The sports sponsorship industry is a lucrative one. It significantly boosts the income of the endorsed individuals and teams and reaps financial rewards for the brands themselves. But what happens when things go wrong for the sponsor?
When your sponsor goes rogue, your sponsorship deal could well be at threat, so you need to think about what action you can take. In this article we explain how sponsors can go rogue and what steps you can take to protect your team’s future.
Sponsors’ contractual responsibilities
Sports sponsorship deals are financially crucial to the development, promotion and publicity of the individual or team being endorsed. The kinds of sponsorship include sponsorship of individual sporting personalities, individual sporting teams, sporting events or even governing bodies.
Through carefully drafted sponsorship agreements, sponsors typically reap the benefits of positive, usually lucrative brand association with an individual or team through, for example, the use of the logo by the team or the endorser wearing particular trainers or jersey. However, sports sponsors are legally required to comply with the terms of the sponsorship deal struck, and because there are significant mutual benefits for the sponsor and the endorsed, if the sponsor goes rogue the fall out can be costly.
When a sponsor goes rogue
It is the biggest companies who traditionally have the resources to fund lucrative sports sponsorships deals to secure high-profile endorsement of their brands. But in a difficult economic climate, big name insolvencies are not uncommon even among the major companies.
For example, Northern Rock, the bank bailed out by the government, had sponsored Newcastle United football team’s jerseys for nearly ten years. The bank eventually had to pull its deal because of its financial problems, leaving the team searching for a new sponsor in a limited time period. More recently, Aspire Achieve Advance (‘3aaa’) was an apprenticeship firm which collapsed last year. It allegedly spent more than £1.6 million of mainly government-funded income on sports sponsorship deals, including with Derby County and Norwich Football Club. Fortunately, both clubs have secured new sponsorship deals since 3aaa went into administration.
There are other risks including sponsors breaching their payment obligations towards the person or team being endorsed, breaching intellectual property terms such as the use of trademarks, and sponsors who decide to end a deal because of a dispute with a rival company. For instance, one sponsor may have an individual sponsorship agreement with you while another brand sponsors the whole team. A conflict may then arise and the situation becomes untenable, leading to one sponsor withdrawing from its deal.
The question is, what happens if a sponsor breaches its contractual obligations and you need to terminate the agreement; or the sponsor goes into insolvency and can no longer sponsor you? Your financial viability and competitive momentum could be at risk, so if you think your sponsorship deal is under threat because of a dispute involving the sponsor, it is vital to take specialist legal advice from experienced sports solicitors.
What you can do when things go wrong
A company’s insolvency is outside your control but you should have a robust sponsorship agreement in place. This will set out your rights and the remedies to which you are entitled should your sponsor go rogue and leave you in potential difficulties.
In some situations, you may need expert help to determine if you can legally end the sponsorship deal. To do this, you need to consider whether the sponsor has breached its agreement with you and in what way. The termination clause will include specific notice provisions setting out what events, such as insolvency or material breach of contract, justifies you terminating the contract. It will also state what the consequences of you terminating the contract should be, such as the right to claim damages from the sponsor for a contractual breach which existed at or before the date of termination.
If the sponsor then alleges you are in breach of your agreement, you could be facing a particularly complex dispute. This could raise further issues, because if your sponsor has pulled its sponsorship because of your alleged breach, it may have the contractual right to claw back payments – something you will want to resist if the sponsor itself is in the wrong. We can advise you on the implications of this.
Our team of specialist sports lawyers are experienced in advising sports individuals, teams and clubs, agents and associations in all their commercial agreements and sponsorships disputes. If you are concerned about your sponsor going rogue, consider taking legal advice as early as possible.
For further information, please contact the Litigation team on 01732 770660 or email [email protected]. Warners Solicitors has offices in Tonbridge and Sevenoaks, Kent.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.