Five Ways To Bulletproof Contracts Against Merger Madness

XM merged with Sirius. Enterprise Rent-A-Car bought Alamo and National. AT&T, Bell South and Cingular Wireless finally made the marriage official. (For the moment anyway.)

Acquiring another brand—or being acquired—can wreak havoc on your portfolio, especially if you forget the cardinal rule: Relationships come and go, but contracts are forever.

Mergers and acquisitions require special attention to the worst-case scenario. Here are five must-have contract clauses to help you build sponsorship deals that perfor—no matter which company’s name is on the check.

1. Protect Categories. If there’s even a chance that your company will be acquiring complementary brands, the contract should protect category exclusivity for the product lines of those other brands. “We try to write in a first right of refusal in adjoining categories,” says Ray Bednar, global sponsorship marketing executive at Bank of America, which has swallowed up Fleet Bank and MBNA among others over the last five years.

2. Think Short-term. The market dynamics of some industries—telecom and banking among them—are so fluid that long-term contracts can be tricky propositions. That’s doubly true when acquisitions and mergers are factored in. Keeping deals short—say, a year or two—but with explicit renewal clauses that include set fees for the option years, can help keep things manageable for sponsors.

3. Assume You’re on the Market. Think of the contract’s assignment clause as the what-happens-if-we-get-bought clause. It was looking fairly certain that AT&T would acquire BellSouth during the course of Cingular Wireless’ new sponsorship of the Professional Rodeo Cowboys Association, the Xtreme Bulls Tour and the National Rodeo Finals, but the brand structured its contract to transfer sponsorship rights to any corporate parent that it might be acquired by. “We wanted to build in [contingencies],” says Tim McGhee, director-national sponsorships at the new AT&T. “One for when AT&T completed the acquisition, and the other, if for whatever reason the acquisition was not completed, we could still pass through rights and benefits to AT&T and Bell South.”
If things change yet again for the telecom giant, the contract covers those possibilities, too, McGhee says.

4. Map it Out. For instances when the merger is international in scope, consider geographic boundaries, too. Will the merged entity get exclusive rights in North America or around the globe? Think about it.

5. Prevent Overlap. If your company acquires another brand that sponsors some of the same properties, you could be paying the same sponsees twice. “When we have the capacity to, we will have a clause saying that if we acquire a bank that is also a sponsor, here’s exactly how we’ll handle liquidating that relationship,” Bednar says.