Licensing and merchandising rights: creating new opportunities and brand awareness
Sports and Event Management Focus
Olaf BorutzSenior Counsel,Head of Sports & Events
Licensing and merchandising remain a major component of the sports industry, by providing licensors (e.g., governing bodies, clubs and players) with opportunities to create consistent revenue streams and a greater awareness for their brand(s).
In particular, by licensing the use of certain intellectual property (IP)/materials (be it trade marks, logos, brand names/identities etc.) to third party manufacturers and/or producers of certain products, experiences or services, the relevant licensors are able to engage with a wider set of consumers, and promote their brand through new commercial channels.
In most cases, a licence agreement is entered into by the parties, which permits the use of certain agreed materials for an agreed rights fee and/or on the basis that an amount of royalties will be paid per sale (of a relevant licensed product) or on the earning of income by the licensee.
This may include a licence agreement to produce and/or establish (using the relevant licensed IP/materials):
certain agreed products – e.g., replica kits, merchandise, memorabilia or household products;
gaming products – e.g., by providing a licence for clubs/players, brands and/or competitions to feature within digital games;
experiential venues – such as themed establishments or events;
online stores and retail opportunities; and/or
new digital assets – such as non-fungible tokens or virtual assets for use in a metaverse environment.
The total value of the global licensed sports merchandise market is expected to reach over USD$40 billion by 2030, demonstrating the significant potential of properly exploiting licensing/merchandising rights, as well as the ongoing and increasing consumer demand for licensed products across the world.
Whilst many of the traditional licensing paths and arrangements remain (such as the production of official licensed apparel products and souvenirs), in recent times, there have also been more unique licensing cross-overs between sports and brands. For example, Paris Saint-Germain’s cross-over with the Jordan brand led to the development of a new range of products and special edition kits (which proved to be hugely successful on a global basis). Similarly, the Nike collaboration between LeBron James and Liverpool FC also led to the development of cross-branded licensed products that allowed all three brands (Nike, LeBron James and Liverpool FC) to promote their brand to a new range of potential consumers across each of their fan-bases.
From a Middle Eastern perspective, Al-Nassr saw a major surge in demand for its jersey following Cristiano Ronaldo’s arrival, with increased sales both at home and abroad. Further, the Saudi Pro League (SPL) was recently confirmed as being a playable domestic league in EA Sports’ new flagship product “EA FC 24”, following its inclusion in EA’s previous “FIFA” games as an official licensee.
Before entering a licensing or supplier agreement with a nominated third party, the relevant licensor should undertake some due diligence on the proposed partner to ensure that there are no reliability issues or reputational risks.
Once this due diligence process has completed, the parties should consider and clearly identify and agree on:
the exact rights to be granted – especially, the exclusivity that will attach to the relevant rights (i.e., will it be an exclusive or non-exclusive right to develop the agreed products/opportunities);
the territory that the rights have been granted over – e.g., whether the rights will be granted on a global basis or will it otherwise be limited to certain territories (taking into account any exclusivity granted as per the above);
the approval rights the licensor will have over the proposed use of the rights, as well as then confirming how exactly the relevant materials/rights can be used (including promotionally);
what the expectations are on either parties – in particular, any commitments to deliver certain products by certain timelines;
robust IP provisions – including the terms that any IP has been licensed on and confirmation on the ownership of any new IP created in accordance with the provisions of the relevant agreement;
IP protection considerations – e.g., how the parties will take action against any ambush marketing activities or unlicensed or counterfeit products;
payment terms and conditions – including, in the case of any agreed royalties, how the royalties will be calculated and paid, and whether any minimum guarantees will be provided; and
the term of the agreement and what termination events will apply (including what will happen upon termination or expiry of the agreement – e.g., any sell-off periods).
Following the conclusion of the agreement entered into by the parties, consideration should also be given to the management of the relevant rights, and to ensuring that any rights are delivered as agreed and contemplated within the licence agreement.
We have significant experience in advising global sporting bodies in respect of their licensing and merchandising obligations. Accordingly, we can assist you with any pre-contractual analysis (including input into the creation of any rights inventory and due diligence on potential partners), as well as the drafting and negotiation of any type of licensing or supplier agreement. Further, we can advise you in respect of the activation of any agreed rights (to help ensure that contractually agreed rights are being delivered) and in respect of any IP issues or other disputes that may arise.
For further information,please contact Olaf Borutz.
Published in October 2023
