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Carla Varriale-Barker – More than words: the business of sports, Covid-19, and force majeure clauses

Carla Varriale-Barker, shareholder in the New York office of Segal McCambridge Singer & Mahoney, Ltd. and the chair of the firm’s Sports, Recreation and Entertainment practice group, discusses the meaning of increasingly prominent force majeure clauses in the sports industry

The sports industry has been roiled by Covid-19, and the virus has touched the retail, real estate, hospitality, arts, and entertainment industries (and any industry, like sports, that depends on contracts to run its business).

One clause with a funny French name has attracted a lot of attention because it has the potential to excuse non-performance due to Covid-19, thereby saving money and resources when they are needed most and avoiding liability for a breach of contract claim: the force majeure clause.

This formerly plebian clause, often boilerplate language relegated to the back of contracts, has emerged as a breakout star in analyzing contractual obligations where performances have been rendered impossible or impractical due to COVID-19. It has become increasingly important in sports law and it is easy to understand why this lowly clause has been elevated.

WHAT IS A FORCE MAJEURE CLAUSE?

In contract law, words matter, and a force majeure clause is a good example of this principle. A valid force majeure clause must be memorialized within a contract and it must discuss a force majeure event or events in order to excuse nonperformance of the parties’ contractual obligations. A court will not impose or interpret a force majeure clause if it is not contained in the parties’ contract.

Black’s Law Dictionary defines “force majeure” as a superior or irresistible force. According to Black’s, a force majeure clause protects the parties if the contract cannot be performed due to causes which are outside of the parties’ control and could not have otherwise been avoided. Performance under the contract is excused when performance becomes impossible or impractical due to unforeseeable circumstances (it will be difficult, for example, to apply a force majeure clause due to “unforeseeable” circumstances for contracts formed after March 11, 2020 when the World Health Organization had already declared COVID-19 a pandemic due to its global spread).

Typically, force majeure clauses excused or suspended performance under a contract for circumstances that can be described as an “Act of God” – earthquakes, hurricanes, and similar natural disasters. Force majeure clauses have also been drafted to excuse performance due to strikes, riots, governmental acts, governmental regulations and . . . pandemics and epidemics.

The Merriam-Webster Dictionary draws a distinction between the two. For example, it defines an epidemic as “an outbreak of disease that spreads quickly and affects many individuals at the same time.” A pandemic, however, is defined as an epidemic spread across a country or other large landmass that “affects an exceptionally high proportion of the population.” Noting that the Greek prefix pan- means “all,” the Word Health Organization defines a “pandemic” as “a worldwide spread of a new disease.”

THE FORCE MAJEURE CLAUSE AND SPORTS

The sports shutdown has had a ripple effect across the industry, touching television and radio networks, fantasy sports, sports betting, sponsors, advertisers, leagues, teams, spectators and, of course, athletes. However, the force majeure can save money and avoid liabilities due to the COVID-19 emergency. It can be applied in a variety of contexts, excusing payment for ads not run, games not played or aired, and events that are postponed or cancelled altogether, provided that the language is clearly set forth in a contract and specifies a force majeure event excusing performance.

As sophisticated business entities, leagues and teams are no strangers to force majeure clauses in contracts covering media, sponsorship, and advertising. The National Basketball Association, in particular, has been in the news because of the force majeure clause in its collective bargaining agreement at Article XXXIX. That force majeure clause purportedly allows the NBA to terminate the CBA (although it seems unlikely the NBA would take such a step for obvious reasons, including the potential wrath of the antitrust laws) and to reduce the teams’ contractual obligations to players for the games cancelled due to a force majeure event.

Looking at the specified force majeure events in the CBA, the NBA seems prescient in comparison to the other leagues because an “epidemic” is specifically referenced as a force majeure event. Should the NBA (reportedly the only league that referenced an “epidemic” as a force majeure event) invoke the force majeure clause, it will need to balance the effect of doing so, the costs saved, along with the potential for litigation. Depending on its calculation of these factors, it may not decide to invoke the force majeure clause, but it has already given the sports industry (and others) a lesson in contract drafting.

FORCE MAJEURE LESSONS LEARNED FROM SPORTS

  1. A force majeure clause must be in a contract and it should be drafted by legal counsel. A well-drafted clause can make all the difference in a contractual dispute and can avoid litigation. This is where lawyers who negotiate and draft contracts earn their keep;
  2. Consider whether a specific or a broad force majeure clause is warranted (also, see Lesson Number 1). If it is drafted with specific terms, a court will probably stick to the specific terms and not read the clause more broadly. Consider inserting a catchall clause excusing non-performance for other reasons that were not specifically enumerated, but are beyond the parties’ control, and excuse a failure to perform;
  3. Read the entire contract as a holistic document. The force majeure clause should be read in concert with other terms and clauses, such as notice requirements, choice of law requirements, and an alternative dispute resolution agreement. In the NBA example cited above, the Article containing the force majeure clause also requires both sides to engage in good-faith negotiations after the league advises the union of its intention to invoke the force majeure clause; and
  4. Take another lesson from the NBA and the post-COVID-19 legal landscape: consider inserting both “pandemic” and “epidemic” as potential unforeseeable events that can trigger the protection of a force majeure

Carla Varriale-Barker is a shareholder in the New York office of Segal McCambridge Singer & Mahoney, Ltd. and the chair of the firm’s Sports, Recreation and Entertainment practice group. She teaches Sports Law and Ethics at Columbia University’s Sports Management Program. 

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