Sponsorship and endorsement deals have been in existence for quite some time, but recent trends – from the rise of celebrity culture and social media influencers to the NCAA allowing student-athletes to generate compensation from the licensing of their rights of publicity (aka “NIL”) – have increased their prevalence and importance.
In a sponsorship deal, a brand may pay some (or all) of the costs of a project in return for brand exposure to their target audience. For example, Jägermeister®, the German liquor that has laid low many college students in its day, sponsored the Jägermeister Music Tour featuring a lineup of hard rock, punk, and heavy metal bands. In exchange for paying some, or perhaps even all, of the expenses of the multi-date tour, Jägermeister’s trademarks, logos, and other branding elements appeared prominently on stage and throughout each venue, exposing the brand to the demographic it seeks. Similarly, Jack Daniel’s® has sponsored a Zac Brown Band® tour, Nike® sponsors the Chelsea Football Club® of the English Premier League, and Adidas® sponsors MCF Real Madrid® of the Spanish professional league. Some companies go so far as to sponsor entire sporting arenas, at great expense, such as the Chase Center in San Francisco, where the Golden State Warriors® play, or Oracle Park, where the San Francisco Giants® play, and most recently, for a mere $700 million Crypto.com has secured the naming rights to Los Angeles’ Staples Center® where the Lakers® and Clippers® currently play. Each of these companies are paying for brand exposure to the customers they seek by prominently sponsoring an event, team, venue, band, etc., in an effort to increase brand awareness among their target demographic and, hopefully, generate goodwill and product sales.
An endorsement arrangement is typically much more personal in nature. In an endorsement deal, a person, typically a high profile individual or “influencer,” publicly expresses his/her support for a company’s goods or services. In essence, the endorser is saying to his/her audience that they recommend a product or service and therefore you should try it. In return for the endorsement, the individual endorser will receive compensation, typically both monetary and in-kind. For example, hip hop artist Travis Scott has signed an endorsement deal with McDonalds®, teaming up to launch the “Travis Scott Meal.” Similarly, Snoop Dogg has an endorsement deal with Corona Cerveza®, LeBron James has one with Nike®, Penelope Cruz has a deal with L’Oreal®, and Lisa Rinna has reportedly received a sizeable chunk of money to endorse Depend® adult diapers.
A sponsorship or endorsement agreement, like any contract, must precisely identify the scope of rights, benefits, and obligations of each party. In a sponsorship deal, if a brand is going to sponsor a musical tour, the agreement should clearly lay out where the branding elements will appear at each venue, whether other brands can appear as well and, if so, how prominently other brands can be displayed. Typically, category exclusivity is a critical issue for sponsors – if Jack Daniel’s® is sponsoring a tour, they will not want Maker’s Mark® appearing as a sponsor as well. They may even require that no other alcoholic beverage brand appear as a sponsor, thus excluding not only other hard liquor brands, but beer and wine as well.
As noted, typically, endorsers will receive both monetary and in-kind compensation. So, it’s safe to assume that in LeBron’s deal with Nike®, in addition to a substantial monetary payment, he is receiving just about all the Nike® apparel and swag he could possibly wish for. After all, LeBron will be photographed at his kids’ ball games, going out for tacos on Tuesday, or just going to the bank to deposit his massive paycheck. Nike® wants LeBron wearing its goods wherever he (and the gaggle of paparazzi that follow him) may be.
One of the most intensely negotiated terms of an endorsement deal is the so-called “morals clause.” Such a provision will allow termination of the relationship (and discontinuation of payments) if the endorser does anything that may reflect negatively on the brand. The brand will typically seek a broad morals clause, providing great leeway to terminate the arrangement, such as the following: “. . . if Celebrity commits an act of significant public disrepute or becomes the subject of a scandal that may negatively affect the brand, the agreement may be terminated.” The endorser will typically seek a much narrower and objective morals clause along the lines of the following: “ . . . if Celebrity is charged or convicted of a felony criminal act the agreement may be terminated.” Also, increasingly, high-profile celebrities and athletes are demanding that morals clauses be reciprocal, allowing the endorser to terminate the relationship if the brand engages in activity bringing it into public disrepute, e.g., Enron, AIG®, Wells Fargo®, etc.
There are many more aspects and negotiation points of a clear, concise, and most importantly, enforceable sponsorship or endorsement contract. Whichever side of the deal you are on, and whether you are a brand or a celebrity or influencer, if you need assistance in negotiating and entering into such a contract, please do not hesitate to reach out to Crown®, LLP.