Sponsorship Agreement: What Is It & Why Do I Need One?

A sponsorship agreement governs and dictates the legal relationship between a Sponsor and the people entitled to enforce the sponsorship obligation. These are often concluded upon an informal basis, although in some instances a formal agreement will better protect the interests of the sponsor and other party.

 

What are the typical issues that a Sponsorship agreement will have?

Usually, there will be a set of issues for both the sponsor and the sponsored, unique to both of their respective situations.

For sponsors, they must think of their benefits and the definition of those benefits. They should focus on whether or not there will be variations in those benefits, especially if it is a long-term arrangement versus a short-term agreement.

The sponsors will only be so willing to enter an agreement, and will be less willing to do so if there is any risk that the actions of the other party could damage the reputation of the sponsor in the long run.

Another issue, and possibly the most important one, is the issue of payments. If there will be payments, it is highly suggested that the two parties create a formal written contract. With a written agreement in place, it will be easier for sponsors to enforce the other party’s payment obligation, and the other party will have a greater understanding of the scope of the sponsor’s payment obligations.

Both parties will need to understand any and all variations in those payments, especially if the arrangement is long-term. Another thing both parties must understand and come to an agreement on are the rights of the parties, in case the agreement will be terminated.

 

Trademarks

During the negotiation process, it has to be decided whether or not the logos or trademarks of the Sponsors will be used in conjunction with the promotion of the sponsored person or company. If this is to be done, the Sponsor can increase visibility of their company, as it would most likely be put on any and all promotional materials created during the course of the partnership.

Once an agreement on how the trademarked and copyrighted material is made, the Sponsor can grant a trademark license agreement that grants the Sponsored the right to use the materials during the duration of the Sponsorship agreement. This ensures that the Sponsored cannot violate trademark law.

 

Regulations

Both parties must oblige to any and all federal and state regulations during the creation of the contract, as well as the execution of the contract. Failure to do so will result in fines to the party in violation, to either the government and/or the other party. These regulations can affect the distribution and allocation of funds from either party, trademarked items from the Sponsor, and other things.

When filing taxes through the IRS, the sponsored party must present receipts of “qualified sponsorship payments”, which is any payment made to another party with no assumption that they will receive any substantial return benefit in exchange. Both parties must be made aware of the Fair Market Value of their services and the benefits to be provided.

 

Important things to remember when drafting a Sponsorship Agreement

When drafting a Sponsorship agreement, the parties must include a variety of things, most importantly, the identity of the parties as well as the agreement’s effective dates. They must also describe the rights, duties, and responsibilities of each party in detail. Without this, potential issues may arise if one party chooses to pursue legal action over the other party for not fulfilling their responsibilities, which had been promised through a verbal agreement, but not a written one.

The sponsor must decide whether or not to provide any liability or indemnity insurance, detailed through warranty and indemnity provisions that would detail the limits of the insurances.

Finally, before signing the agreement, they both should include any necessary miscellaneous provisions, which may not be specific to the contract at hand, but necessary to the completion of the agreement.

 

Need a Sponsorship Agreement or need it reviewed? Contact Sam Mollaei, Esq., business lawyer, via email at sam@mollaeilaw.com or via phone (818) 925-0002. 

This post is written by Maggie Pa, a UCLA Class of 2017 student with vast experience in social media and marketing.