Maintaining Sponsorship Partnerships During COVID-19 and Beyond
By Vela Wood
This article was originally published on LEAD1 on August 3, 2020.
As the fall 2020 semester approaches, COVID-19 has caused many intercollegiate athletics conferences across all three NCAA divisions to modify competition schedules or postpone the return of sports through the end of the calendar year. Even with these changes, there are no assurances that play will resume in the next few months or even as we enter 2021. This reality has caused uncertainty in what potential revenue streams will be available to athletic departments. Institutions have experienced lower than anticipated NCAA and conference distributions, athletic events have been canceled or postponed impacting both gameday revenue and multi-media rights deals, and for the purpose of this article, sponsorship partners may be seeking to cancel, suspend, or reduce payments under existing agreements.
From a sponsor’s perspective, the cancellation of events can dramatically impact the organization’s overall marketing and brand-building strategies as well as targeted initiatives around the launch of a new product or service. For example, if a sponsor’s asset mix includes a sponsored instant replay on the video board with a corresponding public address announcement at a football game, a fan activation site with a free giveaway at men’s and women’s basketball games, and fixed signage at various athletics facilities, these benefits and the value they represent may be lost.
While most sponsorship deals outline the ramifications of event cancellation or postponement, they may fail to cover cancelation of an entire season, extended duration postponements, or events held with limited spectator capacity. As a result, colleges and universities should make ensure they have a solid understanding of how COVID-19 may impact each sponsorship agreement and potential concerns each sponsor may have.
Get Your House in Order
To address potential sponsorship issues, the first order of business is compiling all of your institution’s active sponsorship agreements. Once this task is completed, you should utilize university counsel or outside legal counsel to review each agreement to identify key terms and create a spreadsheet summarizing the applicable language of each term.
At a minimum, the spreadsheet should include the following:
- Force majeure or canceled/altered event clauses and make-good rights;
- Fee and payment breakdown for the term of the agreement as well as any potential payment escalators (i.e., post-season appearances, etc.);
- The agreement’s asset mix (i.e., what benefits are being conferred to sponsor and what is the manner they are provided – gameday, digital media, exclusivity, etc.);
- Expiration date of the agreement and any other termination, opt-out, or non-performance provisions.
Proactive Engagement with Your Partners
Once the spreadsheet is completed, your institution will have a snapshot of each party’s rights as it pertains to partial or non-performance. However, even with that in mind, institutions should be mindful of the long-term benefits of a mutually successful business partnership. Therefore, institutions should consider engaging sponsors to maintain the partnership beyond the current term, appropriately share risk, and create certainty in light of the uncertainty COVID-19 has created. In working with sponsorship partners, institutions should consider building more flexible arrangements to allow variations relating to term extension, payment obligations, and substitutions as it relates to the sponsor’s asset mix. This allows a process to be in place on how potential rights changes will be renegotiated based on various factors. And, if that fails, how refunds or payment obligations will be determined and valued.
In the event that one or more regular season University home football, men’s basketball, and women’s basketball games are not played or played without fans for any reason (including, without limitation, an NCAA or Atlantic Coast Conference order, directive, or policy, or a decision by the University at its sole discretion) and such games are not rescheduled, then University and Sponsor shall first consult in good faith to identify substitute sponsorship elements (“Substitute Benefits”) having promotional value not materially less than that of the unavailable Sponsorship Benefits (such value to be determined by good faith negotiation and agreement by the Parties). In the event that, after good faith negotiations, the parties cannot agree to Substitute Benefits or adequate Substitute Benefits are not available to fully replace the unavailable Sponsorship Benefits, the Sponsorship Fee hereunder shall be refunded or reduced, as applicable, by the value of the unavailable Sponsorship Benefits not provided to Sponsor (such value to be determined by good faith negotiations and agreement by the Parties). In the event that one or more regular season University home football, men’s basketball, and women’s basketball games are played at a limited fan capacity in order to comply with applicable local, state, and federal government regulations and guidance relating to social distancing, NCAA order, directive, or policy, Atlantic Coast Conference order directive, or policy, or as a result of other efforts to protect public health, then, unless University and Sponsor otherwise agree in writing, the parties will work together in good faith to equitably adjust the Sponsorship Benefits provided to Sponsor.
This article and the sample language provided is for informational purposes only and does not constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction. Anyone using this article should seek the advice of legal counsel to develop a contract that meets their college or university’s specific needs.