(This post is the third in our series on sponsorship considerations. Our first post, on defining expectations and payments, can be found here and our second post, on defining exclusivity, can be found here)
The last topic we will discuss in our sponsorship essentials series is intellectual property rights in sponsorship agreements. Just like the concerns we’ve already covered, intellectually property rights can easily become convoluted if not explicitly addressed in the terms of the agreement. These rights are at the core of a sponsorship agreement and are essential to its successful activation. The very nature of sponsorship centers around the usage of another brand for promotional purpose. A standard agreement will grant the sponsored party (licensee) the right to use the sponsoring party’s (licensor) name and logo in a specified manner (like a patch on a team jersey) and for a defined period of time. However, there are other intellectual property concerns to be aware of with respect to sponsorship agreements.
Defining control and ownership
Any sponsorship agreement should also precisely outline any rights associated with control over the licensed brand usage. In these agreements, parties will typically want control over: (1) the message being expressed in specific sponsorship activations, and (2) ownership of any content created as a result of an activation.
Control over the message being expressed in an activation is important to sponsors because it gives the sponsor the ability to determine whether any specific content being utilized for the activation is appropriate or in line with the brand image that the sponsor wishes to convey. An involved sponsor may negotiate for approval rights before any sponsored content is posted to ensure that the appropriate message is being delivered in conjunction with its branding. An established sponsor may not want to risk receiving any potential backlash from an inexperienced sponsee who posts controversial content. However, there are also many sponsors who don’t have the time to vet and approve potential sponsor content, so this may not be of concern to them. Instead, they’ll simply hold the sponsee accountable after any problematic content has been posted.
A sponsor may also want to own all IP rights associated with the content created during the activation of the sponsorship. This is particularly evident in streamer sponsorship agreements. Sponsors will want to own the content in which its IP or product is being used so that it can potentially utilize the video for promotional purposes at a later date. For an ongoing, “use on stream” deal, this equates to essentially owning the content of someone’s stream for the duration of the sponsorship agreement. Sponsees should be aware that granting this type of control to a sponsor would be problematic because it would effectively eliminate many of the rights the streamer had in the content of their stream, and their potential monetization of the stream.
As the streaming and esports industries continue to grow, companies will continue to flock to the market to align with new and trendy brands. Whether the sponsor is a well established company or not, it is important to consider all of the terms included in any potential agreement before entering into it. The specific provisions discussed in this series of articles are a good place to start when deciding whether you are being adequately protected in a sponsorship deal, but they are by no means the only terms to consider. Every provision in an agreement is significant and should be evaluated independently and within the context of the agreement as a whole. If you are a business, a player, streamer, or influencer, feel free to contact us to assist with your sponsorship agreements.
(This post is the second on our series on sponsorship considerations. Our first post, on defining expectations and payments, can be found here)
In all sponsorship negotiations, the issue of exclusivity is perhaps the single most important topic of discussion. Exclusivity is significant because it prohibits a sponsee (the company/individual being sponsored) from entering into other sponsorships, whether at large or in specified categories. Sponsors will often push for complete exclusivity over broad sponsorship categories because this protection provides the sponsor with an uninterrupted spotlight for their brand. For example, a drink sponsor like Cola-Cola will not want to pay top dollar for a sponsorship deal if the sponsee can simultaneously enter into an agreement with Pepsi. It is easy to see why a sponsor would want this type of protection, but a sophisticated sponsee should be aware that exclusivity can be tailored to better reflect the desires of both parties to the sponsorship.
An effective exclusivity provision starts with detailed communication. Both parties need to know what each side expects the exclusive product category to include. Sponsors will want the product category to be as broad as possible in order limit the amount of competitors. For instance, a company that offers nutritional supplements may try to expand its product category to include nutritional bars, protein shakes, and other types of supplements. In response, sponsees should try to limit the scope of the exclusive product category to be as narrow as possible. Using the above example, if a sponsee can limit the category to only include nutritional bars, it will have more flexibility when soliciting additional sponsors for the protein shakes and other supplement categories. This flexibility allows for potentially greater sponsorship revenue.
However, newer organizations, players, or influencers, may find it difficult to negotiate the scope of the rights to their advantage. Nonetheless, sponsees should at least make sure the categories and exclusivity are thoroughly defined to curb potential sponsor overreach. A sponsor may believe its deal as a sponsee’s “exclusive camera” would preclude a sponsee from entering into another deal with a company like Panasonic, who sells a variety of products including cameras, headphones, and televisions. A sponsee should insist that any obligation it has to not enter into a deal with a competing sponsor (exclusivity) is limited to the category that the sponsorship is in. Unfortunately for sponsors, a sponsee would still be able to enter into a deal with Panasonic as long as it only agreed to endorse a Panasonic product that did not fall under a protected category. While this may not be ideal for the current camera sponsor, an explicitly defined product category would inform sponsors of any limitations and hopefully clear up any potential confusion or issues that may arise down the line when partnering with multiple sponsors.
Another matter the parties to a sponsorship should be aware of is whether any restrictions are imposed by third parties. Frequently in traditional sports and esports, leagues will prevent teams, and teams will prevent players, from entering into sponsorship agreements within its own defined “Reserved Categories.” A Reserved Category is effectively a sponsorship category in which the restricted party is contractually required to not obtain sponsors in. For example, if a league has an exclusive sponsorship with Alienware and it has specified in its league participation agreement that the PC category was protected or reserved from teams, then a team could not enter into a sponsorship which would include PCs. This also occurs between teams and players in their player contracts, with players having certain sponsorship categories closed off to them. Importantly, it is in everyone’s best interest that these Reserved Categories are well defined, so as to avoid any possible confusion and disputes.
Negotiating exclusivity rights can be difficult but it is in all parties’ best interests to have a clear picture of what specific products are being protected and the associated rights/obligations. Without this, a number of potential problems can exist, which may ultimately harm the sponsorship relationship.
Our next post will discuss the various intellectual property concerns when entering into a sponsorship agreement.
Sponsorships are integral to the esports and sports industries as they provide a vital stream of revenue to their recipients. As 2018 is shaping up to be the biggest year for non-endemic sponsorships in the history of esports, it is important to keep in mind some basic sponsorship considerations when reviewing any sponsorship agreement. Specifically, the agreement’s expectations/obligations, payment, intellectual property, and exclusivity terms are key areas of any sponsorship agreement that you should pay close attention to. This post will address the expectations and payment provisions of a sponsorship agreement, and subsequent posts will discuss considerations regarding intellectual property and exclusivity.
When executed correctly, a sponsorship is a valuable arrangement because it is designed to benefit both parties. The foundation of a sponsorship is the expectations and obligations involved, and here we begin to see the mutually beneficial arrangement comes in to view. What is the sponsoring company asking of me? What are you receiving in exchange for the sponsorship? These questions are the starting point for an analysis of the expectations and obligations involved in a sponsorship agreement.
The key to an effective sponsorship agreement starts with both parties’ expectations being clearly defined. Without a precise description of each party’s obligations, the parties will, at least partly, be unaware of what is expected, making it difficult to properly fulfill their obligations. This ambiguity can often lead to arguments, terminations, or even breach of contract lawsuits. Considering that it’s in the best interest of both parties to develop a long-standing business relationship, avoiding conflicts through precise wording is beneficial to everyone.
Both parties should articulate its goals for the deal and explain how they plans to achieve their goals. For example, if a company wants to sponsor to a team and its players, requiring the players wear clothing with the company logo prominently displayed, it is imperative to specify when the company wants the team, and its players, to do this. With teams constantly pushing out content on various social media platforms and players doing the same on their individual accounts, a sponsor may expect to see its logo on team gear at all times. This may be broader than the team anticipated, who solely wanted the items’ usage to be while the players are streaming. A clearly defined provision would eliminate any confusion amongst the parties and provide a solid foundation for the sponsorship by eliminating any unknown intentions.
Payment terms are also of critical concern in evaluating a sponsorship agreement. Unfortunately, failed sponsorship payments are routine within the esports industry, and oftentimes create further issues for the sponsored party. For instance, if a team doesn’t get its sponsorship payment on time, it may have trouble paying its players’ salaries. At its most base level, payment provisions are what the sponsored entity or person receives in exchange for the sponsored promotion. Of course, the sponsorship agreement should specify the amount to be paid (or the specifics as to how a variable amount is determined) and when the amount will be paid. However, the payment terms of the agreement can also be used to incentivize proper payment. Savvy negotiators will seek to add penalties, termination rights, or other things that would disincentivize late/failed payments. In the event that payment is late or does not occur, these additions would provide you with greater flexibility to offset some of the impact incurred.
When it comes to sponsorship agreements, clarity and precision are key. This is especially true when defining each party’s expectations and obligations with respect to each other, including payment terms.
In our next post, we’ll discuss exclusivity rights and some of the considerations involved by both parties.
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