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Benefits of Pass-through Rights
If you aren't familiar with the term, pass-through rights can be defined as sponsorship rights or assets that may be passed through, or transferred, to an entity of the sponsor's choice, with conditions. Such rights usually pertain to signage and logo identification, but can also extend to sampling. Pass-through rights provide a number of benefits to sponsors, not the least of which is flexibility. If possible, companies should attempt to negotiate pass-through rights as part of their sponsorship contracts.
Pass-through rights have been most widely utilized in motorsports, where paint schemes and logos adorning cars change on a race-to-race basis. The use of pass-through has also been more prevalent in certain sponsor categories, such as telecommunications and retail stores. However, any sponsor of any property can see positive results from transferring rights. Here are a few reasons to negotiate pass-through rights:
Reward vendors for providing quality services or products, motivate and reward channel partners for selling through products, or show gratitude to key customers for their loyalty and committed business.
Limit brand exposure during challenging times. If a company endures negative publicity due to scandal or poor financial performance, the general public or stockholders may consider logo exposure as part of a sponsorship as frivolous spending. Without incurring additional negative publicity that may result from difficult out negotiations, it may be easier to pass-through signage rights to a customer until company conditions improve.
Shift activities away from the property if it no longer fits brand objectives. If the property's brand positioning changes over time or the sponsor decides that association with the property no longer benefits its brand, it may be time to pass rights through to another brand within the company or to an outside entity.
A few conditions are usually required as part of pass-through rights clauses. Rights can only be transferred if the transferee's category does not conflict with an exclusive deal the property has with a sponsor of the same category. For example, an IT hardware company may not be able to pass through rights to a chain of supermarkets if the property already has a supermarket sponsor. Also, the transferor may be required to pay for costs associated with logo changes to cars, signage, uniforms or any other sponsorship inventory.
