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When would you want to terminate a sponsorship arrangement to protect your brand?

Sponsorships can be a great way for businesses and individuals to get the funding or income they need, whilst also being a valuable way for a sponsor to obtain exposure for their services and/or products.

However, as Warren Buffet cautioned, "It takes 20 years to build a reputation and five minutes to ruin it…". If your sponsor or brand ambassador behaves in a way which does not align with your values and could subsequently damage your reputation, would you want to terminate the sponsorship arrangement?

This is the difficulty drinks giant Diageo had after London Irish confirmed the signing of former Ulster Rugby star, Paddy Jackson.

Although Jackson was acquitted of rape in March 2018, other aspects of his behaviour were heavily criticised as the trial focused on controversial social media messages and texts exchanged between Jackson and others. As a result, Jackson's image as an international rugby player took a battering - how well he played rugby was no longer at the forefront of the public's mind.

Just over a month after London Irish revealed signing Jackson, Diageo announced its decision to end its near 30 year relationship with London Irish as it decided that the signing was inconsistent with Diageo's values.

When should businesses terminate sponsorship?

Businesses have varying views on what behaviour by an endorser or brand ambassador could cause damage to their brands. It often depends on the image a business wishes to portray to the public and, in particular, its target audience. There are various reasons why a sponsorship arrangement may end. For example, one party may be appalled by something the other has done and take a moral stance or sometimes it may no longer be beneficial for one party to be associated with the other because of the negative connotations surrounding them.

In 2014, following the announcement that Wigan Athletic FC's new manager, Malky Mackay, was under investigation by the English Football Association for alleged racist, homophobic and sexist text messages, iPro Sport decided to cut its ties with the club as it had been put in an "unsustainable position" which was "at odds with the company’s business ethics and commitment to best practice."

However, some sponsors do stand by their brand ambassadors during and after a scandal.  Examples include EA Sports and Nike which both stood by Tiger Woods when details of an affair emerged. It sometimes seems to depend on whether the sponsor considers the reputational damage to be repairable.

In certain circumstances, it may be the ambassador who ends the relationship because the business' sponsorship arrangements go against the ambassador's values. A few days ago, Mark Rylance resigned from the Royal Shakespeare Company over its sponsorship deal with oil company BP saying that "I do not wish to be associated with BP any more than I would with an arms dealer, a tobacco salesman or anyone who wilfully destroys the lives of others alive and unborn". In a situation like this, the business has to weigh up the cost of losing the individual against the cost of losing the sponsor. In this case, the Royal Shakespeare Company stood by its sponsor and consequently lost an Oscar winning artist. Conversely, London Irish backed Jackson and, as a result, lost its longest standing sponsor, Diageo.

Mitigating the risk

It is important to have a properly drafted and considered sponsorship agreement which deals with such issues and includes a morality clause granting a right to terminate the arrangement if one party damages the name or reputation of the other.

If you are a business, sponsor or brand ambassador and wish to discuss any aspect of this article, or sponsorship and brand campaigning more generally, please contact Susan Honeyands (Partner), Lisa Urwin (Legal Director) or Duncan Reed (Partner).

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2019. Specific advice should be sought for specific cases. For more information see our terms and conditions.

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