When top-tier sport ground to a halt in mid-March 2020, it was all hands to the pump for lawyers advising sports organisations and their commercial partners as they tried to decipher where their clients stood contractually.
Cancellation was clearly a worst-case scenario but even where events might return there would be a long and painful delay, some rights would still be undeliverable and others would only be delivered in a significantly altered (and less valuable) form.
Not even the most risk-averse lawyer could have foreseen the coronavirus crisis but the job of a contract is, at least in part, to provide for things not going to plan so they do invariably deal with situations of non-performance.
Force Majeure
For a brief period this year, force majeure overtook fan engagement as the sports industry’s most (over-) used expression. Force majeure clauses come in all shapes and sizes but essentially, in English law contracts, they are intended to excuse a party that can’t perform its contractual obligations for a period due to events beyond their reasonable control.
In reality, they are rarely a cure-all solution. Performance becoming more difficult or expensive isn’t necessarily enough to constitute a valid force majeure event and even if force majeure does apply, the affected party is still required to take reasonable steps to avoid and/or minimise its impact. The relief provided also varies depending on the contract drafting and in some cases the parties will have agreed that compensation is due regardless of the force majeure event.
Contractual compensation provisions can be complex and are often heavily negotiated but usually feature the provision of rights fee refunds/reductions (which might be fixed, calculated pro rata or left to be agreed between the parties) and/or alternative rights of equivalent value. Independent expert determination is often provided for if the parties can’t reach an agreement between themselves.
Negotiations
Whilst the contractual position is clearly the starting point, we saw a number of additional factors impacting compensation negotiations during the crisis:
- Strategically important partners were handled with particular care. Contrast the Premier League including Amazon in its allocation of additional matches despite their 2019-20 rights having already been delivered prior to Covid-19, with the Belgian Pro League failing to agree refunds with domestic broadcasters in the final year of their deals and now reportedly heading to arbitration
- Cash flow became a priority. Broadcast rights fees are a lifeline for clubs and leagues in the best of times but even more so during the crisis. The Bundesliga reportedly gave Sky Deutschland a discount on its next instalment in return for early payment to bolster clubs’ distressed finances. Where refunds were inevitable, sports have sought to negotiate deferred payment plans
- Politics reared its head. In the UK, the Premier League was encouraged to ensure maximum access to coverage for fans when the competition returned, prompting unprecedented moves to release additional matches for broadcast including via free-to-air channels.
Where did we end up?
Initially, we saw sports offering their broadcasters archive footage, esports events and even magazine shows (such as LaLiga’s Stayathome series) to fill the gaps left by live events, but these were effectively just gestures of goodwill. In time, we got a better sense of how partners would be “made good”.
Extending the term of contracts was the preferred option of some broadcasters but, understandably, this was less appealing to sports banking on lucrative future tenders or who had already sold rights in the next cycle to third parties.
In the UK, the Premier League eventually announced that all 92 of its remaining matches would be made available for broadcast and with staggered scheduling, including during the controversial Saturday 3pm blackout which would be temporarily suspended.
Sky and BT, which had been forced to freeze subscriptions, were able to welcome customers back and minimise churn by offering a bumper crop of matches across their weekly schedules. New kick-off times were warmly received by international broadcasters depending on timezone. Free to air was a feature (for all except BT) but Sky minimised the commercial impact of this by using matches it wasn’t originally contracted to receive.
Broadcasters, advertisers and sponsors (at league and club level) benefitted from the additional exposure provided by matches that weren’t originally due to be broadcast as well as the larger audiences for those that were. UK viewership records have been repeatedly set and broken in recent weeks.
Despite these benefits, the Premier League will also reportedly pay a rebate of £330m (€364m/$416m) to broadcasters over the next two seasons in recognition of the damage caused by the hiatus and the diminished spectacle (and therefore value) of behind-closed-doors matches. The rebate was met with surprise in some quarters (indeed a number of clubs are said to have considered challenging it) and other commentators have speculated on the strategic cost to the League of having to include certain rights and innovations in the compensation package that it had possibly been holding back for maximum impact in future tender processes. It will be interesting to see how this plays out but the league clearly knows a thing or two about maintaining long-term relationships, so if this is what they thought was necessary it would be hard to bet against them.
Future implications
So, what might this mean for the future? Well, factors currently occupying our thoughts in the Sports Group at CRS include:
- Contractual detail – an obvious one for a sports lawyer to raise but, where they don’t exist already, both parties may benefit from more detailed provisions around force majeure, compensation and related issues in their contracts so that rights and obligations are clear and there’s a framework for any negotiations required
- Risk sharing – some broadcasters (particularly pure-play OTT services) were particularly exposed when live events were paused and may want sports to share more risk in future contracts. Some sports may need to be receptive to that argument but in other cases this presents an opportunity for rivals with more diversified business models (i.e. the FANGs of this world)
- New rights models – if uncertainty around live events causes a dip in rights values, could this be the jolt that sports organisations need to begin weening themselves off traditional media-rights models with guaranteed returns? Could private equity firms be waiting in the wings to come in and share this risk (yes, they are)
- Tech Innovation – the crisis has accelerated innovations such as remote production, virtual advertising, “watch together” services and even VR hospitality experiences. A new breed of rights contracts has emerged to cater for these developments and the industry will need to adapt.
