What Should a Sponsor Do If a Rightsholder Doesn’t Deliver Contracted Benefits?

I recently worked with a sponsor that had a major sponsorship with a professional sporting body, but when the rightsholder failed to deliver many of the biggest benefits – the benefits the sponsorship was bought and sold on – the whole thing fell in a heap.

Most of us who have been in the industry for some time have had to deal with at least a few rightsholders that really don’t hold up their end of the bargain. These range from minor annoyances to catastrophic, if core elements of the contracted benefits aren’t delivered.

In this blog, I’m going to offer some options for dealing with these situations, as well as some advice for avoiding them.

Options

Substitute benefits

The easiest and most common way to rectify benefit non-delivery is to substitute commensurate benefits.

You’ve done your planning and leverage based on the contracted benefits. Depending on what is provided, a change in benefits could require some reworking of your leverage plan. That’s more work, time, and resources on your part, so they need to come to the party with something substantial, and worth at least as much as what they haven’t delivered.

If you’ve built a leverage program with an epicentre timed around benefit(s) you’ve lost, the rightsholder needs to either provide a benefit that will provide the same epicentre during the same timeframe, or they need to give you time to rework.

For instance, if your hospitality activities at a game are abruptly cancelled – let’s say the function room is flooded and unusable – they could either put your guests in VIP stadium seating and add a private meet-and-greet with players on the same game day, or provide you with a new function in a few weeks, so you have time to manage invitations etc.

Under no circumstances should you allow the rightsholder to dictate what constitutes an acceptable substitute. Some rightsholders may even try to put one over on you, providing a few extra mediocre benefits, then claiming they were in lieu of the contracted benefits they haven’t provided. Don’t fall for it.

If a rightsholder offers you something, while contracted benefits remain outstanding, you should respond like this:

“You are welcome to provide that benefit as an added value to the relationship, but I’m not accepting it in lieu of the contracted benefits you have yet to provide.”

Extend the contract at no cost

If you can’t agree on substitute benefits, or there’s no way to deliver equivalent benefits to the ones you’ve lost during the contract, another option is to extend the contract at no cost.

How long that extension should go will depend on the length of the existing contract, how bad the non-provision of benefits was, and the content of the sponsorship. Of course, all of this is dependent on whether they’ve rectified the problem and whether you can trust them to deliver.

Withhold payment

If you’ve got an agreed fee schedule, and the rightsholder hasn’t delivered some of the contracted benefits, you could point out that a payment is coming due in a month, and if the benefits in question haven’t been delivered, you will consider holding the payment until they are.

This only works if…

  1. There is no question about the benefits owing – no dispute.
  2. You have repeatedly requested that the benefits are delivered, ideally in writing.

Be careful, though. This game can get ugly fast, as once you withhold a fee payment, you’re both in breach of the contract, and if they decide to get self-righteous about it – maybe there’s a gray area they’re trying to exploit – it can quickly escalate.

Reduce fee

Another option is that the rightsholder could rebate or discount a portion of your sponsorship fee by mutual agreement. They’re generally not keen to do this, and even if they are, finding an agreeable figure can be problematic.

What you buy is leverageable into something that is far more valuable than the cost of the raw materials it’s build around, and THAT’S what you lose when the raw materials aren’t delivered as contracted.

They look at it as the a la carte value, while you look at it as reducing your returns. In other words, their position may be that to buy the big hospitality event or scoreboard ads they failed to deliver would sell for $X, so that’s what they’re prepared to rebate.

But you don’t invest in any marketing activities thinking you’re only going to get the same amount of benefit for your brand that you paid – that the $15,000 hospitality event will only net you $15,000 in value from the VVIPs you invite. What would be the point of that?

No, what you buy is leverageable into something that is far more valuable than the cost of the raw materials it’s build around, and that’s what you lose when the raw materials aren’t delivered as contracted. In addition, the benefits all work as part of a greater whole, so when components aren’t delivered, it can devalue the whole platform. It’s like trying to use a ladder with several rungs missing.

So, if they can’t offer you equivalent and mutually agreed benefits, and it comes down to negotiating a cash rebate (or discount), it needs to be significantly more than the a la carte cost they’ll be espousing. This negotiation can be a real pain in the arse.

If you’re convinced of the potential of the sponsorship, and you’re at or near renewal, instead of a reduction on the fee for the current contract, you could request a commensurate discount on a renewal. That’s often more palatable for the rightsholder, and if you trust they’ll get their act together, there’s no real downside for you.

Combination

Often, the solution comes in some combination of substituting mutually agreed benefits, extending the contract, and/or reducing the fee (particularly at renewal).

Terminate the contract

We’re getting into more drastic measures here.

You are under no obligation to agree to any of the above. I’m not recommending you be a jerk about it, but if you really can’t make the sponsorship work with the alternatives presented, you can terminate the sponsorship mid-contract on the grounds of non-delivery of sponsorship benefits.

Before you initiate termination, be absolutely sure the contract is on your side – no gray areas – and you’ve got ample correspondence showing your good faith effort to resolve the issue.

Full refund for non-delivery period

Even if there’s a strong case for the sponsorship not being fit for purpose, most sponsors will terminate the contract and walk away – with a possible parting flourish of badmouthing the rightsholder to industry media, in the guise of a “case study” – because seeking a full refund is likely to be expensive and time-consuming.

If the rightsholder has failed to deliver a critical mass of major benefits, it may no longer even function as a leverageable sponsorship. And if what you’ve invested in isn’t fit for purpose, should you be paying at all?

Exiting and seeking a full refund of fees doesn’t happen very often. Even if there’s a strong case for the sponsorship not being fit for purpose, most sponsors will terminate the contract and walk away – with a possible parting flourish of badmouthing the rightsholder to industry media, in the guise of a “case study” – because seeking a full refund is likely to be expensive and time-consuming.

We’re talking lawyers and settlement conferences and expert reports. You’d really only do it if the breach was egregious, the rightsholder appears wholly incapable of doing the right thing, and you’re an idealist (and possibly somewhat of a masochist). But it can be done.

Protecting yourself

I think we can all agree that managing a sponsorship where the rightsholder isn’t delivering benefits as promised is far from ideal. So, let’s turn our attention to how we prevent this from happening in the first place, and if it does, how to make your course of action as clear and smooth as possible.

Contract

The biggest prevention you can have is a great contract. And no, you can’t just sign the investment page of the proposal and call it a contract. (We’ve all done that at some point in our careers.)

The contract will spell out in detail all of the benefits to be provided. What size is the logo on the player uniform, and which pieces of her kit will be branded? What kind of tickets will be provided and when? Who pays for the catering? What notice needs to be given for appearances? The contract also will spell out approvals for logo and other IP use, the dispute resolution process, termination events, and so much more. You want no gray areas. None.

Your company may have a bunch of lawyers, but if they’re not across all of the idiosyncrasies of sponsorship law, it may be helpful to use a credible sponsorship agreement template as a starting place. You can find a great one in The Sponsorship Seeker’s Toolkit 4th Edition, written by sponsorship law expert, Lionel Hogg. Fill it out as much as you can, but do be sure you run it past someone in your legal team before you sign anything.

If you want to start from scratch, and you don’t have in-house legal, you can check the directory for your country’s sports and/or entertainment law association for lawyers that know their way around a sponsorship contract.

Documentation

Your contract will state very clearly that it can’t be varied except in writing, by mutual agreement. Take this a seriously as a heart attack. Don’t substitute benefits, don’t change due dates, don’t vary the contract terms at all unless both sides have agreed in writing.

If things do start to go awry, start sending very clear emails requesting (and eventually demanding) rectification of the non-delivered benefits. Put the date that you expect a response, and if the situation isn’t resolved by then, create a schedule and reminders to stay on it until it’s resolved or you’re prepared to take action.

Be sure to detail in writing how their non-delivery is impacting your planning, as well as the value and cohesiveness of your sponsorship. Part of the reason you’re doing this is to convince them to, as we’d say in Australia, pull their fingers out. But part of it is because you’re collecting evidence.

Identify red flags early

Yeah, I know… nobody wants to be a hard-arse. But not addressing those red flags – letting them slide – makes it harder to recover that lost value. Sponsorship terms are finite, and every day you don’t have the full complement of benefits is a day you can’t fully leverage the investment.

The first time a benefit isn’t delivered in a timely fashion, flag it with them. Be friendly, but firm. It may have been an oversight, which they can fix straightaway. What you don’t want them to think is that you’re not paying attention.

For me, a much bigger red flag is making excuses as to why they’re not delivering contracted benefits. Take this as a red flag the very first time it happens, and respond in writing something like this:

“All due respect, but [excuse] is not my problem, and I’m accountable for results against these contracted benefits. I need an undertaking that this will be rectified by [date], or a proposal by Monday with what you’re prepared to do to make this right.”

Yeah, I know… nobody wants to be a hard-arse. But not addressing those red flags – letting them slide – makes it harder to recover that lost value. Sponsorship terms are finite, and every day you don’t have the full complement of benefits is a day you can’t fully leverage the investment.

Need more assistance?

For all you need to know about best practice sponsorship selection, leverage, measurement, management, and more, you may want to get a copy of The Corporate Sponsorship Toolkit.

If you need additional assistance with your sponsorship portfolio, I offer sponsorship consultingsponsorship training, and strategy sessions. Please drop me a line to discuss.

Kim Skildum-Reid
admin@powersponsorship.com
AU: +61 2 9559 6444
US: +1 612 326 5265

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