From the venue operator's perspective, one of the most important issues to address in a naming rights agreement is the breadth of the exclusivity being granted. Is it for the entire facility? All events? Issues like these must be hammered out in great detail so that both parties have no misunderstanding. Related to this issue is the definition of the category of exclusivity being granted.
An operator must narrow a category as much as possible and should resist the naming rights sponsor's demands for more flexibility. Use precise terminology. Craft a category definition that is understandable and that leaves the venue free to negotiate sponsorships with other companies that are not direct competitors. Timing will be critical if the venue is used primarily during a particular sport's season. The operator must determine how much time it needs to transition to the new name and negotiate the penalties for delay. Such details should be formalized in the contract. List the circumstances under which you will have to use the name and cause others to use it. If the current name is one of significance to students or alumni, consider whether combining the existing name and the name preferred by the sponsor is a possibility, at least for a period of time.
Given that many naming rights deals extend over a number of years, the sponsor will likely request the right to change the name of the venue in the event of a merger, acquisition or similar reason. Thus the parties should establish guidelines for acceptable names and create a procedure for requesting and receiving (or denying) approval of a new name or a new exclusive category. A sponsor that has been granted naming rights will no doubt want to be the dominant sponsor, but “dominance” is an imprecise concept. To reduce the ambiguity, consider agreeing that no other sponsor would be permitted more than a certain percentage of the amount of signage given the naming rights sponsor, as measured in square feet. The operator might also agree to bring in a market research firm to conduct a study in the event of a disagreement as to whether the naming rights sponsor is perceived by the public as the dominant sponsor. Although the naming rights sponsor will have exclusivity within its category, exceptions may be needed for a variety of circumstances.
The operator should determine whether the NCAA or other event organizers may require all signage, other than signage negotiated for a particular event, be covered or removed. If so, exceptions must be permitted. No agreement should attempt to prohibit fans from wearing T-shirts naming a competitor. The operator will also want to be able to rent suites to competitors and place the competitor's name on appropriate signs. If the naming rights sponsor requests a right of first opportunity to be the exclusive sponsor in its category with respect to other events at the venue or a new venue, the operator should clarify the notice that must be given and allow only a short time to respond before the right is waived. The operator should not agree to a right of first refusal as that would tend to chill negotiations with third parties. Issues regarding the ownership, licensing and use of trademarks and the like should be carefully addressed with the aid of intellectual property lawyers.
Will the sponsor have the exclusive right (within its category) to use all of the university's marks in the sponsor's advertisements? Or, instead, will that right be limited to a particular team or sport? The amount, timing and location of a sponsor's payment in a university setting may be based on the school year rather than a calendar year. Likewise, the parties will need to decide what will constitute a default. Sponsor defaults will certainly include monetary breaches. There should be only a short cure period for such a default and failure to cure should give the owner the right to terminate the contract. Non-monetary breaches by the sponsor, (breaches of representations, other obligations and the like), may or may not be capable of cure. Other possible defaults could include ones related to the public image of the sponsor. Arbitrators who have experience in the resolution of complex commercial disputes may lead to a better result than would litigation. Operator defaults would include breaches of its obligations and representations under the agreement.
To narrow the possibility of such a breach, resist a commitment to operate or maintain the facility in a “first class” manner. If the teams the sponsor expects to play in the venue cease to do so for a period of time, the sponsor will want the option to terminate. Other resolutions might include so-called “make goods” – additional signage, advertising or other promotional opportunities, adding additional years to the term, allocating insurance proceeds in a predetermined manner, or requiring the owner to search for a substitute naming rights partner. The operator should also question whether any laws governing the university impose restrictions or requirements on this type of transaction, including impacting the options available in the event of a default. Nancy Martin is a real estate attorney and based in The Woodlands office of Winstead Sechrest & Minick P.C. She can be reached at (281) 681-5910 or email@example.com Back