The significance of sports sponsorship agreements or the story of Air Jordan
Forty years ago, Nike invited Michael Jordan to design his unique sneakers. At that time, Jordan broke the NBA rule that required players to wear only white sneakers by wearing red and black sneakers in every game, resulting in a $5,000 fine per game, which Nike paid.
However, in 1985, those sneakers hit the market, and although Nike aimed for $3 million in sales over a three-year period, by the end of the first year, sales had exceeded $126 million. This is the story of the world-famous Nike Air brand sneakers and Michael Jordan, who reportedly earned over $1.3 billion from his partnership with Nike.
Sponsorship agreements provide various benefits for both parties. Athletes increase their visibility and develop their own brands in partnership with the sponsor, resulting in a large portion of their earnings coming from these agreements. On the other hand, the sponsor benefits from the fame and positive public image of the athlete.
Nike is one of the largest sponsors of athletes in the world and has signed lifetime sponsorship agreements with three athletes: in addition to Michael Jordan, Nike has signed such agreements with Cristiano Ronaldo and LeBron James.
What does our law say?
If we look at our judicial practice, specifically the Decision of the Commercial Court in Niš P. 440/99, dated 4.5.2000, and the Decision of the Higher Commercial Court in Belgrade Pž. 4470/00, dated 28.6.2000, we see the court’s reasoning that a sponsorship agreement contains all the elements of a bilateral onerous contract because sponsorship involves the patronage of an endeavor or the financing of a program, most often for advertising purposes. Sponsorship and donation, which equates to gifting, are not the same concept.
Bilateral or bilateral onerous contracts are those in which both contracting parties have their rights and obligations, and simultaneously have the roles of creditor and debtor. For example, in a real estate sale contract, the seller’s obligation is to transfer the property, while the buyer’s obligation is to transfer the monetary amount. For the contract to be fulfilled, both parties must fulfill their obligations.
Also interesting is the stance of the Higher Commercial Court in the judgment Pž. 1304/01 dated 1.3.2001 regarding the principle of equal value of consideration, stating that this type of contract is not based on the identical value of material to the amount of money, as is the case with a classic sales contract.
A sponsorship agreement is not explicitly regulated by the legal regulations of our country. The Law on Sports mentions it in a few places in terms of the income of sports associations and the potential income of top athletes. On the other hand, sponsorship itself is regulated by the Law on Advertising, which defines it as any form of financial or other support by the sponsor towards a natural or legal person and their activities for the purpose of promoting the sponsor’s name, brand, or mark, and products or activities.
Although the Advertising Law is more focused on consumer protection and defines sponsorship in a broader sense, certain provisions of this law are imperative, meaning they cannot be deviated from. If you have read our previous texts, you are likely familiar with the principle of autonomy of will in contract law, which states that we are free to arrange contracts as we wish, as long as our desires and needs are not contrary to mandatory regulations, public order, and good customs.
The Advertising Law thus stipulates the prohibition of misleading information, stating that sponsorship must be clearly defined. In other words, sponsored content must be labeled as such by indicating the name, mark, or other symbol of the sponsor and must not mislead consumers regarding the identity of the sponsor, the sponsor’s activities, or the activity to which the sponsorship pertains.
Furthermore, our law states that sponsorship must not limit the creative freedom of the sponsored party, their rights to independent management, and the determination of the goal and content of the sponsored activity. If the contract is concluded contrary to this legal provision, it is void. Also, the sponsor must not endanger the integrity of artistic expression through sponsorship.
What is a sponsorship agreement?
A sponsorship agreement is a bilateral onerous contract in which the sponsor commits to providing a certain amount of money to the sponsored party, who in turn commits to promoting the sponsor’s goods or services, or brand.
Although this definition seems simple, a sponsorship agreement can be quite complex. When a sponsor concludes an agreement to promote their name, brand, trademark, and/or products, they care deeply about who they are partnering with, aiming to associate and identify with the public image and successes of the sponsored party.
Therefore, this agreement, especially in sports, is often concluded with regard to the personality of the sponsored individual, making it an intuitu personae contract. When we conclude a contract with respect to the identity of one of the contracting parties, it means that the obligation must be performed by that specific person and that the contract terminates upon their death, with the contractual obligations not transferable to that person’s legal successors.
The main value offered by the sponsored party is the image they enjoy in the public eye, i.e., their reputation. The sponsor specifically wants that person to promote their products due to their reputation. Returning to the imperative provision of the Advertising Law – the sponsor must not jeopardize the integrity of the sports content of the sponsored activity or harm the reputation of the sponsored party.
Sponsorship agreements for athletes – Why are they important?
Sponsorship agreements for athletes are one of the ways professional athletes can secure additional financial support, gain extra publicity, and build long-term partnerships with brands while developing their own brand.
As mentioned, in practice, these agreements can be complex, so it is important to understand what such an agreement contains and what to pay attention to. Before signing a sponsorship agreement, it is advisable to carefully review and understand all the terms and obligations specified in the contract and to be well-informed during negotiations to protect your interests.
Sponsorship compensation and activities of the sponsored party
One of the main items in this agreement is the sponsorship compensation, which can be simply defined as a fixed agreed-upon price for the duration of the contract, but also as compensation in the form of periodic or variable payments or tied to sponsorship goals. The compensation will be agreed upon as a result of negotiations conducted before signing the contract.
Well-defined payment specifications, such as the exact amount, schedule, and bonuses, ensure that both parties are satisfied with the concluded partnership. Additionally, if performance metrics are included in the contract, attention should be paid to the detailed definition of key performance indicators (e.g., social media engagement, participation in brand-relevant events, etc.).
The sponsored party should also clearly understand the sponsor’s expectations regarding promotional activities and the use of their image for promotional purposes.
Level of exclusivity
A significant portion of sponsorship agreements usually pertains to the sponsor’s rights. If you are the sponsored party in this agreement, attention should be paid to the level of exclusivity that the sponsor obtains through the sponsorship agreement.
For instance, the contract might define exclusive sponsorship, which, while potentially leading to greater awareness among the target audience and marketing results, such clauses can sometimes be restrictive and impose greater limitations on the athlete, causing them to miss other potential opportunities for development in this field. If such a clause undermines the athlete’s ability to pursue personal projects or participate in certain sports events, it could be concluded that it imposes unreasonable expectations.
Again, before signing any contract, it is necessary to understand all rights and obligations and carefully go through the negotiations. The end result should be a balanced approach agreed upon based on informed and defined goals of both contracting parties.
Contract duration
Although we mentioned that Nike has signed 3 lifetime sponsorship agreements, one of the typical clauses of a sponsorship agreement is its duration. For example, Novak Djokovic signed a sponsorship agreement with Lacoste in 2017, which was extended for an additional 4 years in 2021.
When signing a contract, consider the length of the duration and the renewal clauses. Sponsorship agreements are usually concluded for a few years with the expectation that the athlete will continue to achieve the expected results and that the sponsorship compensation will justify the athlete’s promotional activities.
Termination of the contract
Additionally, pay attention to the termination clause because every contract should have an exit strategy. The Law on Obligations prescribes what happens in case one party fails to fulfill its contractual obligations, but it is advisable, especially in complex contracts, to thoroughly regulate the issue of termination. For example, if the sponsor fails to fulfill their payment obligations, it is logical that the sponsored athlete should have a way to easily terminate the contract.
It is also advisable to define the issue of returning equipment and similar items provided by the sponsor upon termination of the sponsorship agreement.
Given that such agreements, at least in the case of top athletes, are highly publicized, confidentiality clauses are usually included to prevent either party from disclosing contract details or negatively commenting on the other party after termination.
Intellectual property issues
The last item we discuss in this text is no less important. On the contrary, don’t forget to thoroughly regulate the intellectual property rights of both parties. It is logical that the sponsor wants to protect their brand from any infringement of their intellectual property rights or prevent any form of ‘appropriation’ of their brand.
On the other hand, the sponsor should guarantee to the sponsored party that they are not infringing on the intellectual property rights of third parties and that their trademark is duly registered to avoid any legal issues that could harm the reputation of the sponsored party.
Now that we have highlighted the importance of an informed approach when concluding a sponsorship agreement, we must also mention that different legal situations arise in different sports, so we cannot have a one-size-fits-all approach for all sports sponsorship agreements.
The issue of intellectual property in such contracts will be covered in more detail in one of the upcoming articles. Essentially, the sponsored party obtains the right to use the sponsor’s name and logo in a manner specified by the contract (for example, on a jersey). Another important aspect of this contract and intellectual property rights is that the parties to the sponsorship agreement also wish to address the significance of the sponsored activities and the message being conveyed to the public, as well as ownership over any content that results from these activities.
From sport to sport…
This time, we will use equestrian sports as an example – in equestrian sports, sponsorship is a major source of financial support for professional riders. For instance, here we should be careful with defining the termination clause. It may happen that the sponsored party is not satisfied with the product or service of the sponsor during the contract period – problems may arise with the product if it endangers the safety of the rider or the horse, or if the product no longer suits the horse. Given that this sport involves both a human and an animal whose safety is also of utmost importance, the contract itself should contain mechanisms to regulate this situation during the contract period or a thoroughly defined termination clause.
When hiring an attorney in sports law, particularly sponsorship in sports, it is important to understand the sport itself in addition to the law. We have often written about the complexity of sports law and the various legal fields associated with this area, but we cannot overlook the fact that each sport is unique and that uniqueness should be reflected in the contracts. In any case, hiring a sports law attorney, good preparation, and being well-informed during negotiations benefit both contracting parties.
Note: This text does not constitute legal advice but rather the personal opinion of the author.