Endorsement and Sponsorship Agreement Pitfalls: Promoting and Protecting Brands Negotiating Exclusivity, Morals Clauses, Termination and IP Rights With Local and National Celebrities and Athletes

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WEDNESDAY, DECEMBER 18, 2013

Presenting a live 90-minute webinar with interactive Q&A

Seth A. Rose, Partner, Loeb & Loeb, Chicago

Jay Shanker, Of Counsel, McAfee & Taft, Oklahoma City

Steven B. Smith, Partner, Bryan Cave, Colorado Springs, Colo.

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NEGOTIATING ENDORSEMENT AND SPONSORSHIP AGREEMENTS WITH

CELEBRITIES, ATHLETES AND PROPERTIES

Seth Rose Loeb & Loeb LLP

Strafford Publications, Inc. Webinar

December 18, 2013

With a celebrity, athlete or other personality: A brand engages a personality to associate and appear in connection with the brand in various activities and media

With a property (team, league, facility/venue): A brand pays for the right to use assets associated with that property and to be directly associated with that property

In most (if not all) such arrangements, both sides benefit from the mutual association with one another

What are endorsement and sponsorship agreements?

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T-Mobile and Major League Baseball

Examples

Derrick Rose and Adidas

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∗ Build brand awareness ∗ Validate product features ∗ Boost brand equity ∗ MAKE MORE MONEY! “recognition at the highest levels of corporations

that sponsorship is a potent answer to the challenge of how to build attention, support, and loyalty for brands…” ∗ IEG, LLC, a leading consultant in the sponsorship industry that

has been providing insights, evaluation, and guidance to the industry for over thirty years

What drives brands to enter into these deals?

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Endorsement and sponsorship agreements can take on different forms:

Can be fairly short business-term heavy documents, or

Can be long and involved agreements with a myriad of legal provisions and considerations

No matter how long or detailed the agreement, there are several provisions that must be present in properly drafted endorsement and sponsorship agreements.

The Agreement

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Key Provisions and Considerations

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What is the personality being asked to do? Commercials, media tour, social media activities, appearances

How many service days? What constitutes a service day? Where will the services take place?

How many of each type of service are expected? Is there a maximum or minimum amount?

What happens if the services are not performed to the brand’s satisfaction? Re-shoot? Reduction in payment?

Services

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What rights are being granted from the personality to the brand?

Name, image, likeness, performance, signature What types of materials are being created? Through what forms of media will the brand be able

to exploit the rights? TV, radio, digital, mobile, print, OOH

What is the duration of the usage rights? Retention of rights for award and trade shows, internal

Rights/Usage

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What if you are dealing with a property – what other items should be considered?

Designations “Official Partner”, “Exclusive Provider”, etc. Should be delineated, but build in flexibility

Be cognizant of any restrictions on stated rights Ex: certain in-stadium rights may not be granted during special

events, concerts, etc. Ex: certain rights may be precluded in nationally broadcast games Ex: may not have full rights to images (i.e., copyright but not right

of publicity)

Rights/Usage (continued)

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Must be clearly laid out Be detailed - avoid ambiguities, be certain everything that is

expected to be received is identified and described Often addressed via an exhibit to the Agreement

(particularly when dealing with a property) Include specific assets/activations/benefits that are to be

provided to the brand

Involve the business team and ask questions to make sure everyone is thinking of all possible avenues for receipt and exploitation of rights

Rights/Usage (continued)

Practice Tips

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What level of approval does each party have over what the other party does?

Brand wants final say on creative and to limit personality’s approval to use of the personality’s name/image/likeness in materials

Personality may push for creative input and approval over more than name/image/likeness, including things such as concepts, themes, final edits, etc.

If new products are being created that bear likeness or will be associated with the personality, then the personality may have more approval/control

Approvals

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How long is the approval time – i.e., how far in advance does creator need to provide approving party with sample(s) of the materials?

What does “silence” mean? Default position may differ depending on the position of the party

Can the approving party withdraw approval? If so, what are the parameters of withdrawal? Need to have strong justification to withdraw

Allow reasonable sell-off

Try to avoid recall efforts for materials already in distribution

Approvals (continued)

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Additional considerations for when dealing with a property:

Brand tries to push for property to only have approval over the use of the property’s trademarks in materials

Approval may be different depending on the media (e.g., if the materials are in the property’s stadium/complex, there may be a broader right of approval – and ability to reject for any reason – than when the materials appear on the brand’s website)

Approvals (continued)

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Particularly in the higher cost and more prestigious arrangements, there will be an expectation that the arrangement is exclusive

Tends to be category-based => the personality/property is precluded from entering into a similar deal, or any type of advertising / marketing / promotional arrangement with any competitors or any entity offering products/services in the brand’s category

Could be current or prospective conflicts

Exclusivity

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Often a battle – brand wants a broad category, personality (or property) wants a narrow category

Can include listing of specific products and/or specific competitors

Be forward-thinking

What products/services may be related or considered in the category during the Term?

Any new developments or innovations, or new areas of service, that a party wants to make sure are covered in its exclusive category?

Any new property-related offerings during the Term?

Exclusivity (continued)

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Sometimes only the category-related products or services of a company that may otherwise be a competitor are included within the category

Ex: wireless services of AT&T, but not AT&T U-Verse cable television services Ex: automobiles from General Motors, but not automobile

financing services Ex: credit cards from Chase, but not personal banking

services

Exclusivity (continued)

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Additional Restrictions and Concessions: Public use of competitive products? The personality may not agree to be precluded

from appearing in entertainment (TV shows, radio, musicals, films, other events) if sponsored by a competitor The property may not agree to be precluded from

selling advertising time (i.e., broadcast television, radio) or space (i.e., print, website) to competitors

Exclusivity (continued)

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There are certain general things that each party should represent and warrant to in each deal. They include: • Each party has the power and authority to enter into the agreement, to

grant the rights granted, and to perform its obligations under the agreement

• Agreement does not materially conflict with, violate, or result in a breach or default of any other agreement

• Parties will comply with all applicable federal, state and local laws, rules, and regulations

Representations and Warranties

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• When dealing with a personality, the brand (and the personality) will want to ensure the personality complies with the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising

• Identify material connection • Statements based on true and actual experience • Often push for brand approval over any statements about the brand

Representations and Warranties (continued)

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• In a sponsorship agreement with a property, may want to include language that the property is responsible for safety and security of all attendees, visitors, staff, players, coaches, vendors and other persons in and around its property

Representations and Warranties (continued)

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How long is the agreement intended to last?

Will there be an opportunity to renew? If so, will it be exclusive and how long of

a window will there be for renewal negotiations?

Term

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When dealing with a property… Is there a right of first refusal to enter into a

renewal?

ROFR: gives a party the exclusive right to enter into a deal with the property before anyone else can.

What about a right of last refusal?

ROLF: gives the sponsor the right to match any third party offer to enter into a deal with the property.

Term (continued)

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Brand can terminate agreement with personality for various reasons Uncured breach Death/disability Morals violation

Termination

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Morals clauses ∗ Not just convicted of a felony ∗ Anything that negatively affects the brand,

as determined by the brand in its sole discretion

Termination (continued)

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Brand can terminate agreement with property for various reasons Uncured breach Bankruptcy events Not usual for these types of

agreements to include the right to terminate for convenience

Termination (continued)

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∗ What are the remedies if a brand has to terminate early? ∗ Scale of remedies

∗ Full return of compensation ∗ Pro-rata refund ∗ No further payments

Termination (continued)

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∗ Other panelists will address other considerations and provisions (Term, Territory, Compensation, Union issues, Indemnities, Publicity, etc.)

Other Provisions

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Example Clauses

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Exclusivity (when dealing with a personality)

During the Term, Talent will not: (a) appear in any commercial or participate in other services or advertising or promotional activities for the purpose (or with the effect) of advertising, endorsing or promoting any other product or service from any company that provides ______________ (each, a “Company Competitor”), whether or not compensated for such activities, nor shall Talent grant anyone the right to use Talent’s name, picture, image, likeness, voice, or performance in connection with the advertising, promotion, or endorsement of any Company Competitor or any Company Competitor’s products or services; (b) disparage or denigrate Company, its products or services, the materials created hereunder, or Talent’s association with Company; or (c) publicly use any product or services of a Company Competitor.

Example Clauses

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Exclusivity (when dealing with a property)

During the Term of this Agreement, Property shall not grant any rights to use Property’s intellectual property to any third party other than Sponsor in the category of ___________ [Define “Category”], nor shall Property enter into any agreement similar in nature to this Agreement, or grant any advertising, marketing, promotional, or sponsorship rights to any third party other than Sponsor in the Category.

Example Clauses

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Morals clause

Company shall have the right to terminate this Agreement by written notice to Talent in the event that, during the Term, Talent is charged with or convicted of any criminal conduct amounting to a felony, or has committed or commits any act or becomes involved in any conduct that is likely to adversely affect Company or Company’s image, brand, reputation, products or services. Company’s decision on all matters arising under this section shall be conclusive, and its rights under this section shall be in addition to any other rights or remedies, which Company may have hereunder or at law or in equity.

Example Clauses

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Right of First Refusal Sponsor shall have the right of first refusal to renew the Term with Property on materially similar terms as herein by giving written notice to Property during the Term. Property and Sponsor shall then have a ________ day exclusive negotiation period (“Negotiation Period”) from Property’s receipt of Sponsor’s written notice. During the Negotiation Period, Property will not solicit or negotiate with another entity with products or services that fall within Sponsor’s Category (as defined herein) for any sponsorship, advertising, marketing, or promotional rights. In the event Sponsor and Property cannot come to agreement during this Negotiation Period, despite good faith efforts to do so, Property may enter into negotiations and an agreement with any third parties, including entities with products or services that fall within Sponsor’s Category, regarding any sponsorship, advertising, marketing, or promotional rights.

Example Clauses

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Right of Last Refusal

Include the ROFR language, and then follow with this language:

If the resulting terms of those negotiations are more favorable to the entity in Sponsor’s position than the terms discussed during the Negotiation Period, Property shall present such terms to Sponsor and shall provide Sponsor with thirty (30) days to evaluate and attempt to match those terms. If Sponsor decides not to match those terms, Property may enter into an agreement with the applicable third party.

Example Clauses

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Representations and Warranties Each party hereto represents and warrants to the other as follows:

• It has the full power and authority to enter into this Agreement and to perform its obligations hereunder;

• Its execution and delivery of its performance under this Agreement have been duly authorized by all necessary corporate or other action (as applicable), and, to its knowledge, have not, do not, and will not materially conflict with, violate, result in a breach or default of or otherwise materially adversely affect any existing agreement to which it is a party or any rights of any third person or entity, whether now existing or hereafter arising or occurring;

• This Agreement is a legal, valid, and binding obligation of it, enforceable against it in accordance with its terms;

• It owns all right, title and interest in and to, or has the right to license the use of any of its intellectual property granted hereunder; and

• It will comply with all applicable federal, state, and local laws, rules and regulations in connection with its performance hereunder and in connection with the operation, management, and administration of its business.

Example Clauses

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Endorsement and Sponsorship Agreement Pitfalls: Promoting and Protecting Brands

Navigating the Deal with the Individual

Artist/Musician/Athlete/Celebrity

JAY SHANKER, OF COUNSEL

(405) 552-2385

jay.shanker@mcafeetaft.com

© 2013 All Rights Reserved

THE “WHY”: WHAT DRIVES DEALS?

THE “BUYER” PERSPECTIVE -- Company, Brand, Agency, Etc.:

1. Is there a Story? (“Fit” Should be Credible)

2. Will Affiliation Hold/Expand Audience/Clientele/Customer Base?

3. Will Affiliation Provide Advantages Against Competing Brands/Products (Market Share)?

4. Will Affiliation Increase Revenues/Profitability (Sales Volume and/or Premium Pricing)?

THE “ARTIST” PERSPECTIVE -- Entertainers / Athletes / Celebrities:

1. Money (But not Always)

2. Brand/Product Affinity - Integrity of Match Up?

3. Exposure/Overexposure Issues

AGENTS / BROKERS – And if involved, Who is the “Client”; Territories; Fees.

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WHO/WHEN/WHERE? (with “WHAT”, to follow)

THE PARTIES: 1. Buyer (Company, Agency, Other) 2. Artist (Individual Athlete/Musician/Actor/Celebrity (or their “Corporation”)) 3. Any Other Party(s) with Relevant Consultation, Approval or IP Controls?

BRAND/PRODUCT/ SERVICE TO BE SUPPORTED:

Event, Venue, Product, Brand, Other (One, Bundle, Etc.)

TERRITORY: 1. Local, State, Regional, National or International (or a Particular Foreign Country/Region) 2. Options to Expand/Contract

TERM: 1. Initial Term 2. Optional Renewal(s) / Extensions / Expansions? 3. “Post Term” Liquidation Period (Products, Media, Etc.)

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THE “WHAT”?

SCOPE (AND LIMITATIONS) OF RIGHTS / SERVICES REQUIRED

1. Rights

A. Name, Photo/Likeness/Signature/Voice/Artist’s (or Affiliated) Marks/Logos

B. For Use In/With – Products, Ads (TV, Radio, Web, Print, Billboards, In-Store and Point of Purchase), Product (Venue) Name/Labeling, Etc.

2. Services

A. Commercials (#, media, time required, location and scheduling issues)

Guild Issues

Third Party Consult/Approval Requirements re Rights/Scheduling

B. Appearances -- Press and Media Junkets, Events, Conventions/Tradeshows, Corporate Events, and (Musical) “Performances”

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FOR EXTRA “POINTS” ENDORSEMENT:

1. Scope

2. Additional Services Required?

3. FTC Rules Compliance (http://www.ftc.gov/sites/default/files/documents/one-stops/advertisement-endorsements/091005revisedendorsementguides.pdf)

A. Disclose Consideration

B. Endorsement Must Reflect Real Use

C. Affidavit Requirement From Artist Regarding Use

EXCLUSIVITY:

1. Category – i.e., Brand/Product/Service/Etc.?

2. Term

3. Territory

4. Conflicting Artist Commitments/Third Party Approvals Required

5. Artist Requirements re “Buyer” Exclusivity

GENERALLY, PRICE GOES UP WITH INCREASED FORMAL ENDORSEMENT AND/OR EXCLUSIVITY REQUIREMENTS/RESTRICTIONS

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“SHOW ME THE MONEY”

COMPENSATION AND PAYMENT SCHEDULE:

1. Fixed Fees

A. Advance/Guaranty – Tied to Days/Usage, End-of-Term “Shortfalls”, etc.

B. Pay or Play?

C. Payment Schedule

2. Contingent Fees

A. “Fixed” Triggered by Events within Talent Control vs. Buyer “Control”

B. Percentage of Sales (or Sales Increases) During Term or Beyond - Gross; Adj. Gross; Net;

C. Stock, Etc.

3. Trade-Outs (Travel, Goods, Services, Etc.)

4. Expenses

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“COMMUNICATIONS”

CONSULTATION/APPROVALS:

1. Use of Name/Likeness/Photo (Both as to Images Selected and Where/How Used?)

2. Product & Packaging Design/Quality

3. Ads/Commercials/Promotional Materials/Promo Goods

4. REPORTING OF BUYER MEDIA / SALES – USAGE AND PERFORMANCE

PUBLICIZING THE DEAL:

1. Publicity Coordination (Who Controls Announcement(s)?)

2. Confidentiality (Terms of Deal; Business/Product Information)

3. Non-Disparagement (Individuals/Entities/Products/Services)

4. Other Restrictions/Holdbacks

WHO’S DESIGNATED TO CONTROL CONSULTATION/APPROVALS/COMMUNICATIONS FOR EACH SIDE?

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IN THE EVENT OF FIRE, BREAK GLASS INDEMNITIES AND INSURANCE:

1. Buyer Concerns – Artist Death/Disability/Disfigurement/Material Change in Stature; Failure to

Perform

2. Artist Concerns – Accident/Injury Coverage during Services; General Liability and E&O re Product

and Ad/Marketing Campaign; Change in “Brand” Stature

SUSPENSION / EXTENSION / TERMINATION:

1. Death / Disability

2. Failure To Perform

3. Materially Changed Circumstances

4. Force Majeure

5. Morals Clauses

6. Effect Of Early Termination -- Kill Fees/Penalties

7. Remedies - Damages vs. Equitable Relief; Suspend/Accelerate Payments; Etc.

REMEDIES:

1. Jurisdiction/ Choice Of Law / Court vs Arbitration

2. Economic (including Liquidated Damages) vs. Equitable Relief (By Brand? By Talent?)

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“AND SHOULD YOU WISH TO RECONSIDER….”

DECEASED CELEBRITIES

ENTERTAINMENT (AND SPORTS) PROPERTIES AND CHARACTERS

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ENDORSEMENT AND SPONSORSHIP AGREEMENT PITFALLS DECEMBER 18, 2013 STEVEN SMITH BRYAN CAVE LLP STEVE.SMITH@BRYANCAVE.COM

SPONSORSHIPS INVOLVING LEAGUES, GOVERNING BODIES AND FACILITIES

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Corporate Sponsorships

The focus of this portion of the presentation is on several types of corporate sponsorships that often don’t involve athletes: Naming rights – the naming of a facility; Title sponsorships – adding corporate name or brand to

the title of an event; Facility sponsorships – acquiring signage or other

advertising in stadiums, arenas, etc. Governing body sponsorships and event – associating

with a league or event

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Why These Sponsorships?

Companies enter into these types of sponsorships for a couple of reasons: Advertising – these sponsorships promote a company or

brand before many (sometimes millions) of loyal, passionate potential customers.

Goodwill – sometimes companies gain a great deal of goodwill by being associated with an event or league (Olympics);

Desire to help a cause

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Key Issues

There are a number of key issues that sponsors must be aware of when negotiating these kinds of deals.

Failure to anticipate these issues can make the sponsorship much less valuable and can leave the sponsor unhappy, or worse.

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Definition of Goods and Services

Typically, these deals are “exclusive” to the sponsor within its category of goods and services.

So, making sure that this definition is accurate and appropriately broad is key. Failure to get this correct can open the sponsor to ambush marketing.

Sometimes this is easy, but often it can be quite complex.

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Definition of Goods and Services

Who are your main competitors? Make sure the definition clearly excludes them.

Who might become your main competitors? Make sure your definition can catch those potential future

competitors. Do you have any key subsidiaries/affiliates who need

protection? This may need to be included.

How might your business change in the near future? Make sure this new business will be adequately protected.

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Scope of Exclusivity

Understand the extent of your exclusivity. Many sports are set up such that sponsorship of one

area does not give you exclusivity over the entire sport.

For example, NASCAR. Sponsorship of NASCAR does not cover the cars or

drivers in almost all cases. Are you OK with this? If not, do you need to buy out

those other assets?

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Dominant Sponsor

In larger deals, particularly naming rights, a sponsor wants to be sure it is seen by the public as “the” main sponsor of a property. For example, there should be no confusion as to who is the naming rights partner.

However, surveys have shown that the existence of another large sponsor with significant benefits can be confused with the naming rights or title sponsor.

Often, we include provisions that prohibits a property from having another sponsor with a certain ratio of signage to the naming rights partner or title sponsor.

There are other ways to lock in this protection.

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Payment

Believe it or not, structuring the payment can be a big issue.

Often, a sponsor wants to hold back payment of a portion of the sponsorship fee until the end of the term to “maintain leverage” over the property to fulfill its obligations.

The property, on the other hand, wants as much money as possible as quickly as possible.

This issue tends to be heavily negotiated. Is any part of the payment being made through “value-

in-kind” goods or services? If so, how are those valued?

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Intellectual Property Issues

Sponsorship Agreements create a whole host of intellectual property issues: Is there a joint logo involved? If so, who owns it? What is the scope of the sponsor’s license rights to use the

sports property’s logo and other marks? Don’t assume that you have a blanket right to use the marks in any circumstances.

Under what circumstances may the sports property use the sponsor’s logos?

What kind of approval rights does the sponsor have over advertising and promotions?

Who is responsible for quality control?

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Naming Rights and Title Sponsorships

If your sponsorship involves any naming rights or title sponsorship, there are a number of additional issues to consider: To what extent does the sports property have control to

ensure the naming rights or title sponsorship is recognized by others (media, other sponsors, etc.)?

Who is responsible to protect against ambush marketing? Does the sports property have the wherewithal to handle that enforcement?

What happens if your business changes? What happens if your name changes?

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Renewal or Extension of Sponsorship

The right to renew or extend the agreement can be extremely important for a number of reasons: If the property is successful, you want to be able to

maintain the relationship; You may have invested a lot into the relationship, you

don’t want to lose it when it is becoming valuable.

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Renewal or Extension of Sponsorship

There are a few different ways to structure renewal/extension rights: Option to extend Right of first refusal Right of first negotiation

Some protection is important, because you do not want to give the sports property an incentive to be focusing on other prospective sponsors in your product category in the latter stages of your sponsorship.

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Protection in Case of Certain Occurrences

Because your sponsorship is tied so closely to the success or failure of an event or organizations, you want to make sure you have protection (such as the ability to terminate) in case things go bad.

Some examples: Occurrences that put the event or organization, and by

association the sponsor, in a bad light (Janet Jackson wardrobe malfunction)

Bad acts by the sports property or key individuals

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Protection in Case of Certain Occurrences

Some examples (cont.): Poorly maintained facility Acts of God that force a cancellation of an event or

certain benefits that are important to you.

There is no set formula for the remedies for these occurrences. So, it is important that you think through what might happen and what remedies you want in place in case these things happen.

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Assignment and Changes

One issue that tends to be negotiated heavily, particularly in longer deals, is what happens if there is a significant change in the sponsor. Some examples include: Merger or acquisition; Acquisition of new businesses The sports property expands.

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Assignment and Changes

If your company is going through a merger, the last thing you want to happen is for a sponsorship to hold it up or create issues to address.

So, many sponsors try to build in a liberal assignment provision. However, keep in mind that the property will push back on this, as it wants to control with whom it does business.

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Conclusion

Obviously, this is just a sample of some of the issues that arise in connection with a sponsorship.

However, you can see from this cross-section of issues that anticipation and careful planning up front is critical and will help avoid disputes, frustration and perhaps even litigation down the road.

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Thank You

Seth Rose Loeb & Loeb LLP srose@loeb.com Jay Shanker McAfee & Taft jay.shanker@mcafeetaft.com Steven Smith Bryan Cave LLP steve.smith@bryancave.com

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