Termination fees and the cost of making an early exit from Old Trafford...

As reported by The Athletic (subscription required) Manchester United's front-of-shirt sponsor TeamViewer appears to be under pressure from its investors to make an early exit from its ground-breaking five-year £235m sponsorship deal with the club. 

It was only last year that the £47m per year relationship began, with TeamViewer seeking to increase its exposure by partnering with top-level sports brands such as Manchester United and the Mercedes Formula 1 team. It now appears investors are firmly pushing for TeamViewer to back out of these sponsorship deals which are - in the investors' words - "simply a sign of hubris and appalling judgment". 

A desire to exit the deal is all very well, but contractually speaking, this is likely to come at a significant cost. 

Securing sponsorship deals is often a lengthy process - typically involving beauty parades, robust due diligence and protracted negotiations in order to finalise the details of the exact benefits/rights being granted to the sponsor, the legal nuances and of course the all important sponsorship fee. With this in mind, it is common for the sponsored party to secure long-term deals wherever possible, partly to avoid regular resource-intensive re-negotiation, as well as of course establishing a guaranteed income stream over a longer period (particularly in this case given the Covid-induced market fragility). 

On that basis, absent any typical termination trigger (e.g. material breach, insolvency or breach of reputational damage/morals clauses), these deals are unlikely to have a way for the sponsor to simply walk away. If the sponsor requires an element of flexibility in the form of a "break clause" in the contract, this is likely to come at a significant cost. 

If a sponsored party is willing to live with the uncertainty of a sponsor walking away mid-term of an agreement (typically, if at all, this will only be during a one-off "break window"), it will require the security of a termination fee, payable by the sponsor in the event it terminates for convenience. This fee could typically be anything from paying out the next year's sponsorship fees, up to paying out the entire remainder of the sponsorship fees due across the whole term. The latter seems unlikely given TeamViewer's financial pressure so, in the absence of structured early termination charge provisions, it may come down to an extra-contractual negotiation about how this issue may be settled. 

Manchester United would undoubtedly be holding all the cards in any such negotiation given the strength of its position, particularly if (as is reported) no break clause is included.  

TeamViewer had already publicly made clear it will not be extending the term of its sponsorship, so Manchester United will already be on notice to secure a new sponsor. Given the status of the club this is unlikely to be difficult and despite the current global financial situation a brand of the Manchester club's strength is still likely to command a high price. In many ways this may be a win-win for the club. It may be able to secure a significant early termination fee, as well as the ability to secure another long-term lucrative deal.