Club kit sponsorship agreement: drafting note

Drafting notes on an agreement for the appointment of a UK football club kit sponsorship.

James Hennigan, Squire Sanders (UK) LLP

The standard document has been prepared as a basis for the appointment of a football club shirt sponsor. There are a wide variety of sponsorship contracts, but a football club shirt sponsorship agreement illustrates the main areas typical to a sponsorship agreement.

The agreement is drafted from the football club’s point of view, as the party most likely to initiate the relationship. It can be used for a principal club sponsor or for a sub-sponsor. Clearly, different issues will arise when drafting from the sponsor's point of view.

This drafting note should be read in conjunction with Practice note, Sponsorship (www.practicallaw.com/A25430) and Checklist: Drafting a sponsorship agreement (www.practicallaw.com/A25429).

 

Parties

This provision identifies the parties and gives a definition for each party that can be used in the agreement. It is important that the correct parties are identified. The club company must be in a position to deliver the rights (such as stadium branding and logo usage), while the sponsor company must have sufficient funds to meet the sponsorship fee obligation.

 

Background

The recitals to the agreement simply set out the background to the transaction. It is not essential to include a recitals or background provision but it may be useful in providing a preamble describing the background to the agreement.

 

Interpretation: clause 1

The definitions and rules of interpretation in this clause apply to the whole agreement. Where a definition is only necessary for a particular clause, the definition may be found at some point within that clause. For more information about definitions and rules of interpretation, see Interpretation: drafting note (www.practicallaw.com/3-107-3796).

Negotiating and drafting issues

The definition of "Brand Guidelines" is used to ensure that the sponsor not only complies with the terms of the agreement but also with any guidelines that the club wishes to impose on the sponsor's use of the club logo(s).

A definition is included for “Brand Sector”. The grant of any rights to the sponsor will be linked to the field of activity that encompasses the sponsor’s products and services - its brand sector. It is in the club's interest to define the brand sector as narrowly as possible, so that a wide range of brand sectors may be exploited. The sponsor on the other hand will look to extend this as widely as possible, to ensure exclusivity extends to the maximum extent reasonable.

The definition of the Football Club’s “Stadium” will effectively spell out the extent of property the club controls, and the extent to which it can provide the sponsor with exclusivity protection. It should make allowances for the club moving ground (whether temporarily or permanently) during the term of the sponsorship agreement.

 

Term and renewal: clause 2

This provision defines the term of the sponsorship agreement.

Negotiating and drafting issues

Clause 2.1 sets out the commencement date and term of the sponsorship agreement. Football sponsorships normally run on a seasonal basis, with the agreement beginning 1 July.

A sponsor will normally seek a right of renewal. This can vary enormously in effect and can be:

  • An automatic option to extend at a price fixed in the present contract;

  • A right of first negotiation and matching right, whereby the sponsor is entitled to discuss renewal on an exclusive basis for a certain period, and if no agreement is reached during that period, the sponsor then has a right to match any offer capable of legal acceptance the rights holder is subsequently able to procure from a third party; or

  • A simple right of first negotiation whereby the sponsor enjoys an exclusive period of discussions, but following which the rights holder is free to deal as it wishes.

A rights holder should normally resist any restrictions on its future ability to deal with its rights.

 

Grant of rights: clause 3

This provision defines the scope of the rights granted to the sponsor.

Negotiating and drafting issues

Clause 3.1 is the crux of the agreement: the grant of sponsorship rights in exchange for a fee. The sponsorship rights themselves are set out in schedule 1 to the agreement. The clause makes it clear that the sponsorship rights are only granted to the sponsor within the specified brand sector.

Clause 3.2 limits the extent to which the sponsor can exploit the sponsorship rights. Of particular interest is the limitation on promotions that use images of players or manager (clause 3.2(c)); these individuals will normally own the marketing rights in their own image, which the club may not be entitled to exploit. For more information about image rights, see PLC IPIT & Communications, Practice note, Overview of image rights (www.practicallaw.com/2-202-2650).

A lengthy, comprehensive sponsorship affords many opportunities for pitfalls and failure to deliver rights. Clause 3.4 gives the club some comfort that should any rights not be delivered for any reason, rather than facing possible termination or financial penalty it can compensate the sponsor by the grant of additional sponsorship rights. If acting for the sponsor, consider if this is acceptable.

Clause 3.5 allows the club to enter into separate sponsorship agreements with third parties outside of the brand sector without breaching the terms of this agreement.

 

Consideration: clause 4

This clause sets out the obligations of the sponsor in relation to payment of a sponsorship fee.

Negotiating and drafting issues

Clause 4.1 sets out the sponsor’s agreement to pay the sponsorship fee and a timetable for doing so. The primary obligation on the sponsor is to pay the sponsorship fee. It is in the club's interest to have the bulk of the sponsorship fee due in each season paid up front.

The sponsorship agreement may include a list of bonuses (see clause 4.2). If the sponsor is uncertain about a potential further financial exposure, insurance policies may be bought against the success of the team, which has the virtue of limiting the maximum exposure to a fixed level.

The sponsor may be encouraged to set aside a further sum by way of marketing spend (clause 4.3). The way that such sums are applied will be the subject of discussion and agreement between the parties.

If the sponsor provides or manufactures products or services which the club requires as part of its day-to-day activities (such as power, telephones, computers, and so on) the sponsor may be required to supply some of this by way of further consideration (that is, benefit in kind (clause 4.7).

 

Obligations of the club: clause 5

This clause sets out the obligations of the club in relation to the sponsor.

Negotiating and drafting issues

Clause 5.1 provides a non-exhaustive list of the types of obligations that the club is likely to assume. Amongst the club obligations will be one to show the club is properly administered and the teams are properly selected (see clause 5.1(c)). Certain sponsors may try and oblige the club to ensure that high quality teams are picked. This should be resisted by the club; sponsors should not be entitled to influence the playing side of the club, and in any case, a side of sufficient quality is difficult to define.

Clause 5.1(d) is a morality clause designed to protect the sponsor from criticism by representatives of the club. Ideally, the club should try and limit this to key personnel it can control.

Clause 5.1(f) offers the sponsor a measure of exclusivity (that is, the club will not itself grant any rights to a brand sector competitor), though stops short of the club undertaking to stamp out unauthorised activity relating to the club undertaken by a brand sector competitor of the sponsor. If the sponsor insists on some measure of protection against ambush marketing, the club should look to control the process and not be obliged to pursue expensive actions which are unlikely to succeed. For more information about ambush marketing, see Articles, Marketing, advertising and the Olympics: how to avoid falling at the first hurdle (www.practicallaw.com/3-501-7013) and Ambush marketing (www.practicallaw.com/4-379-0808).

 

Obligations of the sponsor: clause 6

This clause sets out the obligations of the sponsor.

Negotiating and drafting issues

Clause 6.1 sets out a list of obligations likely to be assumed by the sponsor.

The sponsor will be obliged to limit the rights which it exercises specifically to those set out in the agreement (see clause 6.1(d)). This is important for the club since it will look to use its remaining inventory of sponsorship rights with sub-sponsors.

Clause 6.1(e) preserves the position of the club website as a primary source of on-line information relating to the club.

It is important to limit a sponsor's right to undertake joint promotional activity with third parties (see clause 6.1(f)). If, for example, the legitimate sponsor engages in a joint promotion with a third party active in the brand sector of one of the other club sponsors, the club may face some awkward questions from the legitimate sponsor whose rights may be being compromised.

Clause 6.1(h) protects the club from being unable to offer certain rights because of competition rules or other regulations. For example, clubs playing in the UEFA Champions League will be expected to deliver up their entire stadium inventory to competition sponsors. The clause also specifically refers to compliance with the UK Bribery Act 2010 (BA 2010), which makes it a criminal offence to offer, promise or give a bribe to another person (or accept or request a bribe). There is also a corporate offence of failing to prevent bribery by associated persons, which could include the Sponsor. To avoid committing this offence, the club should have in place "adequate procedures". This might include checking the existing anti-bribery record of the Sponsor before they are appointed, particularly if they are based in a territory or work in a sector which has a reputation for corruption. For information on putting in place adequate procedures, see Bribery Act 2010: toolkit: Achieving compliance: adequate procedures to prevent bribery (www.practicallaw.com/9-503-9451). It is also advisable to include an express provision (such as Clause 6.1(h)) requiring the Sponsor to comply with anti-bribery law and not use the rights in a way which would constitute an unlawful bribe. For further examples of anti-bribery clauses, see standard clauses, Anti-bribery clause (short form) (www.practicallaw.com/6-503-5299).

The BA 2010 might also be relevant when a club is seeking to attract a potential sponsor through corporate hospitality. Whilst reasonable and proportionate hospitality is permitted under the BA 2010 in order to cement good relations, it must not be seen as a way to win business. It is therefore prudent to document the justifications for hospitality in writing. For more information on hospitality and compliance with the BA 2010, see Practice note, Bribery Act 2010: corporate hospitality, gifts and expenses (www.practicallaw.com/4-505-3623). For more information and materials on the BA 2010, see Bribery Act 2010: toolkit (www.practicallaw.com/9-503-9451) .

If the club logo is to be used in any guise, the club will want to ensure that the strong brand values it embodies are respected (see clause 6.1(k)).

Clause 6.2 permits the club to use the sponsor logo by way of a non-exclusive, royalty-free licence the sponsor logo to deliver the sponsorship rights. Clause 6.3 goes further: it allows for the use of the logo on club merchandising in order to give it authenticity.

Clause 6.5 entitles the club to demand the prompt withdrawal of any of the sponsor's materials featuring the club's logo which do not comply with the terms of the sponsorship agreement or the brand guidelines.

Clause 6.6 prevents the sponsor from using any sponsor materials or exercising the sponsorship rights without the prior written approval of the club. Use of the club logo, and so on, would obviously be subject to club approval. Clause 6.5(c) spells out how such an approvals process will work. Sponsors will occasionally seek a deemed approval process whereby once any sponsor materials have been submitted, if no response has been received within a fixed time period (for example, five working days) the item should be deemed approved. A rights holder should only grant a right of deemed approval where it is confident it has the administrative capacity to review materials in time.

Right of Negotiation of Refund/Reduction: clause 7

This clause provides for a refund or reduction of the sponsorship fee if the value of the sponsor's rights granted under the sponsorship agreement is reduced during the term of the agreement – for example, if the club is relegated, or if there is a change in applicable regulations. The clause states that the parties should negotiate a reduction or refund in good faith, but that if they fail to reach agreement, the relevant reduction or refund shall be determined by an independent expert.

 

Termination: clause 8

Clause 8 sets out the parties' rights to terminate the agreement. The agreement will set out the circumstances that will allow the parties to terminate the agreement, for example, incurable breach of a material provision of the agreement. Typically, an agreement will allow the parties to terminate the agreement if one of the parties enters into bankruptcy or insolvency (clause 8.1(b)). For more information, see Termination: drafting note (www.practicallaw.com/8-102-4280).

 

Consequences of termination: clause 9

This provision sets out the rights and obligations of the parties on termination of the agreement. For more information, see Consequences of termination: drafting note (www.practicallaw.com/2-367-0977).

 

Force majeure: clause 10

This provision allows for the parties’ obligations under the agreement to be suspended to the extent that the party is prevented or hindered from complying with them by any cause beyond its reasonable control. For more information, see Practice note, Contracts: force majeure (www.practicallaw.com/7-380-6134).

 

Liability and indemnity: clause 11

Clause 11 provides a general exclusion of liability clause. For information about exclusion clauses, see Practice note, Supply contracts: overview (www.practicallaw.com/0-107-3646). The clause is an exclusion clause so is likely to be construed against the person seeking to rely on it.

 

Assignment: clause 12

Assignment clauses are included in all kinds of commercial contracts to clarify or vary the position which would otherwise be implied by law. Consider whether the client needs to be able to assign the agreement intra-group. This clause prevents the unauthorised assignment of the agreement or any rights and obligations under it by the sponsor. The club is, in contrast, permitted to assign the contract. In the absence of a prohibition, the benefit of a contract can be assigned but not the burden. In some jurisdictions, there are various situations in which the benefit, and sometimes the burden, of a contract is automatically assigned by law. For more information about the situation under English law, see Practice note, Contracts: assignment (www.practicallaw.com/7-381-7509) and Assignment: drafting note (www.practicallaw.com/0-107-3825).

 

Announcements and confidentiality: clause 13

Clause 13 sets out the parties' obligations in relation to announcements concerning the sponsorship and confidentiality. The parties are likely to exchange information which is confidential in the course of the agreement. For information about confidentiality obligations, see Practice note, Protecting confidential information: overview (www.practicallaw.com/8-384-4456).

 

Points of contact: clause 14

Clause 14 sets out the points of contact for each party. It also seeks to prevent the club from being liable for any statements or representations (including pre-contractual representations) except as expressly set out in the agreement. For more information, see Entire agreement: drafting note (www.practicallaw.com/9-107-3835). The clause is an exclusion clause so is likely to be construed against the person seeking to rely on it.

 

Notices: clause 15

This provision governs the manner in which any notice under the agreement must be given, and the time at which the notice is deemed to be received. Mandatory notice provisions can be interpreted strictly and can be a very important part of the contract because they determine when other rights under the contract can be triggered. See Notice: drafting note (www.practicallaw.com/3-107-3843). Consider whether either party should appoint an agent for service in the other party's jurisdiction.

 

Entire agreement: clause 16

Clause 16 seeks to prevent the parties from being liable for any statements or representations (including pre-contractual representations) except as expressly set out in the agreement. For more information, see Practice note, Contracts: entire agreement clauses (www.practicallaw.com/3-503-7049).

 

General: clause 17

Clause 16 contains general boilerplate provisions as to waiver, entire agreement, remedies, costs, third party rights, modifications and governing law and jurisdiction.

Clause 16.1 (waiver) seeks to avoid a party jeopardising its future rights under the agreement by failure to exercise or enforce any such right. For more information, see Waiver: drafting note (www.practicallaw.com/8-107-3807).

Clause 16.5 (severability) encourages parties to modify an unenforceable or invalid clause to make it valid. Rather than relying on this clause, it is usually preferable to ensure that illegal provisions that may risk making the whole agreement unenforceable are not included. For more information, see Severance: drafting note (www.practicallaw.com/7-107-3841).

Clause 16.6 (variation) seeks to prevent inadvertent variations to the agreement by requiring them to be made by a signed agreement. For more information, see Variation: drafting note (www.practicallaw.com/1-107-3839).

Clause 16.7 (governing law):

  • Determines that English law that will apply to the contract.
  • Determines which courts will have jurisdiction to settle disputes.

Generally, the parties to a contract are free to choose its governing law (see Rome I Regulation which took effect from 17 December 2009, to which all members of the EU except Denmark have acceded). For more information, see Governing law and jurisdiction: drafting note (www.practicallaw.com/4-107-3852).

Clause 16.8 is a clause making time of the essence for any dates, times or periods specified in the agreement. For more information, see Time of the essence: drafting note (www.practicallaw.com/1-107-3820) and Practice note, Time of the essence (www.practicallaw.com/3-107-3819).

Clause 16.9 prevents any third parties from inadvertently being given the right to enforce the contract. The Contracts (Rights of Third Parties) Act 1999 (the 1999 Act) applies as a matter of law to English law contracts entered into on or after 11 May 2000, and enables the parties to a contract to confer enforceable rights on third parties to that contract. It provides a statutory exception to the doctrine of privity of contract. It is important to consider how the 1999 Act can be used in, or excluded from, any contract. Consider if the client's affiliates and group companies should be able to benefit from the agreement. A summary of the drafting considerations to bear in mind can be found in Third party rights: checklist (www.practicallaw.com/6-101-3541). For guidance, see Third party rights: drafting note (www.practicallaw.com/2-107-3848).

 

The sponsorship rights: Schedule 1

Schedule 1 sets out the details of the sponsorship rights.

Legal issues

The sponsor is given the right to display the sponsor mark in an approved form, size and positioning on specified items, such as playing shirts and training kit. Kit branding must be subject to any applicable regulations. For example, tobacco advertising is not permitted in the UK. Kit branding must also be subject to the brand guidelines specified by the club. The extent of kit branding should be spelt out here; will it extend to training and leisure wear as well as playing kit?

The sponsor is also given the exclusive right within the brand sector to use the club’s mark and/or designation on the sponsor materials. This includes a right to used or signed kit. Used or signed kit is a valuable "money can't buy" right which sponsors enjoy, and which is relatively easy and cost-effective for the club to provide.

The sponsor’s rights also include a right to use its branding on, for example, home stadium advertising perimeter boards, interview backdrops controlled by the club, stadium scoreboards, players tunnel, club publicity materials, programmes and tickets. Most football clubs currently use fixed site perimeter boards. As there may be a move to rotating boards that show one logo for a fixed period, sponsors should be aware of protecting their percentage exposure by optimising the periods they would occupy under such a system.

Rights to players are very important to sponsors, who will be granted rights in relation to personal appearances by players and management. Nevertheless, the club will control this to ensure that use of players in promotional activity does not compromise the individual rights of the player, and does not interfere with playing and training commitments.

Other rights include website branding, free tickets, catering and hospitality and a right to supply sponsor brand sector products at all home games.

The sponsor mark: Schedule 2

Insert details of the sponsor mark here.

The club mark: Schedule 3

Insert details of the club mark here.

Perimeter boards: Schedule 4

Insert details of the perimeter boards here.

Brand Guidelines: Schedule 5

Insert details of the brand guidelines here.

 
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