- 8 May 2020
- Posted by: Jonathan Mills
- Categories: Commercial Law, Covid-19 Updates, Sports and Entertainment
Covid-19 – A Question of Sport
This note is part of a series that the lawyers of Reddy Charlton will issue on the major legal, personal and business issues that will confront us all during the Covid-19 crisis.
Sport means different things to different people. However, it is difficult to argue that if sport were to resume, either at an amateur or professional level, any other sector’s resumption would have as profound an effect on the well being of the general population. A resumption of sport during this crisis would be a welcome distraction for people whose normal routines and lives are severely disrupted and it would kick-start a sector of the economy that is in a downward spiral. On the other hand, it would also inevitably raise questions about the health and wellbeing of participants and facilitators and would place the duty of care owed by sports organisations and clubs into the spotlight.
In this article, we examine the impact of Covid-19 on sports, in particular how sports law contracts are influencing decision-making on when to return to sporting action. We also highlight how different organisations have dealt with the closures.
The impact of Covid-19 on the Sports calendar
The outbreak of the Covid-19 pandemic has resulted in all major sporting events in Ireland and across the globe being either postponed or cancelled, with one notable exception*. Events include the European Football Championships, the Olympics, Tour de France, tennis grand slam events, boxing, the golf majors, Formula 1 and the Six Nations Rugby. On a national level, notable victims of the crisis include the Dublin Horse Show, suspension of GAA leagues and championship, suspension of the domestic rugby, horse racing, basketball, greyhound racing and many more.
Beware the Law of Unintended Consequences
The cessation of sporting activity by the sports organisations arose from either a voluntary adherence to Government health guidelines, from a duty of care to participants and supporters or in some cases from compliance with national emergency legislation. The clear aim was to reduce the spread of the virus and mitigate its devastating effects on the population and the health services. But in curtailing the sports calendar, these organisations have also in many cases turned off their funding stream as a consequence. In some cases this lack of funding has now placed them in a very perilous financial position.
Sports organisations in the main derive their funding from a number of sources including membership fees, fundraising, sponsorships, gate receipts and broadcasting revenue. For large scale supporter-attended sports events’ gate receipts, commercial agreements and broadcasting revenues are the dominant sources. In the short to medium term it is unlikely that sporting events will be open to the public, at least on any large scale. Therefore, commercial contracts and broadcasting revenue is the one stream that organisations are now focused on with a view to turning the funding tap back on.
Suspend or cancel
The substantial revenue derived from broadcasting and associated commercial rights is likely to have been a major factor in a number of organisations postponing rather than cancelling their season or events. The primary reasons for a postponement over a cancellation can be distilled down to a few legal agreements – broadcasting, commercial and insurance contracts.
Sports organisations are most likely breaching their commercial contracts and broadcasting obligations by failing to organise and host matches or events. As a result of this, they are not receiving the agreed revenue from broadcasters or commercial partners. It is probable that these contracts have ‘Force Majeure’ clauses which cater for contingencies when events are beyond the reasonable control of the parties and affect the parties’ performance of the contract. It is likely that these clauses will protect the sports organisations from litigation by broadcasters or commercial partners for failing to abide by the terms of the contract (providing sports events to be broadcast), but it is also probable that broadcasters and partners are not obliged to pay organisations for a product they are not receiving.
It is very important to note that in order to rely on a force majeure clause, a party is obliged to mitigate their loss. In the sporting context, such measures could include condensing a season, reformatting a season, postponing games, playing behind closed doors or temporarily amending playing rules. It is this need to turn the broadcasting revenue tap back on that is driving organisations to consider restarting competition with an application of mitigating controls.
Other legal considerations that arise in this context include whether or not a ‘Material Adverse Change’ (“MAC”) or event of frustration has occurred. MACs are used to create parameters whereby a buyer may terminate a proposed or ongoing transaction because of an event that negatively impacts the nature or value of the target product, service or business. The Doctrine of Frustration arises where, without fault of either party, a contractual obligation has become incapable of being performed due to an unexpected and unforeseen event. The application of these two concepts in the Covid-19 sporting law area is quite apparent but it should be noted that invoking a MAC clause or successfully achieving the doctrine of frustration is notoriously difficult.
These issues were addressed in our previous article https://reddycharlton.ie/insights/covid-19-the-impact-on-commercial-contracts/
As an aside sports organisations and clubs as employers are in a difficult position whereby they have to strike a balance between financial survival and providing a safe and healthy workplace for their employees, be they players or support staff. They may take some comfort from the fact that there are very few, if any, completely safe work places and in Ireland the legislative position is that an employer is obliged ‘as far as is reasonably practical’ to put in place and maintain a safe workspace. This balance of risk will be an important factor in deciding when sporting action will resume.
Here, we will look at a number of different sports events. We will consider their organisation’s approach to the pandemic – but without the benefit of having actual sight of these contracts.
Soccer is the most popular sport in the world and as a result it attracts some of the most lucrative broadcasting deals in the world which are underpinned by commercial contracts. Some leagues own the broadcasting rights as distinct from the governing associations. The English Premier League owns the rights to its matches with the most recent rights reportedly sold for in excess of £9 billion over a three-year period. This league, like others, including Italy’s Serie A and Germany’s Bundesliga are all targeting an imminent return to playing. Collective training has already begun and the Bundesliga is currently planning on a mid May resumption.
This desire to return to action is to get revenue flowing again. ‘Project Restart’ is the Premier League’s plan to get the league resumed. Measures anticipated include players wearing face masks, neutral venues, cocooning of squads and minimal staffing with similar plans in various stages across other soccer leagues. It remains to be seen whether these measures will be accepted by respective Governments and players’ associations thereby enabling broadcast and commercial revenues to flow again.
The case study of Wimbledon is particularly interesting. Whilst other sports have suspended their events, Wimbledon has cancelled the 2020 event outright. It is probable that there was a mix of factors in this decision, but one significant reason for cancelling is undoubtedly their reputed ‘Event cancellation Insurance’. The All England Lawn Tennis Club (AELTC), which announced the cancellation of the 2020 Wimbledon Championships in early April, has its risk and finance sub-committee to thank for the fact that the grand slam grass court event is insured against the likes of the current pandemic. “We’re fortunate to have the insurance and it helps,” AELTC chief executive Richard Lewis said recently. This Event cancellation insurance may cover costs, expenses and loss of profit up to the sum insured where a cancellation is necessary due to an event beyond the control of the organiser. Wimbledon is reported to expect in excess of £100m from its event cancellation insurance for the 2020 tournament. The German Tennis Federation Vice President Dirk Hordorf stated that “Wimbledon was the only grand slam far-sighted enough to insure itself against a worldwide pandemic”. We can wait and see how many other majors take out such insurance in 2021 and how keenly insurers price it.
Of the four majors, one (the Open) is cancelled whilst the remaining majors (all US-based) are all rescheduled. The R&A which run the Open has in place an event cancellation policy, similar to that in place by Wimbledon and it is likely that this cancellation policy is behind the different approach taken for the majors.
• Horse Racing
The approach taken by different race organisations and tracks is also interesting. Of note is that the Aintree Grand National (reputed to generate £500m) is cancelled rather than postponed, like most events on the Irish horse racing calendar. It is surely no coincidence that Aintree also has an event insurance policy, that will cover it for certain costs such as refunding tickets.
• The Olympics
The Olympics are another case study in Sport Law. The Olympic Games are contractually founded upon a ‘Host Agreement’ which is between the International Olympic Committee (“IOC”), the host city and the National Olympic Committee of the host city. It is understood that the IOC had the contractual right to terminate the Host Agreement with Tokyo and award the Olympic Games to another city, while the other parties indemnified it against all losses suffered by third parties. Whilst this put the IOC in a strong contractual position, the reality is that the IOC could not move the event to another city, due to a number of reasons including public opinion, the safety of athletes, staff and supporters, and that it was probable that no other city could guarantee that they could host the event. Despite some delays in the decision, it was clearly in the IOC’s interest for the Olympic Games to be postponed to 2021.
No self respecting article about the interplay of the law and sports would be complete without a worthy mention of WWE (aka World Wrestling Entertainment). Whilst all sports in the USA are prohibited (at the time of writing), including non-contact sports such as golf, tennis, bowling and athletics, please spare a thought for the WWE. The WWE is broadcasting their events from Florida, thanks to being afforded the designation of an “essential” industry by Governor Ron DeSantis. This enabled the WWE to be compliant with the terms of their broadcasting contracts with NBC and Fox. Failing to do so may have meant a lost $400m in revenue.
Key lessons for Sports Law/Commercial Contract drafting
• The importance of a comprehensive Force Majeure clause. This previously often-overlooked clause is now having its day in the sun and will likely be more vigorously debated in the future.
• Bespoke event disruption and mitigation clauses may become more prevalent.
• Sponsors may seek to have contractual protection so that there is a claw-back of fees in the event that their sponsored team is not playing and their brand is not broadcast/observed as intended.
• Sporting organisations and clubs are often employers and as such must seek to provide a safe and healthy workplace for their employees – where reasonably practical to do so.
• For major events, the use of Event Cancellation insurance is likely to be more widely considered.
How can Reddy Charlton help?
During this Covid-19 crisis, Reddy Charlton Solicitors are eager to support, encourage and guide your business. If you have any queries or seek further information on the Commercial Contracts or Sports Law please contact Paul Keane at email@example.com or Jonathan Mills at firstname.lastname@example.org.