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Similarly, the sponsor of Wigan Athletic, DW Sports, encountered significant financial challenges and went into administration in August 2020, partly due to the effects of the COVID-19 pandemic on retail and fitness activities. As a result of this financial crisis, many DW Sports retail stores and gyms were closed, impacting hundreds of employees and resulting in the end of the brand's association with the stadium sponsorship.
The financial troubles of DW Sports mirrored the challenges faced by Wigan Athletic during the same period, underscoring the vulnerability of sports teams and associated businesses during economic downturns, particularly when both entities are closely linked through ownership and sponsorship.
Consequences
The above examples underscore the risks associated with stadium naming rights deals, where the sponsor's financial health can directly impact the associated sports club, both in terms of financial support and public perception.
For the sponsor, a failure to meet its financial commitments in a high-profile and visible commercial arrangement will limit its ability to enter into similar agreements.
For the club, finding another sponsor can lead to frustration amongst critical stakeholders, such as supporters, and a sense of desperation in that the defaulting sponsor was not adequately vetted.
As is common in most sponsorship agreements, whether in the world of football or otherwise, a party will usually have the right to terminate an agreement with immediate effect if, for example:
• a party becomes insolvent, • an administrator is appointed;
• a creditor of the other party takes possession of its assets; or
• the other part suspends or threatens to suspend or cease carrying on its business.
Continued on Page 30...
Contractual Protection
For clubs in the EFL, in particular, that don't reap the same benefit as Premier League clubs when it comes to TV money, a successful sponsorship agreement and the boost in a playing budget for the season it brings could be the difference between a season being successful or not. From the sponsor's perspective, they will want to partner with a club that appears to be well-run, with all stakeholders pulling in the same direction, rather than a club with unpopular owners or financial issues.
Accordingly, the sponsorship agreement must allow both parties to terminate the contract immediately if either party cannot meet their commitments under the contract or if the other party runs into severe financial difficulty.
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