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


Sponsorship Agreements: ROFOs and Why You Need Them

Imagine that last year you sponsored a wonderful event with a return on investment that exceeded expectations. The sponsorship agreement has now expired by its terms, and you have learned that the event is seeking alternative sponsors for your former rights, as well as partners for new properties, including digital and internet-of-things partners (See, e.g., SAP digital tools).

You would have loved to have the first seat at the table in negotiating a renewal and for the new opportunities, but you must now negotiate new terms with the event in full competition with other sponsors.

If you had a ROFO, or Right of First Offer, you could have improved your lot. The ROFO gives the sponsor the opportunity to “stay in the game” when the agreement terminates or when new sponsorship opportunities are made available.

The ROFO is important because the sponsorship agreement, particularly in the eyes of the sponsor, has two significant limitations:

  1. It will expire after a defined term, such as conclusion of the event or a period of years; and
  2. It will not cover all potential sponsorship opportunities, such as new properties or rights that are not fully established or contemplated when the deal is first papered.

The ROFO requires the grantor (in this case, the event) to offer to the sponsor the right to purchase a thing before making or soliciting an offer for that thing from any third party. The thing, in the context of a sponsorship agreement, is customarily a renewal of the sponsorship or new/additional rights that were not previously available.

If the sponsor rejects the grantor’s offer, the grantor is free to negotiate a deal for the thing with third parties. But the ROFO prohibits the grantor from making a third-party deal unless the terms are at least as favorable (or materially more favorable) to the grantor as the terms offered to the sponsor.

For example, if ACME Rental Car enters into an agreement to become the exclusive official rental car sponsor of the 2018 Indianapolis 500 for $5 million cash plus additional benefits, ACME could include a provision in the agreement giving ACME a ROFO for the same rights for the 2019 event (and possibly for subsequently available sponsorship properties, categories, or territories).

The ROFO would provide that the Indy 500 could not offer any third party the right to be the official rental car sponsor (or similar category sponsor) of the 2019 event without first making an offer to ACME. If ACME refused the offer, only then could the Indy 500 seek third party rental car sponsors. However, the Indy 500 could not enter into an agreement with a third-party sponsor unless the deal was at least as favorable (or materially more favorable) to the Indy 500 as the offer made to ACME.

For instance, assume that under the ROFO the Indy 500 offers ACME a 2019 sponsorship package for $6 million cash plus additional benefits. ACME rejects the offer. The Indy 500 could enter into the same deal ACME rejected with Jalopy Car Rental Car, but it could not do a deal with Jalopy for $5.5 million unless it first made that offer to ACME and ACME rejected it.

Now, if you are not the sponsor but instead you are the event or other sponsorship recipient, the ROFO is not necessarily favorable to you because it limits the market of potential sponsors, which can reduce your fees. What to do? The event or other recipient can either (i) decline to include the ROFO in the sponsorship agreement or (ii) change it to a Right of Negotiation (RON) or a Right of First Negotiation (ROFN), both of which I discuss here.

Is Your Event Sponsorship Agreement Missing Any Of These Essential Terms?

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?