in activities and different levels of participations to raise their brand image, create product fidelity and connect with their selected markets.
Dominant principles both the parties should take care of while drafting the sponsorship agreement
Sponsorship agreement is kind of an intricate agreement to draft because it contains a lot of essential clauses or provisions that one should definitely include while drafting it. Similarly if Red Bull and Drona Sports agree to sign a sponsorship agreement then they have to take a measure of the same essential clauses in order to enhance clarity and reduce disputes between both parties. Some of the important clauses are:
Clarification of essential keywords
It is very important to define all the essential terms which are mentioned in the contract because it’s not necessary that everybody will be knowing the exact meaning of those essential legal terms and that’s why a separate definition clause is prepared which includes the meaning of the essential legal terms mentioned in the contract. For example: Branding, Intellectual property, Agreement etc.
Duration of the agreement
The sponsor is the one who decides the duration of the sponsorship agreement because he is the one who signifies his availability for the agreed term. In the present scenario Red Bull being the sponsor will decide how long it can provide funds to Drona Sports until they reach a particular term jointly.
Accountability of both red bull and drona sports
Certain rules and regulations will be imposed by both Red Bull and Drona Sports to each other in order to run the event smoothly. For example: Drona Sports might set out their accountability towards Red Bull related to adequate Promotion of their products and services; Providing extra security and services to Red Bull during the commencement of the event, Granting Intellectual Property Rights to Red Bull, Adopting a competent approach towards the members of Red Bull and other obligations mentioned in the agreement.
Similarly Red Bull also has certain accountability towards Drona Sports that Red Bull will Comply with all the rules and regulations set out by Drona Sports, they will show utmost respect towards the staff and other members in the event, follow all the restrictions upon the use of Intellectual Property Rights and will certainly obey all the restrictions as jointly agreed by both the parties in the agreement.
Sponsorship amount and mode of payment
It is one of the easiest but a very crucial clause to define it will specify exactly how much Red Bull will sponsor depending upon their level of involvement in the event and whether Red Bull will increase the sponsored amount on the occurrence of certain events for e.g., winning a team or extra tickets sold for the event or impressive promotion of their products etc. This clause will also clarify the mode of payment by Red Bull, like whether they will pay the amount in instalments or on a lump sum basis as specified in the agreement.
Intellectual property rights
This is the clause which allows both Red Bull and Drona Sports to use each other’s intellectual property rights, trademarks and licence to use logos, attributes, etc. This is a major provision which must be included in every sponsorship agreement and it should be properly examined by both the parties in order to exclude all the ambiguity that may arise during the event or in the near future.
Termination of the sponsorship agreement
This is the most important provision where both parties Red Bull and Drona Sports will mutually decide the grounds on which the agreement will be termed as void. It basically discusses what to do in case of any breach by either party. Both the parties can mutually discuss several grounds such as:
- Illegitimate use of funds.
- Committing illegal acts which may damage the reputation and brand name of either party.
- Violating any clause which has been mutually agreed by both the parties.
Methods for dispute resolution
This is one of the major clauses which should be included in all the types of agreement as it signifies all the specific methods to be followed if any dispute arises during the event or in the near future. In this clause both Red Bull and Drona Sports mutually will mention details like if any issue or dispute arises then whether the parties should go for negotiation, litigation, arbitration, or mediation. The rules and laws set out should be clear and recognised by both the parties.
Conclusion
The sponsorship agreement has become one of the desired sources for Marketing and grasping the attention of the targeted audience. The document if well drafted then provides a lucrative opportunity for both the parties apprehending obligations, rights and responsibilities. It is a very important tool which companies like Red Bull use a lot as it adds immense value to their organisation and it also provides various benefits to the event organiser like Drona Sports.
Therefore in this article we have tried to clarify the concept of sponsorship marketing strategy. Hope this article has helped you with some insights and provided you a brief knowledge about Red Bull and Drona Sports and what all important provisions they should take care of if they are willing to draft a sponsorship agreement.
References
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