The long-awaited return of the Premier League has kicked off behind closed doors, showing us what sport under the “new normal” might look like. Tennis followed hot on its heels this week – but what about other sports?
The publication of DCMS’s “Stage Three” guidance permitting the return of competitive elite sport, under strict conditions, from 1 June 2020 was of course welcome news; but it poses as many questions as answers for sports organisations (as well as contractors, insurers, staff and athletes). Despite the return of athletes to training and the increase in the number of matches and competitions now taking place without spectators, the immediate future of competitive sport remains uncertain, with major questions still hanging over many events.
Many sporting events have already been cancelled or postponed. However, many event organisers are still grappling with the decision for future competitions or matches; whether or not the calendar will accommodate rearranged fixtures; can the requirements of Stage Three guidance be met; and how to plan for the eventuality that there could be a second round of cancellations following a second wave of the virus, or as a result of knock-on economic and social effects?
One of the key Stage Three requirements is to have “a decision-making structure and agreed procedure in place to modify, restrict, postpone or cancel” the event. This article does not attempt to cover all the Stage Three requirements. It is instead a short step-by-step guide to assess your exposure to your contracting parties and lead you through the potentially complex decision-making process of whether your existing event (be it new or longstanding) could or should be cancelled.
Step 1 - Review your contracts and insurance policies
Assess your contractual position, starting with the basics: could we cancel if we needed to? Could we apply force majeure? Do we have a termination right? The answers to these questions are very likely to change from contract to contract, so there will be no single approach on timing or strategy that works equally well for sponsorships and broadcasting as it might for catering, security, programme printing etc. Of course, you may now be dealing with contracts that have already been varied since the issue first arose in March 2020.
A close review of each affected contract, starting with the most critical and highest value, will help you see these liabilities in the round: but that is not to say that relying on your strict contractual rights and remedies will be the best way forward. Any termination decision (either by express contractual right or by frustration) should be considered with care. Depending on the nature of the relationship and complexity of the contract, this initial assessment may not always bring straightforward answers; but it should help you understand your exposure and get a sense of what an acceptable outcome might look like.
If you have insurance (such as event cancellation, business interruption or credit insurance), you should review your policies and identify which (if any) may correspond with any potential losses. You will need to assess whether the relevant policy “trigger” would be met, which may change with each government policy announcement, and whether cancelling certain events will affect your cover for other events that you may still wish to put on (and vice versa). The policies should be read in conjunction with your commercial contracts, as their terms may have an impact on your ability to pursue a claim. You must also ensure compliance with any procedural requirements (eg notification provisions, mitigation of loss and proof of loss).
For a closer analysis of related issues, please see our article on force majeure and frustration here.
Step 2 - Assess whether any contractual obligations – including your own – can or should continue despite the cancellation/postponement
Carefully consider exactly what is required of you, and the other party, under the contract. You may find that some contractual obligations are not directly linked with the event and could, therefore, continue to be provided.
Sponsorship or partnership agreements may contain clauses where the rights associated with the event are caveated by the phrase “or equivalent value”. This allows the event organiser to offer rights of the same value (perhaps a greater volume of lesser valued rights) instead of the rights directly associated with the event. The agreement may also contain provisions to allow for joint marketing plans, production and sale of merchandise (for example clauses granting brand rights in exchange for royalty fees), or access to athletes or venues for photoshoots.
Particularly where such an agreement was due to last beyond the current season, the parties may wish to consider either taking advantage of any inbuilt flexibility within a contract or mutually amending the contract, rather than terminating or cancelling it, in order for these relationships to continue.
Step 3 - Open a dialogue with your contracting parties
For your key suppliers, sponsors and partners, you may have been in touch from the outset. However, once you are confident in your contractual position, and your expectations for the future of the relationship, you will in most cases want to move the conversation onto a more formal basis.
The cancellation or postponement of the event is likely to be something they have already contemplated, and it will be beneficial to understand their current view.
If your positions are too far apart, that could be the point at which you give notice of your right to cancel, terminate, or invoke the force majeure clause. A haggle over costs and payments, depending on the provisions of your contract, might follow and further negotiation or contract analysis may be required.
If your agreement does not expressly provide any such rights, you may be able to rely on frustration. However, this is quite an aggressive approach and only available in limited circumstances (and the more the UK government eases lockdown restrictions, the less likely it will apply). Therefore, it may be best to try come to an amicable agreement to terminate, with both parties agreeing to relieve the other of its obligations going forward, if they cannot be postponed.
For longer-term contractual relationships, where there is mutual goodwill – or indeed wherever it is possible for some of the rights and obligations to continue – you may wish to negotiate a variation to your original agreement. This allows you to pick and choose parts of the contract to continue and others which will be terminated or suspended (for the current sporting season or potentially beyond). Perhaps most importantly, it allows your relationship with the other party to continue, while bringing a degree of security – if not quite certainty – for both.
Elite sports competitions are now able to return behind closed doors, and variations are likely to the best method to allow you to amend each party’s obligations for the adapted event. However, should you decide to run the event under these conditions, you must do so in accordance with the Stage Three guidance and the goods or services to be provided by your contracting parties may now take a very different form than previously envisaged. Depending on the nature of your contract, it might be best to start afresh with a mutual termination of your previous arrangements and enter into new agreements.
Step 4 - Ensure any agreed arrangements are properly formalised
Assuming you are able to come to an agreement with your counterparty – whether by parting ways, compromising, or starting afresh – remember that it may not be valid if it has not been formalised as the contract requires. Notices given under force majeure, termination or cancellation clauses are likely to be required to be in writing; whereas variations will generally need to be signed by authorised representatives of both parties.
Even where your contract does not have prescriptive formalities for variation, it is still generally wise to ensure the arrangement is fully documented – particularly in uncertain times. This will avoid drifting into a relationship based on a contract where some terms are being observed, but others not. Such an arrangement may suit both parties for a while, but might then require claims or arbitration down the line to work out precisely what the understanding was.
All parties will be trying to prioritise and control legal spend, which is understandable – but finding the time to document the arrangement now is better than having to rely retrospectively on arguments from common law or equity.
Step 5 - Inform any ticketholders
Whether or not your event has been cancelled completely or altered to take place behind closed doors, you will need to inform any consumers who have purchased tickets that they can no longer attend the event.
The Competition and Markets Authority published guidance on 30 April 2020 on cancellations and refunds for consumers where events have been cancelled due to COVID-19. The guidance makes it clear that where an event has been cancelled, the consumer must be offered a full refund of the ticket price (administrative fees excluded). If the event has been postponed, the consumer must be given two options: either their ticket remains valid for the future event date, or a full refund can be given. You must not hide the right of refund in the small print or make it difficult to obtain (for example at the end of long and laborious phone call). Both options must be made clear to the consumer and be as easily obtained as the other.
Whatever you decide regarding cancellation, it is vital that you make yourself aware of your rights and obligations under each contract, as well as those of the counterparty, in order to assess the strength or weakness of your own position. That said, you should consider the nature of your relationship and determine whether its longevity should take precedence over the short-term gains to be made by strict contractual analysis. Above all, with the eyes of the world on the return to sport, rights holders must plan for the reputational consequences of getting the decision wrong – whether by eroding the quality of the product, losing the trust of the consumer, or pushing on with an event that should never have taken place.
If you require further information about anything covered in this briefing, please contact Hannah Laird, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, June 2020