CHAPTER 10
Negotiation
The object of the negotiation process is to create a win-win-win deal; that is, the sponsee wins, the sponsor wins, and the target markets win. In order to achieve this level of partnership, both parties must be completely open about their objectives. This should be a fairly straightforward task if the development of the offer is done in a fully collaborative manner, as recommended throughout this book.
Rules for Negotiating
Either way, there are a number of rules that will make negotiating sponsorship a lot easier for you.
Negotiate Peer-to-Peer
Be sure you carry out the negotiation with someone who has the authority to negotiate and the ability to approve the expenditure. You will find that, in many companies, different levels of marketing executives will have different levels of financial authority.
Know Your Bottom Line
In the heat of a meeting, it is easy to get caught up in the process and make a deal that you realize later does not achieve your financial objectives.
Before you go into any negotiation, be sure to do your homework. Go back to your pricing exercises and set yourself a bottom limit that you will under no circumstances fall below (e.g., 225 percent of your cost to deliver the program). You may also want to set yourself a limit as to how much of the fee you will accept in contra.
Keep the Target Markets in the Picture
If the target markets—your audience, their customers, etc.—don’t win, it’s not going to work for anyone. Some sponsors get this and some don’t. Even if you are negotiating with a sponsor who doesn’t get it, it’s in everyone’s best interest if you keep talking about how various aspects of the sponsorship will impact (or not impact) on the target markets.
Have Something up Your Sleeve
When you create an offer for a sponsor, always keep a couple of nice benefits up your sleeve to use during the negotiation process. If you plan from the start to negotiate by offering them more, rather than settling for less money (and calculate your costs accordingly), you will end up far better off in the end.
Don’t Be Bullied
Some sponsors routinely offer 20 to 25 percent less than your asking price, assuming that if you are hungry enough, you will be grateful for anything. Don’t fall for this ploy.
You need to approach the negotiation from a position of confidence—you are holding a negotiation, not a fire sale. You’ve done your research and know your value. If they have a problem with the price point, then you need to adjust your package accordingly. Do not ever simply accept a discounted offer. A sponsor worth working with will respect your need to protect the value of your property.
If you have approached the sponsorship process in a fully professional manner and taken all of the above negotiation advice, and the potential sponsor is still treating you like a second-class organization, walk away because the relationship will never get any better.
Stay Composed No Matter What
Negotiations can be difficult, no question about it. Even if you have created a strong offer and followed the guidelines set out here, sometimes you will work with a sponsor who is an old-style negotiator, approaching the process as adversarial rather than collaborative.
If things start heating up, call for time out. Tell the potential sponsor that it is clear you both need to give this relationship a fresh look. Tell them that you will rework the offer, taking into account their concerns, and that you will get back to them in a couple of days. Then do it. Put any defensiveness or acrimony aside and find a way. Put the new offer in writing, which allows you to think it out fully, and remember to stay focused on a solution.
Also note, there may be times when a sponsorship negotiation will turn sour even when both sides are working together. This could be as the result of an international directive, a change in business climate, or because of an internal change at the company. Don’t hold this against the potential sponsor as it is out of their control. Just stay composed and stay in touch, and when everything settles back down for them, resume discussions.
Be Prepared to Walk Away
Don’t ever walk into a negotiation with the mindset that you need to close the deal. This puts you at a distinct disadvantage and will result in your giving up more than you need to cement the relationship. You might as well have a “kick me” sign on your back!
If at some point during the negotiation you determine that the relationship is unlikely to end up a win-win-win situation, then it is time to thank your counterpart and graciously walk away. This is an infinitely more positive outcome than creating a bad relationship. Sponsorship is notoriously incestuous—if you burn a bridge, it stays burned.
Payment Arrangements
Sometimes the payment arrangements will be as important to a sponsor as the amount of money committed, so you need to be prepared to work with them. We have already covered a number of payment structures in the Pricing section (Chapter 7). You use those same techniques in your negotiations, and we’ve outlined a couple more here.
Spreading Payments Across Time
Oftentimes, a sponsor will want to spread payments over time. There are several reasons for this, but the two overriding reasons are:
1. Comfort level. They want some assurance that the event is actually going ahead and that the benefits promised are being delivered. Often, once you have gone through the first year of a sponsorship, the sponsor will be more comfortable paying the entire fee up front.
2. Budgeting. If they have already budgeted for that time period, they may need to access quarterly marketing funds or some other kind of time-bound budgets.
Whatever the reason, you need to be prepared to work with the sponsor. You should endeavor to secure a substantial proportion of the fee up front, both as a measure of good faith and to assist you in your cash flow in the lead-up to your event.
It is reasonable that fees above a given amount ($15,000 to $20,000) be paid in installments. One common way of doing this is to request one-third upon signing of the agreement, another third three months later, and the final installment two weeks before the event starts.
Ongoing contracts, such as sponsorships of cultural organizations or sporting teams, may be paid annually, semiannually, or quarterly.
Also keep in mind that if you are negotiating a small sponsorship with a company that has a major sponsorship budget, it may be more convenient for them to pay the entire amount at once. The only way to know which payment option they prefer is to ask.
Spreading Payments Across Budgeting Cycles
It may be necessary to spread payments across financial years, particularly for larger sponsorships or investments made after the current period has been budgeted. This can often make finding the money for your opportunity easier for the sponsor.
Companies’ financial years vary widely, with multinationals often mirroring the financial year in their home country. Some companies have their own fiscal year. You should have found out what financial year they operate under during your initial research but, as a general guideline, here are a few typical periods:
• United States: 1 January–31 December
• Japan: 1 April—31 March
• Australia/New Zealand: 1 July—30 June
• United Kingdom: 1 April—31 March
Contracts
When entering into a sponsorship agreement, the hope is always that the sponsorship will go perfectly and the terms of the contract will never be called into play. Unfortunately, this is not always the case, so it is important to understand the issues.
Types of Agreements
Always have some sort of written agreement in force. The more formal the agreement, the more likely it will be complete and legally binding. In order of desirability, these are the types of agreements you could have:
1. A legal contract drawn up by a lawyer and bearing signatures and company seals of both organizations
2. A legal contract adapted from a template drawn up by a lawyer (we have included a comprehensive pro forma that has been created for this book by Gadens Lawyers, Australia), bearing signatures and company seals of both organizations
3. A letter of agreement outlining all points of agreement, including benefits, communication, and payment dates, and signed by both organizations
4. A confirmation letter from the sponsee outlining the benefits and payment dates (this is not desirable and should be avoided)
Determine at what level you need a letter of agreement or a contract. Often a letter of agreement, signed by both parties, will be used for sponsorships valued at under a certain amount, anywhere from $5,000 to $20,000 (and we’ve seen as high as $100,000). Above that amount, a full contract will be required.
If you have a good Sponsorship Agreement Pro Forma (see Appendix 3), it will make your job much easier when it comes to developing an appropriate agreement. This is a very useful tool that can be utilized in several ways:
• As the basis for your agreement
• As your “first pass” at a legal contract that will then be given to a lawyer for fine-tuning (saving you a considerable amount in legal fees)
• As a reference, so that you are aware of possible issues and legal considerations
We do not recommend using the pro forma as the basis for your agreement unless you have a lawyer check the agreement prior to entering into it.
Who Should Provide the Contract?
It is nearly always quicker and more straightforward for the sponsee to develop the contract, as corporate legal departments are notoriously bureaucratic and often develop contracts that are difficult to read and less than win-win.
Resolving Disputes
When structuring an agreement, always try to work in a series of steps for resolving any conflicts that might arise. You only move on to the next step when what you have already tried has not worked. The four basic steps are, in order:
1. Discussion. This means having a meeting with the express purpose of coming to a resolution that is agreeable to both parties.
2. Mediation. This involves getting an independent arbiter to mediate a discussion between the parties, ensuring that they stay on track and open to solutions.
3. Arbitration. This is similar to mediation, except that the parties agree that the arbiter will hear both sides and make a decision. Beware, this could be almost as expensive as litigation.
4. Litigation. A long and usually expensive foray into the legal system, which is to be avoided if at all possible.
Exclusivity
There are three types of exclusivity:
1. Sponsorship
2. Signage (in cases where the venue may have existing conflicting signage)
3. Sales
You can grant exclusivity across any or all of these areas, and the more you grant, the more valuable it is to the sponsor. For more on this, see “How Do We Define Category Exclusivity?” in Chapter 7.
Exclusive sales provisions could contravene trade practices or antitrust laws. This is another reason why it is important for a lawyer to prepare or check your agreement.
Sponsorship Agreement Pro Forma
Included in Appendix 3 is a Sponsorship Agreement Pro Forma that was developed specifically for us by Lionel Hogg, Partner of Gadens Lawyers. The full agreement can also be found in your downloadable tools.
This sample agreement may be a useful starting point for a sponsorship agreement. However, it is very general because it is impossible to draft a document that accounts for all situations or for legal differences in all countries.
Ideally, it should be used as a template that is completed by the sponsee and sponsor and then given to a lawyer to check the drafting, change it to suit the law of the relevant place, and better outline the rights of the parties. This will ensure that the agreement process is collaborative and will probably cost you far less than securing a lawyer to draft an agreement from scratch.
Warning
The Sponsorship Agreement Pro Forma document is provided as a sample only and is not a substitute for legal advice. You should seek the advice of a suitably qualified and experienced lawyer before using this document.
In particular, you or your lawyer should:
• Check the law in your jurisdiction. Make sure this agreement is appropriate wherever you are located.
• Check for changes to the law. Law and practice may have altered since this document was drafted or you last checked the situation.
• Modify wherever necessary. Review this document critically and never use it without first amending it to suit your needs. Remember, each sponsorship is different, and the parties may agree to allocate risks and responsibilities differently from this template.
• Beware of the limits of expertise. If you are not legally qualified, or are not familiar with this area of the law, do not use this document without first obtaining qualified legal advice about it.
This warning is governed by the laws of New South Wales, Australia.
How This Agreement Works
The Agreement assumes that there are standard clauses that should be in every agreement and special clauses needed for your sponsorship. The standard clauses that should apply all of the time are called the “Standard Conditions.” The parts that relate to your specific sponsorship are the “Schedules” and the “Special Conditions.”
The Schedules and Special Conditions have precedence over the Standard Conditions. In other words, what you insert is more important than what is already written. This is why it is vital to use a lawyer or know what you are doing.
Read the Agreement
Before doing anything, read the Agreement and see how it might apply to your situation. There may be Standard Conditions that are unsuitable. There may be new conditions that you need to add. Do not assume that the Agreement is right for you.
The sample agreement is for an exclusive sponsorship in the relevant sponsorship category.
Complete the Schedules
You should complete each Schedule following the guidance notes in that Schedule.
For example, Schedule 23 is called “Sponsor’s Termination Events.” The guidance note tells you to see clause 9.2. You should read clause 9.2 and understand the circumstances in which the sponsor has a right to terminate the agreement. You then insert into Schedule 23 any other circumstances peculiar to your sponsorship. For instance, you might want to terminate the agreement if the team being sponsored loses its license to play in the major league or if the contracted lead performers for the musical withdraw their services.
Add Special Conditions
The Special Conditions (at the end of the Schedules) enable you to insert other conditions that are not dealt with by this sample agreement.
Changing Standard Conditions
You should not change the Standard Conditions without consulting a lawyer. The Agreement is drafted as a package, and changing the Standard Conditions might have an unintended domino effect on other terms.
If you have to change the Standard Conditions, do so by adding a Special Condition, such as “clause 18 of the Standard Conditions does not apply.”
Sign the Agreement
The parties sign and date the document on the last page. Make sure that the person with whom you do the deal is authorized to sign.
Finding a Lawyer
You should consult a lawyer practicing in your jurisdiction and experienced in sponsorship matters. If you don’t have a good sponsorship lawyer, there are a number of sports law organizations around the world that can provide a referral, or you can contact Gadens Lawyers in Australia.
Although you may not be a sporting organization, these associations will be a great source for referrals, as sponsorship law skills are quite transferable across sponsorship genres.
Full contact details for a number of these organizations can be found in Appendix 2.
If You Have Questions About the Pro Forma Agreement
If you or your lawyer have questions about the Sponsorship Agreement Pro Forma, you are welcome to contact its author:
Lionel Hogg
Partner
Gadens Lawyers
GPO Box 129
Brisbane QLD 4001 Australia
Phone: +61 7 3231 1518
email: [email protected]