Many businesses use corporate sponsorship as a mechanism for marketing or giving back to the community.
If the sponsorship is significant, the parties may consider entering into a sponsorship agreement. Some organizations may consider implementing an internal policy that a sponsorship agreement is required for any financial donation in excess of a specified threshold (e.g. gifts over $5,000).
Sponsorship agreements typically provide an obligation on the sponsor to make a payment or other in-kind donation to the recipient and outline the terms upon which such payments will be made (for example, who the payment will be made to, in what form, and on what date). The agreements also usually outline the recognition or other rights the sponsor is entitled to receive on account of making the gift.
Below is a high level list of some of the considerations a sponsor should consider before entering a sponsorship agreement to make a significant financial donation.
- Consider undertaking due diligence on the recipient. This may include: ensuring the organization is duly incorporated, in good standing, and able to contract; is not subject to any outstanding criminal or regulatory investigations; and is not subject to any current reputational crises.
- Outline the dates and terms upon which payments will be made. Consider whether the financial sponsorship should be made in tranches which are conditional upon the recipient achieving certain pre-defined milestones. If the payments are to enable the recipient to purchase a certain good or service, consider whether the payment should be made directly to the third party to ensure funds are used for the agreed upon purpose. If the payment will not be made directly, is the recipient required to provide receipts or other evidence that the payment has been used for the agreed upon purpose?
- Consider whether the goods and services tax (GST) could apply to the sponsorship agreement. Sponsorship funds given to an organization in exchange for property (e.g. promotional products, naming rights, advertising) may attract GST depending on the identity of the recipient.
- Ensure the agreement carefully outlines what the sponsor receives in exchange for its sponsorship. For example, if the sponsor is entitled to naming rights on a building, room or event, specify the term for those naming rights, who will be responsible for the costs of any plaques or signage with sponsor’s name, and whether the sponsor has the right to design or review and approve any such signage prior to hanging.
- If the sponsor’s logo is to be used on billboards, murals, tickets, or social media accounts, ensure the sponsor has control over the logo (i.e. high resolution logo developed by the sponsor or design specifications as to font, size, colour etc.) and clearly specify the limits on the recipient’s ability to use the logo. Outline the sponsor’s right to amend the logo or revoke rights to use the logo at any time. Similar considerations apply if the sponsor wishes to use the recipient’s name or logo in its own marketing or branding.
- Inquire with the recipient as to whether the sponsor is the sole or exclusive sponsor of the organization or cause. If so, obtain representations and warranties to that effect in the agreement and consider obtaining covenants as to ongoing exclusivity (or veto rights before another sponsor is engaged). The sponsor may want to obtain contractual assurances on its right to represent itself as the sole or exclusive sponsor.
- If the sponsor is not the sole sponsor of the organization, event or cause, conduct due diligence on the other sponsors of the event to ensure there are no reputational or other conflicts. The sponsor may wish to obtain assurances that they will be the only sponsor in their particular industry (e.g. the only sponsor in the mining industry or the only restaurant sponsor). Alternatively, the sponsor may wish to be provided with advance notice of the recipient’s intention to enter into a sponsorship agreement with a third party such that the first sponsor can assess at that time their willingness to remain as a sponsor.
- If the sponsorship is for a particular term, outline that term in writing, and specify the circumstances, if any, under which the sponsor can elect to cancel their sponsorship early or renew their sponsorship for future terms. Both the sponsor and the recipient may wish to have the right to terminate on the happening of certain events, such as breach of the sponsorship agreement, revocation of the recipient’s charitable status, improper use of funds, criminal activity or actions of one party adversely impacting the reputation of the other.
- The sponsor should consider requesting regular reports on the use of sponsorship monies or audit rights to review the books and records of the recipient to ensure funds are used for the agreed upon purposes.
- If the sponsor’s funds are being used for research, development or innovation, consider negotiating ownership of any resulting intellectual property in the agreement.
- If the sponsor is funding an event, the parties may wish to include liability and indemnity clauses to define the extent to which the sponsor will be protected from any claim brought against the sponsor for an accident arising at the event.
- Consider including anti-corruption language in the agreement, specifying that the funds will not be used for any improper purpose. The sponsor may want representations and warranties from the recipient as to the ownership and control of the organization to ensure it does not inadvertently fall offside any anti-corruption legislation.
- If it is important that the terms of the parties’ arrangement be kept confidential, then the agreement should include appropriate confidentiality provisions.
Each sponsorship arrangement is unique. The above list is not exhaustive and businesses are urged to consult their legal advisers in the drafting and negotiation of sponsorship agreements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.