COVID-19's effect on the sports industry has been widespread and visible since the early days of the pandemic. In particular, the pandemic has significantly affected the relationship between sports teams and venues and their sponsor partners. Given the continued volatility in the sports industry, it is imperative that attorneys on both sides of a sponsorship contract think beyond typical force majeure provisions to maximize value and minimize uncertainty for their clients.
Traditional Force Majeure Provisions in Sponsorship Deals
Black's Law Dictionary defines force majeure as "an event or effect that can be neither anticipated nor controlled." A force majeure clause relieves a party of its contractual obligations where performance is made impossible due to causes beyond the parties' control. In the early days of the pandemic, the worldwide spread of an unknown virus that shut down essentially everything seemed like just the type of thing that force majeure was intended to cover. But force majeure provisions are narrowly construed, such that their scope depends on their specific language rather than a traditional definition of the term. In the context of sports sponsorship contracts, lawyers on both sides had to examine the language of their agreements to determine whether pandemics and subsequent government restrictions were specifically contemplated by their agreements as events that excused performance. In many instances, they were not.
Most sports sponsorship deals are written so that it is the team or venue that is obligated to perform. For example, the team or venue is obligated to display a sponsor's logo in certain places or say the sponsor's name a certain number of times. Thus, the invocation of force majeure in the context of sponsorship deals would typically inure to the benefit of teams and venues, since they would be excused from their obligations to display a sponsor's logo or mention a sponsor's name at events. In this sense, the pandemic put sponsors in a more difficult position, having spent money to advertise at events that might never happen. Conversely, it was not clear that teams and venues could invoke force majeure, since many contracts did not specifically contemplate pandemics.
However, teams and venues ultimately wanted to maintain relationships, so rather than wielding force majeure clauses as weapons, many opted to return to the table and rework deals that otherwise would have been ended by COVID-19. This often took the form of adding additional years to the terms of sponsorship deals or reducing sponsorship fees for subsequent seasons. In a sports landscape, where it is not clear how far into the future the effects of the pandemic will stretch, it can be in everyone's interest to be fluid where possible.
Sponsorship Contracts During the Pandemic and Beyond
Generally, a force majeure provision may only be invoked to excuse performance where the event in question was unforeseeable at the time that the contract was signed. In 2021 and for the foreseeable future, no one can credibly argue that the cancellation of sporting events due to COVID-19 is unforeseeable. In other words, COVID-19 cancellations likely can no longer constitute an unanticipated event that excuses performance under a force majeure provision.
Attorneys should therefore look for innovative ways to navigate the cancellation of sporting events and maximize value for clients without looking to traditional force majeure provisions. For example, the parties could negotiate and stipulate to liquidated damages for each game that is cancelled during a given season. Under this scenario, the sponsor would recoup a certain amount of the sponsorship fee for each cancelled game. This way, parties can anticipate what happens if part of a season is lost, while still allowing them to avoid scrapping the entire deal when games are cancelled.
On the other hand, the team's attorney should endeavor to show that sponsorship value derives not just from games, but from other aspects beyond game time visibility. For example, a sponsor derives value from having its name on the team's merchandise and promotional materials, by being the official sponsor of a team in a given industry, and by naming the team in marketing materials. These are examples of value that does not decrease in proportion with the number of games cancelled. Thus, a Major League Soccer team's attorney, for example, should argue that inclusion of a liquidated damages provision does not mean that a sponsor gets back exactly 1/34th of the money it paid for the sponsorship simply because one game is cancelled.
Conclusion
The pandemic has forced attorneys in the sports industry to think differently about how they negotiate deals. There is no question that all sponsorship deals should now specify pandemics as force majeure events that can excuse performance. However, with COVID-19 now an anticipated circumstance, teams and sponsors must look to new methods beyond force majeure to negotiate deals and maintain relationships during the pandemic.
Originally Published by Dallas Bar Association, March 2021
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