Ashfords LLP. In-house Legal.

With a summer packed with sport, sponsors are looking to cash in. But what can they do to protect their position against the acts of their endorsers?

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How can a sponsor protect its brand against a rogue endorser?

7 July 2016

With a summer packed with sport, sponsors are looking to cash in. But what can they do to protect their position against the acts of their endorsers?

Sponsorship strategy is key. The sponsor should precisely identify what their brand stands for. The next task is identifying an individual, team, organisation or event that reflects those characteristics. It's not just about securing the best performers. If the brand emulates family values, selecting a controversial personality is not likely to be a good fit!

Being aware of the risks that the sponsorship may present is crucial - do your due diligence. The risks associated with sponsoring an individual may be higher than with a sporting event, as the brand owner is buying into the individual's public and private persona.

Sponsors should also monitor the public's perception of their brand through social media analytics tools that can track online activity. Having a planned course of action for when things go wrong is equally important. Forecasting potential areas of risk, and simulating how they might play out, means the sponsor has a plan for damage limitation. This can give them a head start when a quick reaction is needed.

The sponsorship contract dictates the legal relationship between the parties.

A morals clause allows the sponsor the right to terminate in the event that the endorser engages in conduct that might negatively impact on the sponsor's image, goodwill and reputation.

A suspension clause in the contract, linked with the terms of the morals clause will release the sponsor of the obligation to pay the endorser (or provide any other benefits), or use them in any marketing campaigns, until the sponsor chooses to resume the relationship.

Where possible, sponsors should try to avoid front-loaded payments and instead opt for a payment schedule over the duration of the sponsorship. This means that when a contract is terminated or suspended, the sponsor is not faced with having to recover lump sum payments through legal proceedings. It also incentivises the endorser, as the payments are conditional on their continued compliant behaviour. Liquidated damages clauses also act as a deterrent, by equating the endorser's conduct with a set financial value. Increasingly, clawback provisions are used to recover payments in the event of a breach.

Having an option that allows sponsors to publicly criticise their endorser is also beneficial, as well as an obligation on the endorser to co-operate, whether by participating in press conferences, or issuing apologies.

A confidential arbitration clause will keep disputes and settlements out of the public eye.

Sponsors should always make their endorsers aware of the high standards expected of them, as well as the consequences of not meeting such expectations.

The sponsor needs to be in control.