The Top 8 Issues in Sponsorship Sales/Strategy Consulting Agreements

Maximizing sponsorship revenue for an event or brand often requires greater resources than those available within a rights-holder’s internal organization.  Fortunately, there are several reputable consulting companies that provide sponsorship sales and strategy consulting to bridge the gap. The consultants, which range from big players such as IEG/ESP Properties and Legends to boutiques like Caravel Marketing, provide a range of sponsorship-related services, including valuation, packaging, content creation, branding, analytics, activation strategies, customer engagement and sales representation.

I have helped clients negotiate successful arrangements with sponsorship consultants and I have also represented consultants in deals with sponsorship properties.  This article discusses the most heavily negotiated terms based on my experience:

  1. Scope of Services.  The scope of services will vary depending on the needs of the rights-holder.  A recurring event with a substantial operations team may require only sponsorship sales consulting to help boost revenue, while a well-established organization seeking to develop a comprehensive sponsorship platform for the first time may need a full strategy, valuation and execution package in addition to sponsorship sales consulting.  The key here is to be clear about each party’s expectations of the other. Consultants should make sure they have, among other things, full access to their client’s sponsorship assets and activation opportunities, and assured responsiveness to requests for approvals and information.  Rights-holders should make sure the agreement answers their main questions regarding services to be provided, such as:
    • What are the consultant’s specific duties and deliverables?
    • What strategy services will be provided (e.g., ideas, content creation, packaging, presentation development, valuation, digital, analytics, customer/fan engagement, etc.?)
    • Will regular reports about meetings, presentations, pitches, introductions, prospects contacted, etc. be provided?  How often and in what level of detail?
    • Will the consultant permit a representative of the rights-holder to attend sponsor/prospect meetings?
    • Will the consultant help negotiate sponsorship agreements?
    • Is the consultant expected to be available for meetings to travel for the benefit of the rights- holder?
  2. Exclusive vs. Non-exclusive.
    • Exclusive Relationships. Sponsorship consultants will almost invariably seek an exclusive relationship with the rights holder to fully incentivize the consultant to secure deals and freely market and sell the rights across its relationship portfolio without competitor interference.  Exclusivity can also be beneficial to the rights-holder because it mitigates against the risk of duplicative sales efforts by multiple consultants, which would demonstrate organizational mismanagement by the rights-holder and possibly diminish sponsorship revenue.
    • Non-exclusive Relationships.  Notwithstanding the above-mentioned benefits of exclusivity to both parties, non-exclusive deals are possible.  I have successfully crafted non-exclusive sponsorship sales consulting arrangements for larger clients with care to avoid overlapping marketing efforts. Non-exclusive arrangements should (i) clearly identify the prospects to be solicited in a mutually agreed joint prospect list and (ii) require ongoing open communication and reporting regarding any changes to that list.
  3. Compensation.
    • Sales Consulting. Market rate compensation for sponsorship sales consultants is typically (i) a monthly retainer plus (ii) a commission based on a percentage of gross sponsorship revenue received (including both cash and in-kind value).  Commissions on in-kind value are typically paid only to the extent such value relieves budgeted line items of the sponsorship property.  (Note that the value attributed to in-kind benefits can be heavily negotiated, ranging from fair market value to wholesale value to some other value, often depending on whether the property must put forth additional effort or resources to use the in-kind contributions.)  I have seen sponsorship sales commissions ranging from 10%-20%, with customary commissions being from 10%-15% when a retainer is paid.  Sometimes commissions are laddered, such as a commission of 15% on the first $X of sponsorship revenue and 10% on amounts above $X.  In certain cases, the rights-holder may negotiate recoupment of a portion of the monthly retainer (I have seen up to 50% recoupment) by deduction from the commissions payable.
    • Strategy Consulting. Compensation for strategy work is often project-based or charged on an hourly basis.  If strategy consulting is combined with sales consulting, then the fees will be a combination of the above.
    • Expense Reimbursement.  The consultant will require reimbursement for its travel and other out-of-pocket expenses, including graphic printing costs or other special project costs.  Usually the rights-holder has a pre-approval right over all reimbursable expenses or reimbursables in excess of an agreed cap.
  4. Commission Carve-Outs.  The rights-holder may reasonably seek to exclude from commissions sponsorship dollars received from companies or brands (i) with which the rights-holder has a bona fide pre-existing sponsorship relationship and (ii) it finds objectionable on moral, business or other grounds.  In addition, to prevent conflicts of interest, the rights-holder may wish to prohibit the consultant from receiving commissions on sponsorships from any organization in which the consultant owns an interest or would receive remuneration (e.g., a kickback) without full disclosure to and prior written consent of the rights-holder.  The consultant should freely disclose any possible “double-dipping” opportunities from affiliate relationships from the beginning, and any permitted affiliate deals should be stated in the contract to avoid later disputes.
  5. Commissions on Renewals (“Tail”). Sales consultants will usually seek commissions on sponsorship renewals after the term expires if they arose from relationships the consultant originated during the term. The rationale for this is that, without the consultant’s origination efforts, there would be no renewal.  It is reasonable to allow these “tail” commissions for a limited time period after the term, although in certain instances I have seen the rights-holder negotiate up to a 50% reduced commission on sponsorship renewals (e.g., if the origination commission is 10%, the renewal commission is 5%).  The obligatory term for payment of renewal commissions is negotiable and varies depending on the type of rights at issue.  I have seen renewal commissions payable for terms ranging from 6 months to 3 years after expiration of the original agreement term.  If the consultant is terminated for breaching the contract, the tail commissions should terminate.
  6. Services to Competitors.  Especially in sponsorship sales arrangements, the rights-holder may wish to prevent the consultant from providing similar services to direct competitors if the services are likely to conflict with the services provided to the rights-holder or otherwise put the rights-holder at a competitive disadvantage.  For example, if a music festival retains a consultant to sell sponsorships for a June 2018 event, the festival may require the consultant not to provide services to any other music festival within a within 300 square miles of the event during the 90-day period immediately before or after the event. This is often a fair request if the clause is narrowly tailored, but for large consultants with substantial worldwide customer portfolios it may be unrealistic.
  7. Work Product.  If the consultant is creating specific deliverables for a sponsorship property, then the property should typically own the intellectual property rights in those deliverables since it is paying value for them.  The consultant should, however, be permitted to retain ownership of any underlying or pre-existing IP used to create the deliverables and should grant the rights-holder an irrevocable, worldwide, royalty-free license to use that underlying IP to the extent it is incorporated into the deliverables.
  8. Term.  The agreement term is customarily a period of time necessary to complete the project or obtain sponsorships for the event or brand.  Each party is usually permitted to terminate the agreement (i) at any time for uncured material breach by the other party and (ii) for convenience upon advance written notice.  Often the consultant will negotiate a minimum fixed term of the agreement and/or a minimum fee payable by the rights-holder even if the agreement is terminated early, as long as the consultant is not in breach. This is generally a reasonable request because it justifies the consultant’s investment of time and energy into the project, which can be substantial during the initial ramp-up period.  I have seen agreements giving the rights-holder a termination right if $X in sponsorship revenue is not generated by Y date, but those are unusual.

I hope this article is helpful for both consultants and sponsorship properties.  If you have any experiences in the sponsorship consulting market you would like to share, please write them in the comments below or send me an email at john@jmdorsey.com.

 

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