Difference Between Licensing & Sponsorship Agreements

Hi Everyone,

Last week we talked about renewal clauses involving sponsorship agreements.  In this blog, I want to provide an explanation of the difference between licensing agreements and sponsorship agreements.

A licensing agreement is a legal contract between two parties, known as the licensor and licensee.  In a licensing agreement, the licensor grants the licensee the right to produce and sell goods, apply a brand name or trademark, or use patented technology owned by the licensor.  In exchange, the licensee submits conditions to use the licensor's property and makes payments known as royalties.  A common example of a licensing agreement is a retailer teaming up with a sport team to sell their apparel bearing the teams logo.  Take a trip to Buckners Source for Sports in St. Catharines and you will find apparel for the Niagara IceDogs and St. Catharines Falcons.

Another example of a licensor and licensee relationship is between the NHLPA and Reebok.  The licensing agreement involves Reebok maintaining the exclusive right to produce NHL jerseys with player names.  Reebok creates the jerseys for the NHL and also sells them individually to fans while giving the NHLPA a royalty for the rights to do so.

The biggest part of licensing agreements are property rights and intellectual rights.  One of the largest companies that uses licensing agreements for intellectual property rights is EA Sports.  EA Sports is a videogame developer and uses the likeness of athletes in their games.  In order to use the athletes images, EA Sports has to reach licensing agreements with the governing bodies.  For example, FIFA and EA Sports have a licensing agreement until 2022.  They also have a licensing agreement with the NHL to produce the NHL line of games.

Now a sponsorship agreement governs the legal relationship between a sponsor and the individual whom is entitled to enforce the sponsorship obligation.  There are many types of sponsorship agreements in sport including:

1. Sponsorship of Individual Sporting Teams - Often teams associate themselves with a major brand.  For example, Chevrolet has paid $559 million to become the shirt sponsor of Manchester United.

2. Sponsorship of Governing Bodies - Often companies sponsor the governing body of a sport.  For example, Adidas is the sponsor of FIFA.  This means that all FIFA apparel is made by Adidas.  In addition to being the official sponsor of FIFA, there would be a licensing agreement in place to create and distrubte the apparel.

3. Sponsorship of Events - Often companies want to be associated with a major event.  An example of these agreements are the MasterCard Memorial Cup and Tim Horton's Briar.  They would be consider title sponsors in order to be involved in the event.

4. Sponsoring of Athletes - Often high performance athletes attract sponsors.  Most commonly referred to as endorsements, these deals can earn athletes more money than they do playing.  For example, Kevin Durant was offered $285 million by Under Armour which was more than he contract with the Oklahoma City Thunder.