Sponsorship dollars and ticket sales are the economic engines of music festivals and other special events. The organizer will customarily prepare a form of sponsorship agreement for use with sponsors, although certain sophisticated sponsors (e.g., Red Bull) may prefer their own form of agreement. If an anchor sponsor wishes to use its own form, then the organizer should use it to expedite closing the deal. Attorney time should be spent on the more critical negotiation points rather than arguing over trivialities of whose form is selected.
A well-drafted sponsorship agreement will usually have at least the following elements:
- Category Exclusivity: The event organizer will usually divide sponsorships into several categories or levels, each with greater sponsor benefits and activation opportunities. For example, in the beverage category, the festival may have an “official beer”,”official energy drink”, “official bottled water”, “official rum”, etc. Sponsorship categories range from “official digital media partner” to “official vehicle” to “official [insert category or sub-category]”. The sponsor will seek the widest possible exclusive coverage in the category (e.g., “official beverage”). High level sponsors will try to prevent other sponsors from receiving equivalent benefits and to exclude competitors (which should be identified in the agreement) from the same opportunity. The organizer will seek to narrow the sponsor’s coverage to a sub-category or sub-sub-category within the category (e.g., “official energy drink”, “official cola” or “official diet cola”) to maximize the number sponsorships. The organizer should strive for a balanced collection of sponsors to mitigate dilution of sponsorship value and excessive sub-categorization. The contract should clearly define the sponsor’s exclusivity rights by identifying similar sponsorship categories that are not within the exclusivity. If, for example, the sponsor is to be the “official energy drink”, then “energy drink” should be defined and the agreement should also include a list of what is not an energy drink, such as coffee, tea and other naturally caffeinated beverages.
- Benefits: The agreement will include a list of all benefits to be received by the sponsor. As in this agreement for sponsorship of Professional Bull Riding, the list is often included as an exhibit because it is long and detailed, including signage, on-site activation opportunities (including social media and fan zones) and print and web media exposure. The organizer should clearly describe the materials and equipment the sponsor is permitted to bring to the event in order to exercise its benefits, and require that the sponsor be solely responsible for any act or omission arising from the use of that equipment by the sponsor or its agents.
- Sponsorship Fee: The sponsorship fee may include cash and in-kind benefits to the organizer, such as catering services (often tied to activation opportunities) and media exposure. The organizer should require the payment of interest for past due sponsorship fees and other termination rights for sponsor breach, such as suspension of benefits. Delivery times and dates should be specified for in-kind deliverables to accommodate the event schedule.
- Renewal: The sponsor will often seek a renewal option to continue the arrangement for future editions of the event. The organizer may be willing to accept the renewal option if the fees are sufficient or may grant the option subject to the parties’ agreement on fees, which is similar to a right of first negotiation (described below).
- Right of First Refusal or Negotiation: The sponsor will usually request a right of first refusal (ROFR) that prohibits the organizer from entering into a sponsorship deal with another sponsor for the event’s next edition unless it first offers the opportunity to the original sponsor. The organizer should try to eliminate the ROFR in most cases because it will discourage future sponsors from dealing with the organizer given the possibility they will lose the deal to a competitor. The organizer may instead wish to agree to a right of first negotiation (ROFN) that obligates it to negotiate sponsorship for the subsequent event with the original sponsor for a given period of time. If no deal is reached during the ROFN period, the organizer is free to pursue other sponsors.
- Trademark Licenses: The sponsor will grant the organizer a license in the sponsor’s marks as is necessary to provide the sponsorship benefits. Trademark license grants are usually subject to each party’s usage guidelines, which may be attached to the agreement or incorporated by reference (but watch for terms that conflict with the agreement). The organizer will grant the sponsor a license to use the organizer’s marks to promote the event and on any merchandise and media that the sponsor is allowed to create as part of the sponsorship benefits. The trademark licenses may be coupled with restrictions on display of the marks in connection with images of underage drinking, illegal drug use or other conduct or competing brands that could tarnish the marks.
- Insurance: The sponsor will require the organizer to maintain sufficient insurance with the sponsor named as additional insured to cover the event and its risks, including commercial general liability, worker’s compensation and professional liability policies. The organizer should require that the sponsor provide reciprocal insurance, particularly if the sponsor is performing on-site activation or engaged in media promotion.
- Confidentiality: The organizer may wish to include a confidentiality provision if the sponsor will have access to business plans, artist lineups, revenues or any other confidential information. The sponsor may have similar confidentiality concerns, and this provision is often reciprocal.
- Force Majeure: The organizer should include an expansive force majeure clause to cover situations where it is unable to perform due to events outside of its control so that the inability to perform is not a breach of contract. For example, inclement weather has stymied many events and the organizer should seek to mitigate the risk that the sponsor claims a loss of benefits after a windstorm. The sponsor should try to narrow the list of force majeure events to specific circumstances. The sponsor may require a refund of a pro rated amount of its sponsorship fee representing the loss of sponsorship benefits due to force majeure. Depending on the event, it may be reasonable for the organizer to disallow a refund as long as the force majeure is temporary and the event can be hosted within a reasonable time (e.g., one year) because there is unlikely to be a material diminution in sponsorship benefits.
- Refund Upon Breach, Cancellation or Postponement: The sponsor may require a refund of all or part of the sponsorship fee if the organizer breaches the agreement or cancels or postpones the event for any reason, including force majeure. As noted above in Force Majeure, the organizer should argue against providing a refund if the event can be held within a reasonable time after the force majeure and any other cancellation or postponement on the ground that there is not material diminution in sponsorship benefits. The organizer should always require a notice and cure period for any alleged breach.
- Indemnity: The sponsor will generally request a broad indemnity, which may include (i) any claim arising out of the event and its promotion, (ii) negligence or willful misconduct of the organizer, (iii) breach by the organizer of its obligations and (iv) copyright or other infringement of any third party intellectual property rights. The organizer should seek to make indemnity reciprocal (this is usually accepted by the sponsor) and to limit its indemnity obligation. Taking the example above, this limitation can be accomplished by, among other techniques, excluding or narrowing the indemnification obligation in clause (i), which makes sense particularly if the sponsor will promote the event or the sponsor’s representatives and employees or agents will be on-site at the event, and limiting (ii) to gross negligence; and adding “material” before “breach” in (iii).
- Representations and Warranties: The sponsor and the organizer should each provide representations and warranties as to its organization, ability to perform its obligations, compliance with laws (including alcohol and cannabis laws), and procurement of permits and licenses, among others. The organizer may require additional reps and warranties from the sponsor, such as a warranty that the sponsor will comply with written policies and safety and security measures of the event (see Sponsor’s Manual below).
- Special Provisions: The sponsorship agreement may contain unique additional provisions depending on the nature of the event and the sponsor type, including:
- Sponsor’s Manual: The organizer may create a “sponsor’s manual” setting forth general requirements applicable to all sponsors, loading and unloading schedules, on-site activation requirements and other practical information. The manual is often incorporated by reference into the sponsorship agreement.
- Right to Capture Footage: The sponsor and/or the organizer may seek the right to capture footage at the event to be used for promotional purposes. If the sponsor will film, it should obtain the right to post a crowd release at event access points and the right to film the event, including a license to use the footage in all media worldwide in perpetuity. The organizer will often wish to film the event and should obtain the right to capture footage of the sponsor and its employees and agents (the organizer will generally post its own crowd release at the venue). The organizer should include restrictions in the sponsor’s right to film, such as a prohibition on filming performing artists and a requirement that the sponsor obtain all clearances for the exhibition of its footage.
Is your event sponsorship agreement missing any of these essential terms?