Sponsorship can be an excellent way of promoting a company, but a recent Court of Appeal judgment highlights the risks involved when the exposure the sponsor will gain is uncertain.
Northern and Shell PLC, the publishers of OK! Magazine, agreed in 1997 to sponsor the Champion Children Awards. The Awards were originally intended to be presented by HRH Diana, Princess of Wales at a gala celebrity event at the Savoy Hotel, with proceeds going to the Landmines Appeal. It was envisaged that the whole ceremony would be shown as a pre-Christmas BBC network special on a Sunday afternoon slot after the East Enders omnibus. The cost to OK! would have been £160,000, which would have been good value for an anticipated audience of 6 million viewers, mostly adults.
The Princess of Wales turned out to be unavailable and Champion offered HRH the Duchess of Kent and the charity UNICEF instead. A fresh contract was negotiated under which OK! agreed to pay a reduced contribution of £90,000.
There was no mention of audience figures in the new contract. OK!’s protection lay in a general “reasonable discretion” provision in clause 6: “In the event that the Event does not proceed for any reason or that it is not broadcast by the BBC at a time and date acceptable to the Sponsor in its reasonable discretion, all monies paid under this Agreement by the Sponsor shall be repaid upon demand by the Sponsor, and no further sums shall be due.”
In the event, the programme was broadcast on the Monday morning before Christmas to a disappointing audience of only 710,000 viewers. OK! was not satisfied with this and started proceedings against Champion for the return of the initial payment it had made of £45,000. Champion counterclaimed for the remaining 50% due from OK! under the contract.
OK! was successful in the High Court, the judge finding that its objection to the broadcast had been reasonable.
The three appeal judges all disagreed with this. Although divided as to the precise interpretation of clause 6, they agreed that OK! had received significant benefits from its sponsorship and could not reasonably avoid all payment by invoking clause 6.
It is important for a sponsor to define as clearly as possible the benefits it expects to obtain from its association with an event. The time honoured “reasonable discretion” formula leaves it up to the court to decide. As this case illustrates, judges may have different ideas of what is reasonable. Loosely drafted contracts are simpler to agree, but are more likely to result in expensive litigation in the long run.