Sponsorship in sports dates back to 1928, with the first deal between Coca-Cola and the Olympic Games, a partnership that continues to this day. According to the British Broadcasting Corporation (BBC 2023), the inception of broadcasting in the 1950s gave companies access to a larger public, and the increased commercialization of sports quickly followed. As marketers discovered fresh and inventive ways to grab attention, inventory expanded from shirt sponsorship to advertising boards and sponsored graphics.
Sports sponsorship is the financial support of a sport (be it an event, organization, or performer) by an outside entity (be it a person or an organization). It is a business arrangement whereby the sponsor (which could be any company) gives money to the sponsee (sports team, tournament, or athlete) in exchange for a specific set of rights. The sponsor essentially uses those rights to increase brand recognition, visibility, and customer loyalty, generating favourable public recognition (PR).
Pitch (2023) stated that Sponsorship in the world of sports can take many different shapes, with the most popular ones being event sponsorship, stadium/venue sponsorship, shirt/kit sponsorship, or championship sponsorship. Nike as a brand has invested so much in sports sponsorship. The brand has a lengthy history of aligning itself with elite talent. From world-renowned athletes like Lebron James and Serena Williams to up-and-coming athletes still in the rookie stage. Nike has strategically contributed to the development of the sports sponsorship industry.
As noted by Up Counsel, Endorsement Agreements are used to describe the understanding between companies and celebrities or other well-known people who are paid to promote the brand. As a way to manage and address unethical behaviour that is thought to reflect unfavourably on the brand, explicit moral provisions are incorporated into endorsement contracts. In the contract, moral provisions are specifically written to forbid certain conduct in the endorser’s private life.
Express contracts are the norm in sports relationships. Any agreement between parties that is demonstrated by their words, whether spoken or written, is said to be expressed.
Formerly, athlete sponsorships tended to be side jobs and were regarded as avenues to make some extra money. This is not the situation in the modern era. For instance, Michael Jordan signed a five-year, $7 million contract with Nike in 1984 (Pat Benson, 2022). By doing so, he established a precedent for players to have a bigger say in the developing sports and streetwear industries.
Interestingly, Forbes (2022) has listed Steph Curry as one of the world’s highest-paid players, and though his annual deal with Golden State is still a generous $34.9 million, his $42 million income from endorsements, which comes from one of the biggest shoe contracts ever, far exceeds his Golden State salary. As a result, Curry is now among the most widely endorsed athletes ever, and his endorsement contract with Under Armour ranks as the fourth-highest endorsement deal of any athlete in the world (NBC, 2022).
Factors to consider in drafting sponsorship and endorsement deals
In sponsorship and endorsement deals, the following factors are imperative:
1. Compliance and legal considerations: Several rules and regulations, including those relating to advertising, customer security, and antitrust, must be followed when drafting contracts for sports sponsorship and endorsement.
2. Contractual obligations: Contract law governs agreements for sports funding and endorsement. Each party, including the athlete or endorsee, the sponsor or endorser, and any third-party agents, should have a clear understanding of their rights and responsibilities under the contract. Express contracts are the norm in sports relationships. Any agreement between parties that is demonstrated by their words, whether spoken or written, is said to be expressed. The contract’s payment conditions, exclusivity clauses, use of intellectual property, and termination clauses are all important clauses.
Additionally, sports funding and endorsement agreements must take into account intellectual property rights (IPRs). It should be clear in the contract how ownership and use of brands, logos, images, and other intellectual property are to be handled. Sponsors and endorsers need to take care not to violate the IPRs of other people, such as those of teams, athletes and endorsees.
3. Reputation management: A player or team’s reputation may benefit or suffer as a result of a sponsorship or endorsement deal in the world of sports. Hence, teams and athletes should be cautious about the sponsors and endorsers they choose to work with and take measures to manage their image in the event of negative news or controversy.
4. Risk mitigation: It is important to identify and mitigate potential risks associated with the endorsement deal. This includes evaluating the endorser’s behaviour, potential conflicts of interest, or unforeseen events that could impact the sponsorship’s reputation or financial stability.
5. Professional advice: Legal, financial, and marketing expertise is essential when drafting endorsement deals. Professionals with experience in contract law, brand management, and sponsorship agreements can provide valuable insights and ensure compliance with best practices.
Best practices for athletes and brands
It is very paramount that before agreeing to any sponsorship or endorsement agreements, athletes should be aware of their rights and seek legal advice. Athletes should examine all contractual terms and conditions thoroughly and then bargain for advantageous provisions that are consistent with their brand/values. They should properly understand their rights and obligations, and ensure that the contract includes provisions that protect their image and reputation, and limit potential infringement.
Brands should perform extensive background research on the individual before agreeing to any sponsorship or endorsement agreements. This is called due diligence. Similarly, they must include provisions that limit the athlete’s participation in activities that might harm the brand’s reputation or image. They should verify that the contract contains clauses that safeguard their IPRs and that they have the required authorizations to use the athlete’s name and likeness. The terms of the deal should be clearly outlined in the contract, including the scope of the sponsorship or endorsement, the duration of the deal, and any exclusivity clauses.
For both athletes and brands, legal consultation is equally important. They should seek legal advice from a professional with knowledge of sponsorship and endorsement agreements in the sports industry. The professionals can aid in contract negotiations and guarantee that their rights and interests are protected.
The strategic effect of sponsorships cannot be overemphasized, as it adds value to the social and commercial objectives of organizations by establishing and preserving the brand image. More importantly, sponsorships and the organization’s overall strategic goals should be directly aligned.
Finally, it takes cautious planning and close attention to detail to successfully navigate the legal landscape of sports sponsorship and endorsement agreements. Both brands and athletes should take precautions to safeguard their names and reputations and make sure that the contract conditions are in line with their principles and objectives. These best practices can help both parties establish profitable and legally sound partnerships that would stand the test of time.
Christian Aniukwu is a Partner at Stren & Blan Partners, and heads the Firm’s Intellectual Property (IP) Prosecutions and Commercial Services Practice Groups. Kayode Akindele is an Associate in the Corporate and Commercial Dispute Resolution Unit of Firm, while Stanley Umezuruike is an Associate in the Dispute Resolution Department of the firm, with a specialty in Intellectual property, Entertainment and Technology law-related matters.
Stren & Blan Partners is a full-service commercial Law Firm that provides legal services to diverse local and international Clientele. The Business Counsel is a weekly column by Stren & Blan Partners dedicated to providing thought leadership insight on business and legal matters.
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