Expert Opinion (#06 June 2012)

Sponsorship of Sporting Events and the Law

Alexander Weigelt, Oleg A. Klymchuk

The UEFA EURO 2012 football championship has put the spotlight not only on the event as such, but also on various forms of sponsorship, marketing and advertisement related to the event. Numerous companies discovered EURO 2012 as a good opportunity to launch sponsorship campaigns to increase the loyalty of consumers to their brands.

The event is a good example on understanding how sponsorship generally works, to identify legal challenges in Ukraine and to define areas in need of further development. This article focuses on the legal aspects of sponsorship of sports events.

Ukrainian legal framework

Under Ukrainian legislation, sponsorship is regulated by the On Advertising Act. Sponsorship is defined as wilful material, financial, organizational and other support provided by individuals and legal entities with the objective of promoting a name or trademark.

Although not expressly mentioned in the Act, it is understood that the ultimate purpose of sponsorship is to promote a positive image of a company, its activity and its products. However, there is a legal restriction: according to the On Advertising Act, sponsorship cannot include information of an advertising nature with regard to the sponsor and its products. In the event of discovery of such an advertisement, the sponsorship activity can be categorized as prohibited hidden advertisement and may be subject to penalties imposed by the authorities. It is worth mentioning that the Ukrainian legal concept of hidden advertisement covers program, broadcasting and publications only but does not apply to other types of advertisement (e.g., outdoor advertisement).

In addition, there are further legal restrictions to sponsorships. These restrictions can be classified into two categories and define, in particular, who cannot be a sponsor: (i) Producers of goods, for which advertisement is prohibited by the law, and (ii) Producers of goods, for which production and circulation is prohibited by the law.

The first of these legal restrictions seems slightly outdated, because it ignores the realities of modern business life. Multinational corporate groups have diversified product portfolios ranging from needles to container ships. According to the law, such corporations are excluded from sponsorship even if only one of their products falls under the ban of advertisement.

The most notable products falling under a ban on advertisement are drugs which are subject to prescription, and tobacco goods. Interestingly, alcoholic beverages do not fall under this restriction. In contrary, the On Advertising Act permits sponsorship of sport events using alcohol trademarks with certain exemptions.

The main restriction is that no sponsorship of sports events is permitted if the event is hosted mainly for persons under 18 years of age.

Legal framework set by sports associations

Contrary to states, sports associations do not have the power to establish legal rules which are generally binding for everyone. However, certain sport associations influenced national legal systems in a way to suit their interests.

In principle, sport associations usually have guidelines and regulations governing their sporting discipline, its events and competitions. For example, for relevant football matches (e.g., European championships, UEFA Champions League, UEFA Europe League) UEFA rules prohibit the advertising of tobacco, alcoholic spirits, slogans of political, religious and racial nature, as well such offending common decency. Consequently, business entities engaging in sponsorship have to follow organization-created requirements — in addition to the applicable (country) law.

The lines between both types of regulations are often blurred. High-profile sports events such as football championships, Olympic Games and others are awarded by the respective sport association only under the condition that a certain catalogue of requirements is implemented by the government of the host country into binding legal regulations. These catalogues usually require that trademarks and logos of the sport association are legally and effectively protected, that companies which have been elected as official sponsor of the sporting association (e.g., UEFA) or of the event (e.g., EURO 2012) are granted exclusivity in sports venues, in official advertisement for the event and so on. Typical examples of such organization-driven requirements are:

— Protection of event logos and IP rights (UEFA EURO 2012) — EURO 2012 Preparation and Hosting Act, implementing the requirements of UEFA;

— Prohibition to use commercialized names for stadiums (they are not allowed to have other sponsors names during the event);

— Exclusivity for merchandise and business partners (drinks and food in the sports venues must not be others than permitted by UEFA, service providers for air travel, electronic payment systems, mobile phone operators, etc., enjoy exclusivity for the time of the event and are granted privileged treatment in comparison with other market participants).

For the sake of completeness, it should be mentioned that the extent of restrictions imposed by sport associations for certain events varies depending on the popularity of a certain event or discipline. Privileges routinely granted to events in football or Formula 1 car racing are unheard of in less popular disciplines like swimming, chess or hockey.

UEFA EURO 2012 sponsorship — a closer view

Summing up the above, EURO 2012 sponsorship is subject to UEFA specific regulation in addition to general Ukrainian sponsorship regulation. From UEFA’s point of view, sponsorship is qualified as a commercial right and sponsors are qualified as commercial partners of UEFA. The aim of UEFA specific regulation is ensuring protection of the rights of such commercial partner, defining their role within the event and not the least generating revenue for UEFA from the exclusivity which is provided to a sponsor.

Ukrainian law does not foresee special regulations of sponsorship agreements. In practical terms this is of limited importance because sponsorship agreements are concluded between UEFA and commercial partners mostly under foreign law.

Of course, requirements of Ukrainian public order need to be followed (e.g., competition law).

At a glance, the UEFA EURO 2012 commercial program consists of 10 global sponsors (EURO TOP partners with comprehensive global rights for EURO 2012 and other events, and EURO sponsors with global rights only regarding EURO 2012), as well as four national sponsors per host country.

The rights of national sponsors are limited to the territory of the designated host country.

The rights of global and national sponsors cover ticket promotion for customers, certain licensing rights for manufacturing and sale of UEFA EURO 2012-branded products, brand presence in official venues of the EURO 2012 and perimeter board presence at all matches played in Ukraine — including the final.

In addition, national sponsors in Ukraine benefit not only from visible presence of their brands, but also from provision of services to UEFA (e.g., banking services from Ukrsotsbank, IT services from Ukrtelecom).

Global sponsorships are typically long-term contractual relationships (up to 7 years contract term) covering a number of events of the same sport association (e.g., UEFA EURO 2012, UEFA EURO 2016 and UEFA tournaments for women and youth football). Event sponsors have shorter contract terms of 2-3 years.

Certain business entities (e.g., Coca-Cola) enjoy exclusivity in their sponsorship agreements with UEFA, which means that UEFA does not enter into similar contractual relationships regarding soft drink beverages. However, this is not unquestionable with regard to Ukrainian competition law, in particular if Ukrainian markets of goods are affected or may be affected.

Sponsorship agreements for stadiums

In the above, the focus was made on sponsorship relations of sport events such as the UEFA EURO 2012. However, over the last decade commercialization has also reached sports venues, which have become popular all over the world as examples of manifold sponsorships.

In fact, there are only few limits regarding who can be a sponsor in relation to a sports stadium. Stadium sponsorship agreements are typically concluded for catering, beverages and merchandising. Typically, catering is outsourced to a single operator who normally provides modern kitchen equipment and technique and a sponsorship fee in exchange for the exclusive right to cater at the venue.

Beverage sponsorship agreements for beer partners and soft drinks partners are typically concluded for a term of five years. The sponsors will provide beverage dispensing systems and pay sponsorship fees. Here, legal issues include conflicts with competing brands with sponsorship rights to large events (such as UEFA EURO 2012). Public safety requirements may have an effect on these contractual relationships. For example, bans on the sale or consumption of alcoholic drinks and even beer may be imposed during crucial events, leading to lower turnover for the beer sponsor.

Merchandising is a standard source of income which may be granted to more than one business partner. Coordination of prices within the venue is desirable but may violate competition regulation. Of course, merchandising partners have to observe trademark rights and will not tolerate the sale of competing low-price souvenirs inside the stadium area.

More exotic sponsorships are concluded with regard to electronic payment systems, flagpole advertising, media coverage, financial services and others.

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