The Difference Between a Sponsorship and Licensing Agreement in Sport

In last week’s class, the main topic of concern was knowing the difference between a licensing and sponsorship agreement in sports. When our class was asked to state the differences between a sponsorship and licensing agreement, many answers varied. 

The main difference between the two types of agreements is the following: 

Sponsorship - When a company is looking to sponsor a property (in this case a sport organization or an athlete), they essentially are trying to build their brand by creating exposure, and associating themselves with a property allows them to do this. If the sponsorship is successful, it can drive business. In return, the property receives a form of compensation whether it is a payment, discounts, free products etc. This does not need to be two-way. In other words, an athlete may be sponsored by a company such as Gatorade, but in return the athlete may be required to endorse Gatorade’s products.   

Licensing - An intellectual property (either a sport organization or an athlete) can rent out their IP rights such as patents, copyrights, and trademarks to another person or company in return for a payment. The payment is usually royalties. The transfer of rights is done without the Intellectual Property giving away their ownership of their property. 

An example of a sponsorship deal is between Arizona State University and Nike, a contract which was discussed in class. The purpose of the agreement states Nike will provide the University’s student-athletes with athletic accessories such as footwear. Nike will do this in order to make these resources free rather than having students pay for them, and therefore improve the opportunities for student-athletes. In return, Nike asks that the University endorses their products by ensuring student-athletes and coaches do not wear any other non-Nike accessories or any altered Nike Products. It requires no athlete or coach to use any non-Nike footwear while on live television. 

The MIT athletic department licensing agreement was an example of a licensing agreement examined in class. When reading the “License Grant” section of the agreement, it states that MIT grants (meaning to allow) the licensee to use, sell, and have sold their athletic logo rights. MIT grants the licensee nonexclusive rights to manufacture their logo on products as long as it complies with the MIT code of conduct. When reading the “Payments” section of the contract, you can see the licensee is required to pay MIT royalties (10% of their net sales price of all athletic marked products sold). The contract states the licensee must pay their royalties within 30 days of each calendar quarter and be accompanied by royalty reports. 

This is the essential difference between a license agreement and sponsorship agreement in sport as was discussed in class. 

Sources

http://www.wipo.int/ip-sport/en/licenses.html

Contracts and Their Place In Sport

Contracts are used just about everywhere. According to my class textbook, “Fundamentals of Contract Law”, Contracts are legally binding agreements between two or more parties which will be enforced and recognized by the law. Contracts are seen in our everyday lives. Whenever we purchase something, we agree to buy an item in exchange for money. Whenever we sell something, we agree to give away an item for cash or other forms of payment.

Contracts are seen everyday in the sport industry as well. Everyday when you are reading an ESPN article, you see articles with stories such as Marshawn Lynch signing a two year contract extension with the Seattle Seahawks worth $24 million. You even see contract agreements between unions and leagues though Contract Bargaining Agreements, and these are the agreement between the athletes and the team owners. Since athletes have so much bargaining power when they try to negotiate a new deal with their owners, this leaves many to question whether athletes are employees or independent contractors.

According to the State of California Employment Development Department, a professional athlete is an employee or independent contractor depending on the sport they perform and how much power the athlete is given in their decisions. This is seen internationally. In all team sports around the world, athletes have to report to owners, coaches, and managers which gives them less control over their performance making them employees. Recently, the Indianapolis Colts disciplined their running back, Trent Richardson, for not reporting to the team and showing up in the American Football Conference Final playoff game. The Colts suspended him for two games without pay. It’s up to the coach who will be playing in a game, and who will be benched. Team sport athletes also receive health care benefits from their employers, and have tax deductions taken off their paycheque further proving they are employees. 

In individual sports, athletes are free to make their own decisions making them independent contractors. Individual athletes include boxers, golfers, and tennis players. Recently, professional boxers Manny Pacquiao and Floyd Mayweather Jr. both came together and agreed to fight in Las Vegas on May 2, 2015. They both made the decision individually without any owners or leagues deciding if they could fight against one another. Another recent example of an individual athlete making their own decision is professional golfer Tiger Woods deciding to take a leave of absence from the game to work on his performance. This is even seen in  the sport of tennis. The professional women’s tennis player, Serena Williams, had boycotted the Indian Wells tournament since she felt mistreated by the fans back in 2001. She was not disciplined for not partaking in the tournament for multiple years since she was free to decide when and where she could play. Unlike team sport athletes, individual athletes are responsible for hiring their own medical staff and coaches meaning they do not receive health benefits. 

After understanding the amount of freedom an athlete is given in the professional sport they participate in, it is more evident whether they are an employee or an independent contractor. Contracts are everywhere in sport regardless of whether a professional athlete is an employee or a contractor. 

Welcome

Hello and good day,

My name is Michael Matteazzi and I am a student enrolled in the Sport Management program at Brock University. This blog has been created to help further my learning experience in the Contract Drafting and Analysis for Sport Managers (SPMA 4P86) class I'm taking this semester. It will feature topics I have been learning in class, and will consist of various different sport case scenario discussions. I hope you enjoy your time on my blog site and please feel free to contact me at mm10lt@brocku.ca for any questions or further discussions. Thanks a lot and have a great day!

Michael Matteazzi