Commercial Agreement between Mercedes-AMG Petronas Formula One Team and Adidas

The Mercedes-AMG Petronas Formula One Team (‘Mercedes’) has recently been in the spotlight with Lewis Hamilton’s farewell and the announcement of a new partnership with Adidas (‘Adidas’). Starting in the 2025 season, Adidas will become the official apparel provider for the team, marking its entry into the Formula One market. The partnership includes a full range of products, from performance-driven team kits and footwear to lifestyle merchandise and accessories for fans worldwide.[1]

Both Mercedes and Adidas will be hoping to see huge returns resulting from this partnership. For Mercedes, the partnership with Adidas provides high-quality performance-orientated apparel, enhancing their brand visibility and fan engagement globally. It also opens new revenue streams through Adidas branded fan products. For Adidas, the deal offers entry into the high-profile world of Formula One, aligning their brand with a top performing team and increasing exposure to a global audience.[2]

Several commercial law considerations would have been key in finalising the Mercedes-Adidas deal. These legal elements are crucial to ensuring a beneficial agreement for both parties. Below are the main commercial law aspects that likely shaped the partnership.

Intellectual Property rights

A central issue in such partnerships is the use of trademarks and brand logos. Both Adidas and Mercedes would have negotiated how each brand’s logo, name and identity can be used across different platforms. This would include how their logos appear on race gear, fan merchandise, and promotional content.

The Partnership would have likely involved a licensing agreement granting Adidas the right to use Mercedes’ trademarks in the design and sale of apparel and accessories. This would include terms related to royalties based on merchandise sales.

Both parties would have agreed on how their respective brands would be presented in the partnership, maintaining brand consistency and aligning with each brand’s strategic image.

Exclusivity

Given that this is a multi-year partnership, exclusivity clauses would have been key in ensuring that Adidas is the sole apparel provider for Mercedes.

An exclusivity clause is a contractual provision that gives one or both parties the sole right to engage in a specific activity or transaction. It prevents the parties from entering into similar agreements with competitors or third parties for a defined period or within a particular geographic area. These clauses are often used to safeguard the interests of the parties and foster a secure and mutually beneficial business relationship.[3]

As part of the agreement, it is likely that Mercedes has agreed not to enter into similar partnerships with competing brands, such as Nike, during the contract term. This ensures Adidas retains exclusivity and a dominant position as the team's official apparel provider.

Financial Terms

The agreement is likely to include several key financial terms, such as:  

o   Upfront payment

The financial terms of the agreement would likely include an upfront payment by Adidas to secure the sponsorship rights. This fee would likely cover the use of the Mercedes brand in Adidas’ apparel lines and marketing campaigns.

o   Royalties and Profit Sharing

The agreement is also likely to include royalty provisions based on the sale of merchandise bearing the Mercedes branding. Both parties would negotiate a fair percentage of royalties based on their contribution to the project, the cost of production and the projected sale revenue from the collection.

o   Bonuses or Milestones

The contract might also contain performance-based incentives, such as bonuses for achieving certain sales targets or milestones related to market expansion, brand visibility, or fan engagement. This would align both parties’ goals in driving sales and promoting partnership effectively.

Media Rights

Both Adidas and Mercedes would have defined their respective obligations for promoting the partnership. Adidas would need to use its marketing channels, digital platforms, TV campaigns, social media, and event activations, to promote the team’s official apparel line.

The deal would likely involve co-branded campaigns where both Mercedes and Adidas jointly promote the apparel line, leveraging the global appeal of Formula One and Adidas’ influence in the lifestyle and performance markets.

There would also be provisions for media rights, where both parties agree on how the partnership will be showcased across broadcast, digital platforms, and in-race advertising (e.g. signage at events).

Supply and Production Agreements

Adidas would be responsible for designing, manufacturing, and distributing the merchandise. A separate supply chain contract would likely be put in place to ensure that products meet Mercedes' high-quality standards for both performance and fashion.

Specific timelines for the creation and launch of new collections, such as the February 2025 debut, would be laid out in this agreement to ensure smooth operations. This would also include the timing of product deliveries and ensuring the products are ready for sale in alignment with key events like the unveiling of the 2025 Mercedes F1 car.

Termination and Exit Clauses

Given the significant investment involved, both Adidas and Mercedes would have negotiated clear termination clauses. These would outline the conditions under which either party can exit the agreement early, such as a breach of terms, failure to meet performance expectations, or external factors that affect the partnership’s execution.

A force majeure clause would cover unforeseen events (such as natural disasters or geopolitical changes) that could affect either party’s ability to fulfil its obligations, protecting both Adidas and Mercedes from penalties in case of disruptions beyond their control.

In case the partnership ends prematurely, the agreement would detail how any remaining merchandise, branding materials, or other assets would be handled, ensuring that both brands’ reputations are preserved.

Dispute Resolution

Finally, the partnership agreement would contain provisions for dispute resolution, should any conflicts arise. This would specify the jurisdiction in which disputes are to be handled and whether disputes will be resolved through mediation, arbitration, or litigation.

The governing law of the agreement (e.g., English law or another jurisdiction) would be decided based on the parties' locations and the nature of the agreement.

The partnership between Mercedes and Adidas is a significant development. While the exact contents of the agreement are unknown, if it includes the elements discussed it will provide a robust framework for mutual success. With these provisions, the partnership could effectively enhance brand visibility and fan engagement on a global scale starting in 2025.

References:

[1] Enters (2025) adidas Enters F1 With Multi-Year Mercedes-AMG PETRONAS F1 Team Partnership, Mercedes-AMG PETRONAS F1 Team. Available at: https://www.mercedesamgf1.com/news/adidas-enters-f1-with-multi-year-mercedes-amg-petronas-f1-team-partnership.

[2] Sportspundit.substack.com. Available at: https://sportspundit.substack.com/p/highlight-reel-adidas-aiming-to-earn (Accessed: 13 January 2025).

[3] Daniel, N. (2023) Exclusivity Clause: What You Need to Know + Samples - DoxFlowy, DoxFlowy. Available at: https://doxflowy.com/exclusivity-clause/ (Accessed: 13 January 2025).

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