A guide to key legal issues for sponsors and right-holders operating in the UAE
Published 15 September 2015 By: Steve Bainbridge
The sports market in the United Arab Emirates (UAE) is already big and it continues to grow along with projections for the broader Middle East.1 Repucom aptly referred to the “emerging giants” of the region in terms of the sports sponsorship space2 and, while we are all familiar with the dramatic growth of UAE-based entities such as Emirates Airlines and Etihad Airways as market leaders engaging in sponsorship of international sporting properties and events both in the UAE and indeed across a broad range of international markets, increasingly, we are also seeing the UAE play host to major sporting events and setting standards of excellence in staging competitions ranging from horse racing to motorsports, golf, tennis, cricket and numerous points in between.3 Unsurprisingly, a growing number of foreign businesses are seeking to tap into the commercial opportunities for brand association provided by the dynamic UAE marketplace.
This article examines some of the key legal issues rights holders and sponsors – both current and potential – should be considering when seeking to optimise their commercial benefits in connection with sporting events in the UAE. The market is growing and parties on both sides of the table are increasingly finding that a solid understanding of the UAE’s legal framework aids in creating short to medium term commercial benefits while developing opportunities for medium to long-term prospects.
A developing market with a growing need for legal protection
In addition to the leading corporate entities seeking top tier sponsorship of global events, which will always anchor a major sponsorship market, we are also seeing diversification as a sure sign that the market is developing. This can be challenging for sponsors new to the market who, while eager to develop relationships may be hesitant to invest significantly in new events that cannot yet demonstrate significant year-on-year growth, let alone satisfy management with bankable ROI and layered data as to target demographics. Such concerns are common in this market and sponsorship agreements can be negotiated and drafted to address these factors. For example, where markets with more established events may tend to address such concerns with termination triggers, the inclusion of liberal options for renewal or more dynamic review and escalation clauses based on reporting schedules can provide flexibility to increase or decrease investment based on event performance parameters or targets. Such contractual measures can reduce sponsor risk while increasing the shared commitment to the success of an event, which can pay dividends in the long term by allowing for the development of a collaborative relationship over time, something highly valued in a market that is all too familiar with short-term profit taking.
Despite the challenges of a nascent market, multi-million Dirham sponsorship deals are being joined on the sponsorship landscape by smaller deals (often still featuring major brands) that see value in broader strategic positioning of multiple sponsorships among a diverse range of events. In addition to the heavyweight multi-year title sponsorship agreements that may be negotiated once, businesses are actively seeking associations to exploit the benefits of specific market niches. This includes, for example, providing value-in-kind or sponsoring apparel or equipment for a single event, particularly where a strong business case can be demonstrated for reaching a target market segment through participation in community events or charity activities such as fun-runs and walk-a-thons.
Although the individual value of such deals may be of a relatively lower scale, prudent brand management and risk awareness necessitate that due regard be given to legal requirements in each case as in such circumstances it is no less important for both sides to ensure that the benefits and obligations of their collaborations are clear and their understanding of the legal framework in the jurisdiction is sound. Taking the time (and incurring the cost) to enter into agreements on new events need not be fraught with undue risk, provided that the opportunity to re-evaluate (or even terminate) the scope of the commitment is built in to the agreement. Another benefit of this approach is the potential to retain exclusivity or favorable financial terms (e.g., in respect of title or sector-specific sponsorship rights, etc.), which are much more likely to be on offer to sponsors of an inaugural event. The market rightly dictates that those who reduce or seek to eliminate such risks by waiting until an event is commercially proven before approaching will often incur higher costs at the investment threshold.
As the trend towards continued growth in sponsorship activity continues, it is important for potential sponsors to be mindful not only of the positive brand exposure and access to key demographics such opportunities can provide but also the layered legal issues to be considered. This includes applicable legislation, customary business practices4 and the accompanying compliance requirements of the UAE market. For example, where global or regional marketing plans that have been tried and tested as successful in other markets are intended for use remember that marketing in the UAE is subject to more conservative expectations (e.g. it is better to ensure a thorough compliance review before issuing and subsequently having to recall and/or redevelop marketing collateral). Quite apart from the cost and disruption that could follow forced changes to a global or regional marketing strategy for compliance reasons, the potential for significant fines and custodial sentences after the fact should be avoided by sponsors.
Commercial transactional sports-related work for entities engaged in sponsorship activities in the UAE can cross a wide array of legal concerns. These will depend on the nature of the sponsor’s core business, its goals, market presence and the nature and attributes of the event, team or individual to be sponsored. Issues such as the drafting of termination rights (on both sides) need to account for a market that features far greater sensitivity to reputational harm, likewise, where a sponsor is coordinating and activating a distribution strategy in parallel with its sponsorship of a sporting event (e.g. a beverage or apparel manufacturer) it should be aware that there is a common practice of granting exclusive distribution rights, which if capable of registration under UAE law, can create significant rights for the distributor that need not be expressly included in the contract and may be difficult to vary or terminate.
Some of these issues are common to companies engaged in sponsorship activities in more developed markets such as Western Europe and North America and can include a range of matters from core IP issues like brand protection and exploitation, through merchandising and distribution plans, to termination rights as well as broadcast and related media issues. These legal concerns rarely arise in isolation and are more likely to appear against the primary commercial background of business imperatives with pressure to optimise return on investment and requirements to include reliable measurement matrices in deal documentation.
Specific features of UAE law and Prudent Steps for Planning
The UAE is a civil law jurisdiction, so there will be certain significant differences for those more familiar with Anglo-American common law jurisdictions. Whereas case law precedent can provide a measure of predictability in common law jurisdictions (particularly as guidance in terms of determining permissible advertising content in similar circumstances), in the UAE each case will be determined on its facts with reference to the applicable laws and regulations codified in statutes. This fact should be kept in mind when determining the scope and nature of any proposed sponsorship deal, when a potential sponsor is creating their conceptual marketing strategies, determining what collateral, images, logos and slogans, etc. will be used to position their product or service to greatest effect. While a full explanation of civil law impact on sponsorship agreements is beyond the scope of this article, apart from the primary concern of ensuring the proposed activation of any product or service central to the sponsorship is compliant with UAE laws and regulations, it is worth noting such examples as the UAE civil code importing the concept of “good faith” into all such commercial transactions and that, in respect of damages, any contractual agreement will be subject to the discretion of the courts, which assess damages based on actual loss sustained rather than agreed formulations that are more common in Anglo-American common law contracts.
Taken against European and North American markets, the UAE regulatory and legal framework in the area of marketing and sponsorship is evolving rather than established. However, this should not be misunderstood to mean that there is no regulation. Specifically, UAE law does not distinguish between sponsorship and advertising, so sponsorship strategies should comply with applicable advertising law and regulations. Advertising in the UAE is primarily regulated by the National Media Council’s Advertising Regulations.5 These regulations buttress a number of ethical principles established in existing UAE legislation, including respect for religious, cultural, and social values.6 Cultural norms and expectations in the UAE may not always directly match those in a given sponsor’s home jurisdiction, so care should be taken to ensure expectations for taste, commercial effectiveness and compliance with legal requirements are met.
Experience suggests that sponsors should exercise considerable care in reviewing television commercials and point of purchase collateral. Examples abound where marketing campaigns successfully designed for Western audiences have attracted unwanted attention in transference to more conservative markets. For example, television commercial producers have made prudent eleventh hour decisions to re-shoot scenes with prominent international footballers to make it clear in leisure depictions that the pool-side beverages incidentally placed next star athletes are non-alcoholic. Also, we have seen significant electronic re-touching of background depictions of beach scenes where it was determined swimwear was too revealing to ensure market acceptance. These issues are of particular concern where sponsors seek to attract the youthful and energetic demographic so intrinsically tied to dynamic sporting events and star athletes.
UAE law also features a number of other statutes that should be considered in creating the scope and implementation plan for sponsorship as they indirectly regulate advertising including consumer protection7 legislation and the Unfair Competition Law.8 These statutes are supported by the broadly applicable Commercial Transactions Law,9 amongst others.10 Taken together, this framework allows for consumers or traders (i.e., offended individuals and potentially aggrieved competitor sponsors) to make complaints in respect of irresponsible, offensive or misleading advertising in the UAE. This basic framework can also take on an additional level of regulation where the particular product or service the sponsor is advertising through its campaign is in a field that is already regulated (such as healthcare11) or a prohibited (such as alcohol12 or gambling13) under UAE law.
Alongside an increasing number of sporting events, an evolving regulatory framework, and growing numbers of sports-related transactions, there has also been a noticeable shift to more complex sponsorship deals. A generation ago large investors might have been content with signage and naming rights as key exposure in exchange for a set financial commitment. However, modern sponsors are investors and they are now more likely to identify and seek a greater and more unpredictable range of options to secure an adequate return on their sponsorship investments (e.g. including a range of corporate hospitality options, preferential employee discounts, co-branding opportunities and joint initiatives on matters as diverse as promotional competitions, press events, mutual access to CRM data, etc., etc.).
For the UAE market, given the legal framework discussed and the cultural expectations codified in those laws, it is important to give additional consideration to termination provisions. We are all familiar with recent scandals that have occurred in the sports sector and, regardless of which party to an agreement may fail to meet social expectations, there is a greater likelihood of a call for remedies (from termination to other sanctions) when one of the parties is based in the UAE. For this reason both parties to a sponsorship agreement subject to UAE law need to understand how and in what circumstances deals can be terminated and what the respective rights of the parties are in such situations. A full examination of these issues cannot be included here but reference to local legal advice is prudent here, as in any unique market.
Regionally, the potential pool of suitable sponsors may also be impacted by local laws and regulations as well as cultural considerations. For example, organisers of or team participants in Formula 1© motorsports events in the UK might hold sponsorship benefits from alcohol advertising, whereas the organisers of Middle East based Grands Prix will not view such sponsorship in the same light given the framework of applicable local statutes concerning alcohol advertising and prevailing cultural mores. Likewise, when the India Premier League (IPL) team franchises (traditionally beneficiaries of significant sponsorship from the beverage sector) came to the UAE in 2014 and held a number of cricket matches at grounds in Sharjah, Abu Dhabi and Dubai, they needed to take account of such restrictions. Given a strong understanding of the local law and a suitable compliance strategy, the IPL in the UAE was a terrific success.
Event organisers in the UAE seeking sponsorship must also consider the impact of legal guidelines and cultural attitudes towards modesty and fashion14 (as noted above, cultural sensitivities to what would be considered more revealing clothing should be given due regard. Billboards routinely dotting the skylines of many of the world’s cities featuring well known stars sporting under garments or minimal athletic wear would, in many instances not be appropriate in the UAE). These are but tiles in the broader mosaic of regional sponsorship practice - there are others - the salient point is that in working in the sports and events space in the UAE requires a proper understanding of the applicable legal framework and a precise consideration of how and where that can create friction points for the relevant sponsorship strategy.
Enter the Falcon: How to operate effectively in the UAE
Companies routinely count sponsoring high-profile sporting events as amongst their most powerful tools for generating brand recognition – often as a cornerstone of their marketing strategies. With so much at stake, both commercially and reputationally for sponsors, especially when it comes to major sporting initiatives broadcast around the world, it is clear that each jurisdiction must be considered carefully to maximise positive value and reduce risk. The UAE is no exception. An important factor to consider in this dynamic is the composition of the deal-team assigned to building a given sponsorship relationship. Of course many larger sponsors will have seasoned in-house counsel but experience suggests that even for smaller investors the inclusion of some legally trained personnel at an early stage can benefit new entrants to the UAE sponsorship market, even if it is only in terms of issue-spotting and identifying where more detailed advice needs to be sought before proceeding on a course of action that may be costly to retrace. In terms of rights holders outside the UAE, gaining a better understanding of the legal background from which the “emerging giants” have risen may facilitate greater insight into key deal parameters for UAE investors, allowing them to optimise their appeal to such investors.
Sponsors and their advisors should take additional care when managing brands operating directly in the UAE or touching on UAE territory from time to time in connection with certain events. Sound risk management suggests that (i) before implementing a marketing strategy in the UAE, determining the relevant applicable law and regulations and then (ii) erring on the side of social responsibility provides the best approach to sponsorship, as would be the case in any market where there are significant language differences and cultural considerations.
Top tips for sponsors thinking of operating in the UAE market
- Understand the market and define expectations before committing.
- Looking beyond headline events can reveal promising opportunities.
- Ensure you seek local advice, importing practices and expectations is square-pegging.
- Identify potential legal friction points and develop a robust compliance strategy.
- Coordinate your strategies with legal (marketing, commercial, HR if applicable, etc.).
- Prioritise relationships to make foundations for mid to long term success.
- Risk/Reward need not be a 1:1 ratio if you negotiate wisely and collaboratively (cost of sponsorship vs. value of sponsorship).
The UAE legal market has no parallel in Anglo-American common law jurisdictions but this does not mean it is hostile to investment and outside interest – on the contrary, with a prudent market understanding and coordinated strategies, the UAE has proven to be a very welcoming commercial environment for many foreign entities seeking to do business.
This path can be safely navigated by gaining an understanding of the relevant UAE legal requirements as they apply to a specific investment and developing a flexible and responsive strategy before entering the market. With a sporting events calendar that provides every indication of sustained growth,15 rights holders and sponsors operating in the UAE or seeking to do so can anticipate that trajectory will continue to feature significant sporting developments and attract dynamic sponsorship investment.
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- Tags: Commercial Law | Contract Law | Cricket | Formula 1 | Governance | Indian Premier League | Intellectual Property | National Media Council | National Media Councils Advertising Regulations | Regulation | Sponsorship | UAE Federal Law | United Arab Emirates
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Steve has almost 20 years experience in his field of expertise; and, he has significant experience advising on a wide array of the transactional elements underpinning the sports and events management sector from sponsorship agreements and packages of all types to athlete endorsement agreements; anti-ambush marketing strategies and enforcement; player contracts; broadcasting agreements and IP registration and enforcement; merchandising and licensing agreements; player disciplinary issues; event security; ticketing arrangements and varied venue/facilities management arrangements.
Steve rejoined Al Tamimi & Company in 2013 with a mandate to develop and head up the region’s first dedicated Sports Law Practice, which has since grown rapidly as a regional leader to include key advisory roles representing individuals, corporate entities, governing bodies and institutions in connection with events spanning motorsports, horse racing, triathlons, MMA, cycling, golf, tennis, cricket and football to name but a few.