When a lawyer drafts a sponsorship agreement as well as the commercial terms that are specific to the deal, they will include certain standard provisions called ‘boiler plate’ clauses. These are the type of provisions common to most commercial agreements and would normally include ‘force majeure’ provisions. Such a clause would set out a series of events that, if they were to pass, would allow one or more of the parties to terminate without legal redress and liability to the other parties.
In drafting such agreements lawyers would pay only cursory attention to such provisions barely noticing whether the list of events included such highly unlikely occurrences such as ‘pandemic’ or ‘war’. The worldwide Covid-19 pandemic naturally brought inclusion of ‘pandemic’ into sharp focus and the recent invasion of Ukraine will have the same effect in relation to the ‘war’ inclusion. There will be many a lawyer anxiously checking whether agreements they drafted included such provisions which at the time might have seemed innocuous and inconsequential.
Another ever present clause in a sponsorship agreement would be the ability to terminate if a party engages in conduct that brings the other party, the sport, commercial partners into disrepute or adversely affects their reputation. This clause relies on the ‘subjective’ opinion of a party as to whether the conduct materially adversely affects their reputation or brings them into disrepute.
It is anticipated such routine clauses will be included in the vast majority if not all commercial agreements in sport with commercial partners who have Russian connections. Such would include Uefa’s venue agreement with the ‘Gazprom St Petersburg’ venue and the main Gazprom-UEFA sponsorship.
At the time of writing Uefa had already resolved by special meeting to take the Champions League final to Paris. Last year Uefa would have utilised the ‘pandemic’ and consequent travel restrictions as the justification for moving the 2021 Final to Porto. This year it could be the ‘war’ clause that was relied on.
Since then, Uefa has also withdrawn Gazprom’s sponsorship activation rights for upcoming Champions League matches, including perimeter board advertising, with further definitive action under consideration.
Uefa might also rely on the reputation clause described above, but if that is the case then there’s a question of whether it would be regarded as ’double standards’ to not also invoke that clause and rip up the Gazprom deal altogether as well.
If Uefa are taking a moral and ethical stand and showing solidarity with the people of Ukraine surely, they would invoke their legal rights and terminate completely? Of course, there always must be the balancing of the need for sanctions with the self-inflicted commercial harm that such would bring and the decision makers in sport at all levels face the same dilemmas as the world in general.
Uefa are not the only governing body to move an event as an immediate reaction. The FIA cancelled the Russian Grand Prix even though it was not due to be held until September 2022.
Several sports rights stakeholders have already severed or suspended commercial relations with sponsors that have connections to the Russian state. This includes the Haas Formula 1 team and several clubs throughout Europe. The PR teams of most sports stakeholders are highly adept at virtue signalling their client’s decisions to terminate sponsorship agreements on reputational grounds.
They can turn any potential negative press from an undesirable connection into positive press overnight by showing solidarity for the entity at the wrong end of the conduct giving rise to the termination. In the context of the Ukraine conflict, such solidarity is of course dealing with extremely serious issues and is also intended to seek to contribute to the effort to dissuade Russia from further action.
In considering the legal rights of termination, the stakeholder will be weighing up with their advisors the nexus between the sponsor and the Russian State. In the case of Gazprom, the link is obvious. In the case of an Oligarch perhaps less obvious but obvious, nonetheless. That will be an issue vexing potentially governments, leagues, and associations throughout the world regarding ownership of football clubs and other sports teams.
In England, with regard to Roman Abramovich’s ownership of Chelsea, the relevant considerations could be government legislation, the FA/EPL Owners and Director’s Test and action taken by sponsors and fans. Chelsea as a club would face the same dilemmas as Uefa, in balancing any action it might take as a club with the inevitable serious financial consequences should Mr Abramovich’s financial support be blocked and/or if he were to call in his loans to the club.
Governing bodies and rights-holders such as the FA/EPL will be looking at recent cases, such as when the EPL had to decide whether to block the potential takeover of Newcastle due to alleged links between the new owners and a regime regarded as undesirable, as a precedent for acting.
Grounds for termination?
The establishing of grounds for termination of an agreement with a party due to the actions of the Russian state for force majeure would require an analysis of whether the war itself actually makes the performance of the agreement impossible or significantly different. The war itself in so far as it is restricted to Ukraine would not create a practical obstacle to the performance of a sponsorship agreement between a football team in Germany and a Russian company. The consequent sanctions from a government or sporting governing body and ancillary activity such as travel restrictions could however.
In deciding whether grounds exist to terminate on reputational grounds an analysis would potentially have to be made of whether the sponsor has any influence or direct connection with the key decision makers within the Russian Federation. If not, then the sponsor might argue they are being prejudiced by the actions of entities over whom they have no control or influence.
By the same token, it may require an analysis of whether the Russian State has any control or influence over the sponsor. At one end of the scale, a football club would not be expected to persecute a Russian national by terminating their playing agreement because of the actions of the Russian State.
As an aside, what if a Ukraine national refused to carry on playing with a Russian teammate? Arguably that would be a terminable breach by the Ukrainian national but legal principles would have to be weighed with moral and ethical considerations as well as the mental health of the player in taking any action. Uefa has already moved to seek to avoid a team refusing to play a Russian opponent by announcing such games would take place at neutral venues in the same way games were arranged during the pandemic to take account of travel restrictions.
Uefa may be in the invidious position of needing Gazprom’s sponsorship to finance its operations and so severing ties may impact its ability to effectively administrate the competitions within its control. In that regard, Uefa would need to weigh up its regulatory function and its principles to uphold the best interests of the game in Europe and the wider need for sport administrators to stand in unison with a concerted campaign of sanctions.
The above is an analysis of potentially relevant legal principles to be considered when terminating agreements as a consequence of the action taken by the Russian state. Of course, arguably there are far more important issues to consider than that in taking action and indeed some sports stakeholders may well have taken the decision to terminate simply because they believe it to be the right thing to do.
Manchester United terminated their agreement with Aeroflot citing that it was what they believed their fans expected them to do. The connection between Aeroflot and the Russian State Government is as obvious as the connection to Gazprom. It will be interesting to observe any legal actions that may arise from these terminations, events and equally the repercussions for those who do not take action and terminate.