A word of warning from our sponsors

Sponsorship can be a great boon for companies looking to enhance their image, but recent cases have highlighted the dangers of being too closely involved in events that go wrong or lead to fatalities.

Two senior officials of the Williams Formula One motor-racing team could be charged with manslaughter following an investigation into the death of its driver, Ayrton Senna, at the San Marino Grand Prix in 1994, it emerged this month. The news has alarmed the sponsorship business whose representatives gathered in London for the Eighth National Sponsorship Conference last week (MW February 16).

There is no suggestion that the Williams team’s corporate sponsors could also be held liable, but it illustrates the dangers faced by companies seeking ever closer involvement in the events – or products – they sponsor, says Warren Phelops, head of the sports law group at solicitor Nicholson Graham & Jones.

Corporate manslaughter, infringement of public safety regulations, negligence are just some of the possible grounds on which a sponsor could be legally challenged should a participant or spectator be killed or injured at a sponsored event. If someone is found to have died as a direct result of the action – albeit unintentional – of an event participant, the participant’s sponsor could also be sued.

“Sponsors are demanding greater control of the events they sponsor – there’s no better example than Heineken and Hotel Babylon,” Phelops says. The brewer funded the production of the ITV late-night music show and, in a now notorious faxed instruction, “there was a too high proportion of negroes” (sic), recommended changes to the profile of the audience featured on screen and the more prominent display of its beers.

As a result, sponsors must accept that with growing involvement comes increased responsibility. With UK courts following the lead of US law, it is increasingly possible that a sponsor could be held legally liable for incidents at events – and no clear UK legal precedent exists to prove they are not. “The risk for sponsors is huge because often they have the deepest pockets,” adds Phelops. “It’s more than legal costs and damages – there’s also the potential of bad PR.”

Take Hillsborough, for example – might a company sponsor be held liable for not ensuring better facilities? Or how about a sponsored publication – if that publication contained a libel, could the sponsor be sued?

A recent case involving Reading Football Club resulted in the club being sued by a policeman who was injured by an away supporter with a piece of terracing. The policeman won.

Corporate manslaughter is a developing area: following the Lyme Bay disaster, the company that organised the canoeing trip during which children died was fined and the director of the company imprisoned.

In one recent US case, two corporate sponsors contracted a third party to manage a fireworks display. Unknown to them, the third party sub-contracted organisation of the event to a fourth company whose employees were injured in the construction and co-ordination of the display. They successfully sued the two corporate sponsors for damages. Another case involved a rodeo where the sponsor/promoter was found liable for injuries incurred by one of the participating riders.

This has a further implication for activities created for a sponsor or even promotional offers and prizes, such as the chance to participate in an action adventure weekend: in short, if the sponsor invites a member of the public to participate in anything potentially dangerous.

Increasingly aggressive behaviour by sponsors is also a factor. With the drive towards exclusivity, it’s not unusual for a sponsor to enter a deal on the condition it has category exclusivity or is the only advertiser to appear at a venue. If other advertising is removed without due care, those companies might have grounds to seek compensation from the new sponsor for restraint of trade.

Another issue is the collapse of a sponsored event. A recent UK example was the 1994 Flora Aerobathon. The event’s organisers predicted a mass event involving 140,000 people to raise 3m for six national charities. Flora provided 1.2m in marketing support. But the event attracted only 17,000 people and the organiser, Aerobathon, was forced into liquidation with debts of 1.2m.

Creditors attacked Flora for taking advantage of its involvement through its advertising, yet distancing itself as soon as the event looked likely to fail. They claimed Flora was partly responsible and threatened to pursue its parent company, Van den Bergh Foods, for compensation although the company was not involved in the organisation of the event (MW June 16, 1995).

Nicholson Graham & Jones has an obvious interest in all of this. But, Phelops insists, many sponsorship deals are entered without proper consideration of the legal implications. In fact, some do not have any sort of business contract. Correctly drawn-up contracts are essential, he says. Too many are drafted by consultants without proper legal advice. Contract monitoring and regular legal audits are another necessary precaution. “Don’t just put the sponsorship contract in a drawer and forget about it,” he adds.

Insurance cover could reduce the exposure of sponsors, Phelops adds. He is now negotiating with a leading insurer to create the UK’s first bespoke sponsorship insurance policy. And he advocates a reassessment of the financial structure of many deals to create a cleaner, closer involvement between sponsor and event. He recommends a joint venture model – with sponsors becoming partners and all interested parties taking a shareholding. “This would mean sponsorship becomes a balance sheet asset rather than a profit and loss expense,” says Phelops.

BDS Sponsorship chief executive Richard Busby believes litigation will become a growing threat. “But it’s not just a matter of worrying about ending up in court. Sponsors might find themselves opting to settle out of court because it is the cheapest way to avoid the embarrassment.”

Insurance cover would lessen the financial blow. But nothing could dilute the effects of bad publicity. It undermines the fundamental reason why companies pursue sponsorship: image enhancement.