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The Bar Bulletin
Jax Daily Record Wednesday, Oct. 4, 201710:12 AM EST

NBA patch sponsorships: The issues they present

The NBA approved jersey patch sponsorships are worth millions.

By Vincent Pulignano

The JBA Young Lawyers Section Board member

Starting this season, several NBA teams will sport a company sponsor logo that fits within a 2.5-inch square space on the front left shoulder of players’ jerseys, marking the first time a major U.S. team sports league has allowed advertising on regular season game jerseys.

The NBA approved jersey patch sponsorships as a three-year pilot program beginning with the 2017-18 season. 

So far, about 14 teams have contracted with a company to advertise on their jerseys, including the Orlando Magic partnering with Disney, the Atlanta Hawks partnering with Sharecare, the Cleveland Cavaliers partnering with Goodyear and most recently, the Golden State Warriors partnering with Japanese-based tech holding company, Rakuten.

The agreements are reportedly worth $2.5 million to $10 million per year depending on the team. The Golden State-Rakuten agreement is reportedly a three-year deal worth $60 million; however, naming rights to Golden State’s practice facility were also included in the agreement, which likely contributed to the high price tag.

The Orlando Magic will be wearing a Disney patch on their jerseys this season.

Through these agreements, the sponsors gain prominent advertising positioning on the jerseys for both home and away games and typically contract for additional promotional content, such as arena signage, recognition in local TV and radio game broadcasts or securing a guaranteed number of commercials. Sometimes, sponsors might seek a global license to use team marks and NBA-licensed marks outside a team’s home territory. The patches will be visible anywhere the game is televised, giving the sponsor vast exposure compared to arena signage or local advertising.

The jersey patches also will likely appear in NBA video games, allowing the sponsor to reach younger consumers whom it may not otherwise access.

Another sponsor benefit is that jerseys sold in local NBA team-controlled stores, in the arena stores and on a team’s website will feature the sponsor logo.

While the teams and the companies see these deals as a win-win, providing the teams with an opportunity to bring in additional sponsorship revenue and allowing the companies to get more exposure during games, including outside of a team’s home market, there are inherent issues and conflicts of interest that may arise with jersey patch advertising.

A company that sponsors a player may now see a competing company’s logo on that player’s jersey, which may cause consumers to believe that the player supports the competing brand as well.

For example, one player might be an endorser of Coca-Cola products but the team may have contracted with Pepsi for the jersey patch logo.

Another example could be that a leaguewide sponsor, such as a bank, could be a direct competitor of a team’s jersey patch sponsor.

Even more, a sponsor that has arena naming rights may not have a clause in its current agreement with the team to preclude competitors from securing a jersey patch sponsorship. The player, the brands, and the team all find themselves walking a fine, and at times confusing, line.

With regard to local television broadcasts of the games, advertisers on the telecast that are direct competitors of a jersey patch sponsor may be reluctant to spend as much on commercials or, conversely, may be motivated to spend more to help distinguish themselves and their products or services from the jersey patch sponsor.

Additionally, jersey patch sponsors and the teams must work around potential impediments they may face when dealing with issues created by current NBA rules designed to protect each team’s home marketing territories. Typically, a home marketing territory covers a 150-mile radius around the city limits in which a NBA team plays its home games.

For instance, the NBA’s geo-gating requirement limits digital advertising and social media activation using NBA team trademarks to home marketing territories. These elements must be dealt with deftly to ensure the company receives the largest benefit it can from these deals while also ensuring that the NBA team is getting real value from the arrangement.

Prospective sponsors should be aware of and educate themselves on these inherent conflicts of interest in jersey patch advertising.

The issues that arise and lessons that are (or will be) learned from jersey patch branding can be applicable to local businesses as well. For example, when a company sponsors an event, both the company and the event must ensure there is adequate language in the sponsorship agreement to protect their brands and exclusivity from any ambush marketing or confusion that may be caused by a competitor.

Furthermore, it can sometimes be difficult to foresee new forms of advertising as technology and cultural norms evolve over time. Therefore, it is important to obtain careful legal advice and to spend adequate time negotiating the scope of sponsorship rights and how and where one can activate those rights.

Vincent Pulignano is an attorney at Nelson Mullins Riley & Scarborough practicing in the areas of general corporate law, M&A, securities, real estate capital markets and sports law.

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