Out-Law Analysis | 20 Oct 2020 | 9:17 am | 5 min. read
There are a range of options available to negotiators to ensure that both parties to sponsorship agreements can derive value from the contract even if the public health emergency and related government restrictions persists for longer than anticipated and impinge on the commercial drivers of sports rights.
The coronavirus pandemic and government-imposed social distancing measures have had a fundamental impact on the market for sponsorship rights in sport. Sporting bodies have had to react to the measures by cancelling or postponing fixtures and competitions, or by introducing restrictions on sporting events to enable them to take place in the future. This has had and will continue to have a direct impact on any sponsors' rights connected to those events or the venues in which they are played.
In this landscape, a rights holder will still be keen to complete new deals and secure future revenue streams. A sponsor will seek to protect its investment and to ensure it can take advantage of sponsorship opportunities with confidence that the risks associated with the coronavirus pandemic are adequately managed to provide value for money. In order to do this, parties will need to consider more creative contractual measures to govern the arrangement and to structure deals so that they are agile and provide more certainty.
The value of sponsorship rights extends beyond the sporting event itself. In certain circumstances the very association with certain established and cherished brands, regardless of whether the event takes place, can be of significant value
At this stage of the pandemic the more traditional approach to contracts in sponsorship arrangements may not provide parties with the necessary flexibility to meet their aims. Force majeure clauses, which deal with the impact of unexpected events, may have limited application as the impact of the coronavirus can no longer be categorised as unexpected or unforeseen. In addition, force majeure clauses can be blunt instruments, as they typically provide for suspension or termination of contracts which is a path that parties are unlikely to want to pursue. Parties will more likely want their sponsorship arrangements to continue, provided that they will get the benefit of the promised revenue stream and full enjoyment of sponsor rights.
The pandemic has changed the risk profile of sponsorship contracts. The cancellation of an event would have been a risk in any sponsorship arrangement but at this time it would be regarded as more likely, particularly with a second wave of the virus upon us and the prospect of further 'waves' to follow – with associated 'lockdown' restrictions – until such time as a vaccine is found and immunisation programme implemented. In this context, the restoration of live sporting events in full stadia is likely to be some way away.
For amateur teams and premier events alike, these restrictions impact upon ticket sales, media broadcasting and fan engagement which are all elements that the business of sport, including sponsorship deals, relies upon.
It is possible for parties in a sponsorship deal to manage these risks and uncertainties, and inject value into the arrangement, by entering into a more collaborative contractual model under which parties share the burden of the coronavirus risk. This approach could provide benefits that more traditional risk allocation methods may be unable to provide under the circumstances. There is no 'one size fits all' approach to this, but as a starting point parties should consider the following to help create a mutually beneficial relationship:
Once the particular circumstances surrounding a deal have been considered there are a number of options which can be used to create a mutually acceptable and robust contract. Basing this on a contract structured around a shared incentivising model will help derive value from the arrangement in both parties' interests.
Parties could prepare a menu of rights or a method of collaboratively agreeing alternative rights that could be substituted for any sponsor rights that are hindered by the coronavirus pandemic
Consideration should be given to:
Overall, creativity, flexibility and cooperation are likely to be key watchwords in negotiating sponsorship agreements in the post COVID-19 environment.
Co-written by Zara Early of Pinsent Masons.
20 Mar 2020
26 Mar 2020