Letter of Agreement
Historically, any written agreement between two parties has been considered a contract, but a new type of written deal has become more prominent, especially in the area of event sponsorships. A "letter of agreement" has the same four requirements as a contract, but the main difference is that a letter of agreement is less formal than a contract. Most letters of agreement do not contain the technical legal jargon and are easier to understand. However, the binding capabilities and the importance of a letter of agreement are not any less than that of a contract. Also, oftentimes letters of agreement are not made between two lawyers or contract experts, but, instead are made as business agreements.
It’s necessary to become familiar with, and understand some terms associated with the agreements. Most sponsorship agreements drafted and accepted will be bilateral express contracts. Bilateral means the responsibilities lie with both parties. Express means that the terms of the contract are clearly expressed, usually in written form. Every contract and letter of agreement that is valid and binding must meet four criteria.
These criteria are:
Perhaps the most important thing to include in forming a binding and valid contract is making sure both sides are receiving consideration. This means that both sides must receive some “value” in return for some action or promise to act. Consideration can be achieved in two different ways. One way is by providing a benefit to the other party. The other is by accepting something detrimental. By “accepting something detrimental,” it is meant that behavior normally carried out (and having a legal right to do so) is stopped as consideration to the other party. Obviously, as a sponsor, the business’ consideration to the contract is what they give to the tournament. It is important to note, however, that the contract does NOT have to have equal consideration, but only consideration to both sides.
Though not necessary in the drafting and designing of the letter of agreement, it is important that at some point legal counsel is sought. This process should be done as a protective step. In order to make sure that the requirements of a contract are met and that the deal will be binding and acceptable to both sides.
Anything that can be beneficial for the sponsoring company and can have a value assigned to that benefit might be offered as consideration to a sponsor. It is important to realize that a firm is only going to be a sponsor if they can see some benefit they will receive in return.