Should You Have Opt-Out Clauses in your Sponsorship Contracts?

Exit DoorI was recently involved in a debate about whether multi-year contracts are preferable to year-to-year deals. I make no bones about my preference for multi-year deals (in most cases), but there was a compromise suggestion put forward that had me, frankly, gobsmacked.

One sponsorship seeker said that their standard contract was for three years, with an annual review, where the sponsor could opt out of the rest of the contract. Several others chimed in saying that either sounded like a great idea or that they were doing that now.

Ummm… not to put too fine a point on it, but how is that any different than a year-to-year contract, functionally? If a sponsor can just say, “our needs have changed” or “our budget has been reduced” and cut the contract short, why bother even negotiating for multi-years in the first place? How is this a good thing for a sponsorship seeker??

From a sponsor’s point of view, they don’t see multi-year deals with easy exit options as true multi-year deals In fact, I have corporate clients who, upon reviewing their portfolios with me prior to an audit, say, “that’s technically a three-year deal, but we can opt out at any time, so consider it in play”. Well, alrighty then. I guess that contract isn’t worth the cost of the paper it’s printed on.

The annual review

On one hand, I don’t think a sponsor should be able to get out of a sponsorship contract without very good reason (see below). On the other, contracts aren’t written in stone, either.

I do think having an annual review of a sponsorship is a very good idea. It allows both parties to get any issues, grievances, or opportunities out on the table. It provides a forum for sponsors to discuss any changes in strategic direction. And it allows for fine-tuning of benefits provided, so they are appropriate to any changing needs.

What shouldn’t be changed during an annual review are the basics: Contract length and the rights fee.

When should a sponsor be able to get out of a contract?

The standard sponsorship contract has exit clauses, covering things like disrepute, non-delivery of contracted benefits, cancellation, and other events that will substantially reduce the ability of the sponsor to derive a marketing return from the investment. Sponsorship seekers have similar rights, and would not be expected to continue providing sponsorship rights if, say, the fee hadn’t been paid.

I tend to be pretty steadfast on exit clauses. If the sponsee has done the wrong thing and isn’t taking heroic steps to fix the situation, it’s time to go. There are a lot of other options.

There is no middle ground

To quote Yoda (holy dooley… I am such a nerd), “there is only do or do not”. Either you have a multi-year deal or you don’t, and if you are offering a sponsor an easy-out on an annual basis, you don’t have a multi-year deal.

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