The global sports market is an estimated $600 billion industry, comprising of infrastructure, events, training, manufacturing and retail. The scale and revenue-generating opportunities are most visible during marquee international sporting events. Sponsors, organisers, players, broadcasters, advertisers, hospitality providers etc. are all part of this lucrative sports events industry, with huge sums of money invested in the market.
The pandemic caused by the novel coronavirus (also referred to as COVID-19) has had a crushing impact on sporting events, with global events like the Olympics being postponed by almost a year, and other events contemplating a curtailed format, or possibly even cancellation, such as the 2020 Wimbledon championships. Further, globally-watched sporting events like basketball (NBA), football (UEFA, EPL) and cricket (IPL, several bilateral international tournaments) have been thrown into chaos as broadcasters and sport-leagues who had slotted specific periods for their telecast face uncertainty due to the risks of the events being cancelled for fear of spreading the disease.
In this Note, we will attempt to briefly identify key issues that contracts in this industry will face, and the conspectus of legal principles that will inform how companies tide over this crisis.
RELEVANT CONTRACTUAL TERMS
1. Contingency clauses in contracts
Contracts may contain clauses that account for various risks and contingencies. Such clauses may take the form of force majeure, limitation of liability, change in law, curtailed-event-clauses etc. These clauses could provide answers to how the risks and losses occurring from COVID-19 may be borne between contracting parties.
Such clauses may be used by both parties in a contract in the current scenario, since an epidemic will usually not fall within the sphere of risks undertaken by either contracting party. Dierent jurisdictions may deal with the issue dierently: American and Indian courts tend to interpret such clauses strictly, so much so that any alternative mode of performing - if theoretically possible, however more onerous - may prevent the application of a force majeure clause. A possibly painful cost-benefit exercise will have to be undertaken, taking into account various factors, including the interests of long-term relationships.
2. Legal rule of frustration
In the case of a sporting event being cancelled due to the pandemic, the doctrine of frustration would be different for contracts between organizers and broadcasters than for contracts between teams and merchandizers. While both sets of contracts are obviously impacted, the extent to which root performance can still be maintained will differ.
3. Legal rule of mitigation
The rule of mitigation in contract law is a duty imposed on a party claiming damages for breach of contract (the innocent party), to minimize the losses arising due to the actions of the breaching party
In a similar vein, courts will usually require parties relying on the concepts of force majeure or frustration to establish either that no alternative methods of performance were possible or that the fundamental conditions of the contract had changed to the extent of rendering performance impractical (and not merely more onerous).
The rule of mitigation will also require the parties to take all reasonable steps to ensure that losses arising due to occurrence of the force majeure event are minimized.
4. Renegotiation of obligations
Long term contracts between key stakeholders (e.g. organizing body, team franchises, broadcaster) may contain clauses which obligate the parties to renegotiate the terms of engagement in good faith when there is a material change in facts which substantially alters the parties’ performance capabilities. Depending on the specificity of the wording used in such terms, such clauses may be binding and enforceable – thus mandating the parties to renegotiate
Where contracts themselves do not contain ideal renegotiation clauses, situations like the coronavirus pandemic could call for voluntary renegotiations by parties. Such negotiations, though occurring out of free will (and outside the terms of the original contract), are fueled largely by the potential for future benefits and loss mitigation. These are likely to succeed if both parties feel that the commercial net benefit to the renegotiation is likely to exceed the expected outcomes of litigation/arbitration.
OPTIONS FOR ORGANISERS
Broadly, the occurrence of a force majeure event such as the COVID-19 pandemic leaves organisers with the following options:
Curtailing the event, while maintaining existing schedules, appears to be the least drastic option. This may entail performance of the agreement on renegotiated terms because of changed commercial and business considerations.
Seasonal sporting leagues are contemplating reduced season with fewer matches. Other sporting bodies such as the FIA (that conducts F1 races) and the Grand National Horse Racing championship have replaced live races with fully virtual simulated races online. While this obviously does not replace live telecast of the actual sport, this caters to fans and enthusiasts and also avoids revenue losses at least to some stakeholders such as betting-license holders. Advertising obligations can be honoured during such alternative programming, thus mitigating against complete loss of air-time and advertisement space. Pushing the boundaries of virtual operations could change the way non-field events, such as chess, take place going forward.