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Some sponsors I've dealt with don't like affiliates advertising on Google/Yahoo|MSN/etc. using their "copyright".
Also a lot of sponsors don't have enough background to realize that there are another 100+ PPC platforms out there, plus another 100+ bulk traffic sources, plus 1000s of spot buys.
Perhaps make a deal with the affiliate about where they can advertise.
If you cut them off from Google/Adwords they may also walk away from all those other traffic sources that can bring you additional sales.
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Big Sister Live - Live sex club paid in Euros
Why all the PSYCHIC ads in the papers, and on TV?
Makes $$$s on the web @ Psychic Access
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