By Jordan Mamorsky
It seems like an eternity. Yet, only ten years ago, many new media platforms did not exist, and sport attorneys did not usually have to craft deal terms accounting for the effect of media technologies on the traditional exclusivity rights of their clients. Now, as media has evolved and the exclusivity rights of sport sponsors are often put into question, attorneys are faced with the conundrum of drafting media rights agreements that provide longevity for their buy and sell side clients while at the same time, ensuring that such agreements are flexible enough to cover future unknown new technologies.
To address such concerns for both sponsors and property holders, the American Bar Association hosted a panel on October 9, 2009, entitled the “Essentials of Negotiating Sport Sponsorship, Media & New Media Transactions: From the Business Deal to the back-end terms,” highlighted by attorney panelists with differing perspectives from opposite sides of the deal table.
Most important to sponsors and always a heavily negotiated deal term is a sponsor’s right to exclusivity. As Panelist Cheryl Givner, Vice President & Managing Counsel, Worldwide Marketing and Core Products at MasterCard International explained, “We [Mastercard] need to know who the other competing sponsors are and to make sure that our competitive value will not be diluted. This means going back to the property right holder and directly asking if the property rights are exclusive and if we will hold renewal rights or a renewal option.”
Despite efforts to ensure and protect traditional sponsor exclusivity in sports marketing transactions, the rise of new media platforms are often the “x-factor” because of their capacity to dilute the power of exclusivity through virtual advertising and third party control over digital rights.
In fact, virtual advertising has become a major issue in sponsorship transactions because of the weakening of value for the sponsor when a competitor advertises on the field of play, providing instant exposure to millions of viewers tuned in to the sports program. Due to its growing importance, virtual advertising has become a bargaining chip for the sponsor and property holder in reaching agreements both sides can be happy with. “Virtual advertising is a major risk because it can limit our exposure significantly,” Givner said. “However, it often gives us leverage to go back to the property and explain that we want something back to recover from the exposure we lost.”
While virtual advertising has caught on in some sports leagues (perhaps its best application is in the National Football League (NFL) and College Football) some property owners including the National Basketball Association (NBA) have chosen not to use the technology due to quality concerns that it is a distraction that seriously affects the specific sports product for fans. “Virtual advertising does not work well from a quality perspective for basketball,” Panelist William S. Koenig, Executive Vice President, Business & General Counsel, NBA Properties said. “We have created a status quo and we do not want to interfere with it.”
In addition to various concerns dealing with the pressures of virtual advertising, sponsors also have to worry about power over digital rights transmitted on different technology mediums. As computers and the Internet are used more and more to view and transmit sports media content, attorneys must adjust and negotiate power over digital rights that will not be made worthless by new technology. Planning for the unknown is often a difficult proposition.
“Everyone in the industry is very focused on digital rights,” Panelist Maidie Oliveau, Counsel Arent Fox LLP explained. “Attorneys really have to plan for the unknown. We don’t know what is going to happen in ten years through the media devices now. The question is how exactly to balance out these evolving new media technologies.”
Sports leagues like the NBA have sought to reach this happy medium in balancing their own concerns over dwindling profits and the growing dilution concerns of exclusive sponsors by promising greater exposure yet, at the same time, explaining to the sponsor that they cannot expect to be the lone advertiser at the event.
“We try to provide an important interplay and grant exclusivity as something special,” Koenig said. “If someone wants to own an event, we’ll put you front and center. Yet, we also have other secondary sponsors and for those secondary sponsors we can get away with not granting exclusivity. Divvying up rights is an art and is now more important then ever for property holders.”
While the rights that are divvied up by property holders now may not be those in play in ten or twenty years, it is the attorneys job to pragmatically draft agreements with the requisite foresight and flexibility to cover all existing and potential future media rights. Failure to do so will only result in further dilution of sponsorship exclusivity and property profits–with just a click of the mouse.
Jordan Mamorsky is a third year student at New York Law School where he is Managing Editor of the Media Law & Policy Journal. Prior to law school, Jordan worked as a Special Projects Editor for Sports Illustrated Magazine. In 2006, the Southeastern Journalism Conference named Jordan the “Number One Sports Writer in the South” for his work as Sports Editor of the Vanderbilt Hustler, the school newspaper at Vanderbilt University.