Five legal landmines in sports partnerships

Sports partnerships and sponsorships come with high stakes and high emotions. The allure and the power of association with the sports world can be irresistible for brands looking to elevate their visibility, whether that be sponsoring a major sporting event, endorsing an athlete, or partnering with a sports team.

Beneath the surface however, lie a web of legal considerations which demand careful attention. Without examining all the relevant legal, financial, and operational aspects of the proposed partnership, the consequences of being left in the dark can be dangerous. Disputes have the potential to not only spiral into costly legal battles, but also cast an unwelcome spotlight on business practices and individuals.

This ultimately erodes trust and tarnishes reputations.

Navigating the legalities of partnerships demands a level of expertise and insight – these are just a few risk factors we investigate in our due diligence reporting.

1. Contractual obligations

One of the primary legal risks in sports partnerships lies in contractual obligations. Contracts between sponsors, partners, athletes, and their respective agents are usually drafted to outline rights, responsibilities, and expectations. Yet, embarking on a partnership without a comprehensive grasp of its terms, and subsequently not complying with them, significantly raises the probability of disputes arising.

Economic downturns, changes in the market, or unexpected events (such as the pandemic) can also mean brands inadvertently fall foul of contractual obligations. What provisions are there to address unforeseen circumstances, and what are the legal and financial implications for those involved? Knowing these ahead of time allows for risks to be mitigated.

2. Intellectual property issues

Intellectual property (IP) poses another challenge in sports partnerships. Unauthorised use of trademarks, copyrights, or image rights can trigger costly legal battles.

4. Regulatory compliance

Partnerships must comply with regulations, including but not limited to those related to advertising, consumer protection, and doping.

Sponsorships frequently involve multinational companies and international events, necessitating compliance with regional laws and jurisdictional regulations. Varying legal standards and cultural norms can increase complexity and risk.

Regulatory issues feature heavily in InsightX reports into companies from the gambling industry; large or small, these companies have a tendency to falling afoul of authorities, through failure to to comply with Anti-Money Laundering (AML) obligations or operating without the required licence.

5. Financial viability

Finance and legal liabilities are often interlinked, therefore assessing the solvency and stability of potential partners needs to be comprehensively investigated by understanding revenue streams, financial projections, and any existing liabilities.

Comprehensive background checks into businesses and the people behind them sometimes reveal strings of delinquencies or revenue figures that differ to those presented to a prospective client.

6. Existing litigation and disputes

Historical disputes may have stemmed from factors such as performance, payment, exclusivity, or any other contractual matter. By understanding the causes of any previous disputes prospective partners can take proactive measures to steer clear of similar risks in the future.

In one such case, a company that InsightX investigated had attempted to downplay the involvement of its founder, who had previously been convicted developing malware which infected millions computers; the individual had also been indicted by the US Department of Justice. The company was also found to be in dispute with companies in the same space and operated in a dubious manner.

Mitigating legal risk

Unearthed, dormant and unseen, legal landmines in sports partnerships can pose untold risk to brands and rights holders that are unaware of their legal obligations. Fortunately as part of our due diligence investigations we can help to mitigate this risk for our clients.

At InsightX we:

  • Verify credentials, including the licences and qualifications of potential partners to ensure legitimacy and credibility
  • Perform background checks on key individuals and entities involved in the partnership. This includes investigating past legal issues, financial history, and reputational concerns
  • Research across multiple jurisdictions and in multiple languages to ensure no stone goes unturned

The legal landscape is forever changing which therefore means due diligence can only deal with the historic, and the here and now. However, it’s a powerful tool to reduce risk by enhancing decision-making processes. This, in turn, empowers brands to proactively manage future risks, whether by steering clear of partnerships altogether or by incorporating suitable provisions into contracts and agreements. In doing so brands, rights holders and governing bodies working in sport can maximise the benefits of long, fruitful and prosperous partnerships.

Since 2014 we have been identifying legal risks in potential sport partnerships, working alongside leading brands, clubs, agencies, rights holders and institutions to help them make better decisions about who they choose to associate with. If you would like to see how InsightX’s approach can help, please get in touch use the form below.

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