Long Term v. Short Term: What’s the Right Term for Partnership Contracts?

On the latest episode of the All Access Interview Series podcast, Coca-Cola’s global sponsorship chief Brad Ross, in response to a question about what the biggest challenges are facing sponsors, cited determining the optimal length of partnership contracts.

As he said, “Long-term contracts give you good perspective from a relationship point of view and help you drive better value in terms of the long-term negotiation and the construct behind that. At the same time, you have to ask yourselves, is it flexible enough to allow for changes that come up? That’s the paradox you have to deal with. What is the ideal lifespan of a partnership or a contract?

“The traditional school of thought is the longer the better. You negotiate a long-term deal, you get a better price, better rights, you don’t have to go through contract negotiations every year, etc. All of those points are valid. But fast forward two years in, and a new industry player emerges—or your own business strategies change—how do you adjust?”

As Brad suggests, signing agreements of one or two years versus 10 or 20, while allowing changing conditions to be accounted for, is not an ideal solution to this problem. Short-term agreements are not conducive to relationship building, the time and resources devoted to near-constant negotiating are better spent elsewhere, and limited-length deals open the door for a competitor(s) to bid for the rights.

So what should brands and their sports and entertainment partners do? Nearly every conversation about sponsorships today comes back to the idea of flexibility—the necessity of rightsholders to be willing to adjust rights, benefits, assets, etc. to better meet the needs of their partners over time.

As Brad also said in his interview, “Some partners get that and are very open to it. Some are fantastic in terms of saying, ‘We understand the landscape is changing. We need to adjust ourselves. Let’s figure this out.’ Some are a bit more jaded in their thinking. You just have to deal with that, help educate them and bring them along.”

To avoid sponsors relying on hope that their partners are willing to revisit and rework the agreed-upon deliverables, can flexibility be built into longer-term agreements?

The simple answer is yes, but it requires foresight, additional up-front negotiations, explicit setting of mutual expectations, and attorneys who are both skilled at drafting complex contracts and knowledgeable about sponsorship.

Without that sponsorship expertise, counsel may revert to a standard legal tool to provide contract flexibility: vagueness and ambiguity. While that may work in other situations, it will create many more problems than it solves for sponsorship agreements, which require specificity of rights and benefits.

One solution might be long-term contracts that calendarize occasions for revisiting specific deal terms, similar to the Minnesota Twins’ and Target Corp.’s naming rights agreement for Target Field, which upon its signing in 2008 included having a third party independently reassess the deal’s fair market value periodically throughout its 25-year term.

With both brands and properties acknowledging this challenge, it’s clear that the time has come to re-engineer sponsorship contracts to provide both flexibility and stability. Not an easy task, but a necessary one.