Mar 9, 2016

Sporting Personalities, Brands and Contracts – Termination for Breach

Objectives of sponsorship

Sponsorship is a form of marketing by which a sponsor (often a business) contributes funds, products and/or services to an event organiser, producer of an entertainment product, participants, teams or individuals; in essence, the rights holder. In most cases sponsorship is provided in return for marketing rights entitling the sponsor to promote its image and products in connection with the event or individuals concerned.

Sponsorship can also be used as a vehicle to further the sponsor's social responsibility and sponsors are increasingly looking at more subtle means of engaging with consumers and spectators (in the case of sport sponsorship).

Sponsorship is big business. While it is most frequently encountered in the context of sport (in the UK 75-80% of all sponsorship funding relates to sport), it extends to music events, the arts, charitable and educational activities, and the funding of television programmes or films.

The objective of sponsorship will largely be to increase brand awareness and sales, gain cheap and possibly even free media exposure, enhancing its own customer base due to the partnership. The sponsor will also be interested to promote its corporate image, by associating the company's logo with a prestigious (or perhaps not so prestigious in the case of some goods!) event or being recognised for their partnership with a renowned sports personality.

When Sponsorship Goes Wrong – Maria Sharapova Case Study

There may be situations which force a sponsor to distance themselves from the event or party they sponsor. A very recent high profile example of this is the global tennis star Maria Sharapova, testing positive for a banned drug.

The athlete claims she failed to read an email sent from the World Anti-Doping Agency (Wada) which clarified that the drug which she has been taking for several years was now on the banned substance list. Many spectators, commentators and fellow athletes have criticised her and overwhelmingly stated that there is no excuse for a positive drug test regardless of any background facts. It is widely felt within sport that it is the responsibility of a professional, elite level athlete and their advisors to be fully appraised of all banned substances, and take all steps to avoid their use or otherwise consult with Wada regarding a potential exemption.

As a consequence of the failed drugs test Nike has suspended its relationship with Ms Sharapova. In addition, Swiss watchmaker Tag Heuer and German carmaker, Porsche have both cut their ties.

The total financial cost to Ms Sharapova, who was ranked as the world's highest paid female athlete for the 11th consecutive year by Forbes, will be huge. Forbes claims her total annual earnings last year were $29.7 million most of which came from off-court sponsorship deals. This is in addition to the fact that she faces a lifetime ban from competing in sport and the ignominy of being labelled a 'drugs cheat'.

Ms Sharapova is by no means the first, nor sadly will she be the last, high profile sports star, team or country to be guilty of using or facilitating the use of, banned substances. Memorable cases involve athletes Ben Johnson, Linford Christie and Justin Gatlin (twice!) who incidentally and perversely, Nike still sponsors, along with the recent Russian and Kenyan athletics teams' scandals, cycling's highly publicised battle with doping and Major League Baseballs' continued difficulties. Practically every sport played at a professional level has its own tales of woe.

It may not only be the used of banned substances that lead to a cooling of relations between a sponsor and sponsored personality. A personal misdemeanour could have the same effect such as, for example, the Oscar Pistorious case in which he found guilty of the death of his girlfriend, Reeva Steenkamp.

So what can a sponsor do in such circumstances to limit the damage to their image?

Sponsorship Agreements

When a deal is agreed between the sponsor and sponsored personality or event, a sponsorship agreement will be drawn up. In Ms Sharapova's case, the contracts would have been between her and Nike, Tag Heuer and Porsche etc.

A well drafted and comprehensive agreement will set out the terms of the agreement reached including termination of the agreement. A termination clause will include notice provisions, events justifying termination and what the consequences of termination will be.

Termination Events

An agreement will provide for termination for various reasons. Common examples include; breach of the contract, the liquidation or is bankruptcy of a party or a failure to pay monies as they fall due.

Another common reason which will allow for termination in a sponsorship agreement would be because the other party has conducted themselves in such a way that the sponsor fears that this will damage the reputation of its business.

This is almost certainly how Ms Sharapova's sponsors swiftly distanced themselves from the athlete following her revelations.

Immediate Termination?

The agreement should set out what breaches will give the right to terminate the agreement immediately and whether notice is required and in what form (generally written notice must be served in the party in breach).

Consequences of Termination

Termination within the terms of the agreement should release the sponsor from any continuing obligation to pay further sponsorship fees. Further, it may also entitle it to reimbursement of sums already paid.

Use of Break Clauses

A break clause is typically a clause which permits a party to 'break' the contract. This may be due to the occurrence of specified events or after certain periods of time. Including such a right will be particularly important if the term (i.e. how long it will last) of the agreement is particularly lengthy given the context. Reasons when the break may be made could include less important factors than breach, such as, the personality failing to perform to a required standard, for example, remaining in the top 100 players in their sport or relevant commercial considerations such as a sponsor no longer sells goods relating to golf therefore they a golfer is not needed to promote their goods.

General Applicability to Business

Applying the above to everyday business situations is obvious it's just that the reasons for termination will to be more attuned to the relationship on the basis that the rest of the contract will relate to the nature of the goods or services in question. A termination for breach clause covers the terms of the agreement in question and so complex drafting around specific points is not required as it will be set out in the main 'deal' clauses. Also a break clause may be included where the parties want contractual certainty for a long period with the flexibility to end the agreement in the event that circumstances, performance levels are not hit or at specified times during its term.

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