In today’s sports industry, sports sponsorship contracts have evolved beyond simple brand visibility agreements. Sponsors now seek a direct correlation between their investment and the performance of the sponsored athlete or team. This approach has given rise to performance-based sports sponsorship contracts, where financial compensation is contingent upon the achievement of specific objectives.
From a legal perspective, sports sponsorship contracts present particular challenges in terms of drafting, execution, and dispute resolution. This article analyzes the legal implications of such agreements, illustrating with real cases and offering recommendations for their proper structuring.
Performance-based sports sponsorship contracts are agreements in which the sponsor provides certain payments or economic benefits only if the sponsored party meets specific goals. These goals are known as Key Performance Indicators (KPIs). For example, they might include concrete athletic achievements, such as winning a competition, appearing in a specific number of media outlets, or reaching a certain level of engagement on social media. They can also be tied to the sponsored party’s participation in advertising campaigns or promotional events.
The idea behind these sponsorship contracts is that the sponsor only pays if they receive visible benefits in return—such as increased exposure or association with the success of the sponsored party. This way, both parties share a common interest in achieving strong results.
Legal basis and considerations
The legal foundation of these contracts lies in the principle of freedom of contract, recognized in most legal systems. However, certain limits and considerations must be observed:
1. Manchester City and the Premier League
In 2024, Manchester City initiated legal action against the Premier League, challenging the rules on transactions with related parties. These rules required that sponsorship agreements with companies linked to club owners be assessed at fair market value. The club argued that such rules were discriminatory and restricted its commercial freedom.
This case highlights the importance of transparency and fairness in sponsorship contracts, especially when there are relationships between the involved parties.
Although the Manchester City case does not deal directly with performance-based sponsorship contracts, it reinforces the need for clear regulation, transparency, and fair valuation across all types of sponsorships—including those tied to KPIs. It stands as a relevant example in legal analysis, offering a different yet complementary perspective on how these contracts are managed and regulated in professional sports.
2. NCAA v. Alston
In 2021, the U.S. Supreme Court ruled against the NCAA, allowing universities to offer educational benefits to athletes, such as laptops and scholarships for graduate studies. Although the case did not directly address sponsorship, it set a precedent regarding performance-based compensation and the limitations sports organizations can place on such compensation.
3. Siklab atleta in the Philippines
The Siklab Atleta initiative in the Philippines provides financial support to athletes on the condition that they maintain competitive performance. This approach highlights how sponsors can structure agreements that incentivize sustained performance, though it also raises questions about athletes’ financial stability and security.
To effectively structure performance-based sports sponsorship contracts:
Performance-based sports sponsorship contracts reflect a growing trend toward more dynamic, results-oriented agreements in the sports industry. While they offer benefits for both sponsors and sponsored parties, they require careful legal structuring to avoid ambiguities and potential conflicts. Sports law professionals play a crucial role in drafting and negotiating these contracts, ensuring they align with commercial expectations and current legal regulations.
Interested in diving deeper into sports sponsorship contracts and other key topics in sports law?
Enroll in the Commercial Contracts in Sports course by Sports Law Hub, starting on June 18. Learn from industry experts how to structure, negotiate, and safeguard strategic contracts in the professional sports environment.
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