Do Your Sponsorship Agreements Address Event Cancellation?

Over the past few weeks, a number of organizations have announced their plans to cancel conferences, festivals, and other events over fears about spreading the coronavirus. Undoubtedly, the companies who’ve paid to sponsor these events have by now pulled out their sponsorship agreements to see what those agreements say about what happens next.

When companies start to negotiate a sponsorship for an event, it’s common to focus on the benefits of the partnership and to ignore the possibility that the event won’t run as planned. After all, we’re lucky enough to live in a world where that rarely happens. But when it does, it serves as an important reminder that companies sometimes need to plan for these contingencies.

Make sure your sponsorship agreement addresses what will happen if an event is cancelled or you don’t otherwise get the benefits you paid for. For example, do you have a right to cancel the agreement? If so, what will happen to the money you’ve already paid? Or do you have the ability to get make-good benefits? If so, how will those be determined?

Keep in mind that even well-drafted cancellation and make-good clauses may not make you completely whole. For example, even if you can get a pro-rata refund of your sponsorship fees, or even if your benefits will roll over into a future event, you may still lose money that you’ve invested in marketing assets or other activations.

Event organizers frequently purchase insurance to cover the financial risk of an unexpected cancellation of their event or a reduction in attendance. Event cancellation insurance is typically designed to pay the event organizer for its lost profits or to reimburse it for refunds it has to pay to attendees or sponsors if the event is cancelled for reasons covered by the policy.

When drafting your agreement, in addition to standard forms of coverage, consider exploring whether the event organizer has event cancellation insurance. For more details on this insurance, please see this advisory from our Insurance Recovery team. And if you’re thinking about strategies to mitigate business interruptions to your own company and ensure employee safety, please see this post from our Labor and Employment team.

For other helpful information during this pandemic, visit our COVID-19 Resource Center.