Changing Stakes of Contract Negotiations

The Rising Stakes of Sponsorship Contract Negotiations

Navigating negotiations and contracts can be challenging under the best circumstances, but COVID has sharpened the focus on contracts and changed the stakes.

The contract captures the complete understanding of both parties and serves as the record of intent if all goes well and the legal document when things don’t go well. The recent lawsuit filed by Canon U.S.A. v. Albuquerque International Balloon Fiesta seeking reimbursement of Canon’s $250,000 sponsorship has reminded me of the importance of working in the “spirit of the contract”.

Based on my understanding from recent news articles, Canon, the most globally recognized name in cameras and photographic equipment, was the presenting sponsor of the Balloon Fiesta. The lawsuit seeks reimbursement of Canon’s $250,000 sponsorship investment in the 2020 event, claiming a contract violation based on a forensic parsing of the terms “canceled” vs. “postponed.” Albuquerque International Balloon Fiesta (ABIF) organizers assert the 2020 event was postponed, and Canon insists the 2020 event was canceled.

Canon’s sponsorship agreement was $720,000 for three years spanning 2017-2020. However, when fiesta organizers approached Canon with a sponsorship contract amendment extending the terms another year in mid-2020, Canon turned it down. In a nutshell, Canon did not agree to extend, no matter how the terms are parsed, and insists they are “entitled to terminate the agreement” and receive a refund.

To further complicate the situation, the Fiesta continued to assert the title “Albuquerque International Balloon Fiesta presented by Canon,” and Canon trademarked logos in promotional materials. A troubling component of the lawsuit claims AIBF is in violation of Canon’s trademark rights and constitutes false advertising. Yikes! If you’ve ever been in a case of logo infringement where someone believes the use of the logo provided economic benefits and is seeking renumeration. . . like me, you just experienced a shiver down the spine.

Talk about a messy “spirit of the contract” situation. Sometimes, events push boundaries, presuming that if they provide sponsors more benefits and more exposure, the sponsor will appreciate the added value and be grateful. Sound familiar?  Be forewarned: if your concept of “over delivery” includes placement of your sponsor’s logo in places not agreed to contractually, the water can get really hot really fast if a situation similar to Cannon and the Fiesta arises.

AIBF publicly acknowledged and thanked Canon for sticking by them in 2021, but that turned out to be quite the pickle. Why? Because that is not what happened. AIBF’s wish did not reflect Canon’s reality. I wonder what conversations happened after the letter to terminate came across the desk. It left me thinking, was the message of hope and gratitude for Canon’s participation delivered in the video received for the first time? Probably not, but clearly there was a communication breakdown and while I appreciate that Fiesta was working in the “spirit of the contract”, Cannon certainly was not. Once a letter has been received, the “spirit of the contract” no longer exists and it’s time to consult your legal counsel.

In a year when so many sponsors have generously agreed to roll over sponsorship dollars already paid, why didn’t Cannon, as the presenting sponsor, want to do the same?  The burning question in my mind, why would Canon prefer to terminate the contract and receive 100% refund?  Perhaps they wanted to terminate the sponsorship and COVID provided the out they wanted. Regardless, it’s an unfortunate situation as it appeared to be the right partnership for both organizations – photography and colorful balloons go together like beer and baseball.

For now, let’s consider the new normal. I’ve worked this year with a few sponsors who wanted a 100% refund. Fortunately, they were few and far between for most of us. What remains to be seen is if those relationships will be tarnished in the future. Events, especially community nonprofit events, will forever remember those sponsors who asked for 100% refund during COVID. Undoubtedly, sponsors will remember the events that didn’t communicate with them clearly and explore contract solutions that were equitable for all sides.

One thing we know for sure: contract language about “cancellation” or “postponement” or “rescheduling” or “force majeure” will have much more attention during the negotiation. More than ever, brands and properties need to be vigilant about protecting their investment and assets. This means more diligent negotiations and clearly defined contract language and terms.

I understand the struggle because I am negotiating contracts and closing deals just like you! I want to share my hard-won insider tips on how you can navigate a few negotiation and contract landmines, informed by past and current contracts I’ve negotiated.

Download a comprehensive contract template that includes sample language and examples of the below tips, but pay close attention to my disclaimer, I’m not an attorney, nor do I play one on TV or offer legal advice. Click here.

  1. Deeply Know your Quid Pro Quo

What is being packaged, obtained, and delivered? Are you clear on how you will execute that understanding? Once again, the contract is the record of intent if all goes well. And it is the legal document if it does not go well.

  1. Contracts Can and Will Protect Each Party

Period. The industry was overwhelmingly reminded that the value of thorough negotiations and a comprehensive contract is immeasurable. However, equally important is how they can help make or break a sponsor relationship.

  1. Minimize the Guess Work

The contract should be written with the assumption that everyone involved will not be present when the term has ended. Don’t plan on working out differences of opinion if you can be specific right now. Anticipate every possible situation and agree now how you will address it.

Case and point: I worked for Washington Mutual – the largest bank at the center of the financial meltdown during the Great Recession. At that time, there was no language in our contracts what would happen to our naming rights if the bank collapsed – it was unthinkable to us, so it wasn’t addressed in the contract templates. Bring our your “scenario planning” templates to anticipate plausible scenarios such as, who pays for the signage replacement if the logo changes or the company is sold.

  1. First Right of Refusal

Always give sponsors 30 days for the first right of refusal from the day you submit a proposal. To clarify -this is a first right of refusal based on the proposal you submit, not the previous contract.

  1. Cancellation and Termination Event Variables

This year, events are coming back online. Meanwhile, there are all kinds of awesome stand-ins for live. As properties and events navigate the shifting live, hybrid and virtual event landscape, it is vital that everyone is communicating thoroughly with sponsors about the variables. Clearly point out and define options within contracts. Transparency builds trust. Trust builds long-term relationships.

  1. Clearly Articulate Your Benefits

Be super clear, both internally and externally, about your benefits. All of them! Be exacting about what you will provide and how that might shift under special circumstances, such as force majeure, postponement, or cancellation. In the event that you cannot provide the benefits anticipated, what is the process to determine make goods.

  1. Payment Terms with Dates

Always make sure your payment terms are crystal clear with dates in place. Terms include the start date of contract, conclusion of contract and the renewal period.

  1. Exclusivity

Exclusivity is one of the most valuable assets for a sponsor. Exclusivity should be well defined within the contract so that everyone has clear expectations. For example, a “drinkable” liquid is not part of an exclusive category, be specific with product lines.

  1. Use of Logo Rights

Events and properties often underestimate the value of their logo. Protect and preserve its use only for top-tier sponsors. When you limit use, it upholds a logo’s value for sponsors who have inked a deal for rights.

  1. Fully execute contracts.

I often say, “A deal isn’t done until a contract is signed,” so get that contract inked by all parties and distribute copies. No benefits should be provided – seriously not one, until the contract is signed. I’ve made this mistake more than once and each time it did not work out for the property. Recently, we tried to track down a fully executed contract that everyone was sure existed and never found a fully executed agreement and there is a difference of opinion on the last agreement. This is a big problem that’s easy to avoid by having good systems.

Click here to download a contract example, but be sure to have your legal counsel review.

Good luck with your negotiations!


About the Author

Paula Beadle is the CEO of Caravel Marketing, a national consulting company specializing in sponsorship marketing, and the founder of Sponsorship Mastery, an annual summit and programming dedicated to improving individual and organizational sponsorship performance. She is a results-driven trailblazer with a proven record of developing smart strategies and creatively connecting the right partners. Paula has helped iconic events and major brands achieve their goals through innovative sponsorship initiatives, generating incremental revenue and successfully coaching thriving teams, executives and boards.