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Does extreme sport equate to extreme liability for sponsors?

23 May 2014

The Circus is coming to town

In 2014, following a successful run in the UK, the circus will be coming to town in North America. However you won’t be seeing any juggling, tightrope walking or fire-eating. Instead no-handed 360 backflips, Superman seatgrabs, double tailwhips and frontflip airs will be guaranteed as this is the world of Nitro Circus.

Described as an "action sport collective" which brings together some of the best extreme athletes from around the world, North America is the next stop on tour where huge crowds will be captivated by the big ramps and even bigger airs as these athletes push the limits on dirtbikes, BMX bikes and scooters.

The development of extreme sports

With over 750,000 tickets sold worldwide to date, Nitro Circus is the latest example illustrating that extreme sports no longer operate in the fringes for those who like motor oil with their morning coffee and who still think Newton really did bang on about this notion of ‘gravity’ far too much.

Instead, extreme sports are becoming far more mainstream and accessible after experiencing exponential growth over the past 15 years. This charge was led by the X Games which captured audiences and demonstrated the commercial power of action sports.

Sponsors now include not only familiar extreme sport devotees, Red Bull and Go Pro, but also established global brand names such as Jeep and Ford (who split the automotive sponsorship category) and the US Navy.

Where the X Games led, others such as Nitro Circus have followed - witness Red Bull X fighters, a freestyle motocross competition touring the world drawing audiences of up to 230,000 people and the Red Bull backed cliff diving World Series.

Leaving aside the evident commercial strength of the sector, recent acceptance of action sports by the Olympic movement has lent weight to the recognition that these are credible sporting endeavours performed by skilled athletes. BMX made its debut at the 2008 Games in Beijing and Halfpipe, Aerials and Ski-Cross are all part of the Winter Olympic roster; this list of extreme sports forming part of the Olympics will surely only grow.

Sponsorship in extreme sports: risks and rewards

The recent exposure created for Red Bull by its sponsorship of the Stratos jump by Felix Baumgartner illustrates just how lucrative a market extreme sport can be. Live viewers alone on YouTube totalled 8 million. Similarly, as noted above, whereas the X Games has historically been a venture largely backed by its broadcaster, ESPN, mainstream brands now want to be part of the action. With the benefits of increased marketing and brand awareness, however, come a number of risks which sponsors are exposed to and which require careful analysis and management.

Some of the risks are common to almost all sponsorship deals. Maintaining brand exclusivity is one such challenge so that a sponsor’s investment is not diluted but instead still represents good value for money.

That Ford and Jeep have been able to carve up the rights to the X Games between them demonstrates that the same product category space can be shared, but as sponsors commit to the sector this space will become ever more crowded requiring sponsors to carefully protect their brand exclusivity in sponsorship deals.

Aside from exclusivity, protecting the reputation and goodwill of the sponsor brand is a particularly acute challenge in the sector. By their very nature, extreme sports push boundaries and attract athletes who may not conform to the cleancut media trained prototype of the modern sportsman.

The story of Ross Rebagliati, the Canadian snowboarder who had his gold medal at the 1998 Winter Olympics taken away from him before it was restored having tested positive for THC, and who has recently launched his own line of medicinal marijuana, lent weight to the many lazy stereotypes of extreme sportsmen.

Of course, casting them as long-haired recreational drug users is no more or less accurate than casting all Premiership footballers as womanising prima donnas or rugby players as chinless beer drinkers.

Extreme sportsmen are no different fundamentally than the men and women who compete in mainstream sport – Woods and Armstrong adequately demonstrate that the most proper and middle class of sporting pursuits are not immune from human frailty – but it is fair to say that snowboarding, skateboarding, motocross etc and their participants represent an identifiable sub-culture with their own values and fanbase which need to be carefully considered from a brand perspective before committing to the market.

This risk can be mitigated by good due diligence, insurance policies and having a defined emergency strategy in place with requirements on the athlete, sport or rights holder being sponsored to participate publicly in that emergency strategy.

It is commonplace to see a procedure for issuing a press release to celebrate the successful entry into a sponsorship agreement; it is much rarer to see a considered process for managing fall-out with the rights holder dealt with in a contract and this is an area that can and should be developed.

It would also be prudent to consider carefully the termination scenarios in the sponsorship contract and, rather than accepting the boilerplate provisions, tailor these to defined risks. What are the touchpoints for your brand? Can these be set out specifically within the contract, together with a more general morality termination right?

Perhaps the most difficult risk to guard against is the inherent physical risks to athletes whilst participating in extreme sports. Returning to Felix Baumgarter, what would have been the impact for Red Bull has the stunt gone tragically wrong? One school of thought might be that the associated publicity would in fact be a boon to the Red Bull brand in terms of profile and creating traffic. After all, to the casual observer Red Bull could not have been blamed for any accident; they merely funded and facilitated the ventures of Baumgarter who jumped at his own risk.

Nonetheless, as a lawyer acting for the sponsor, it is paramount to have flexibility as to how to react in the worst case scenario. While the ultimate decision might be to continue the sponsorship, the right to exit the relationship in a catastrophic situation will be a key consideration in drafting termination rights. Put bluntly, a sponsor does not want to see blood spattered all over a logo they have invested millions of pounds in.

Equally important is addressing the issue of risk for something going wrong. The problem arises in that by the very nature of extreme sports, athletes need to operate at the edge of the limits pushing harder, faster and higher to surpass what has gone before.

The tragic death of Caleb Moore, a snowmobile rider at this year’s X Games who died in a crash, is the most recent sobering example of the inherent dangers of extreme sports. Sponsors should therefore focus on ensuring liability is passed to the event organiser, and event organisers in turn have
attempted to pass the risk of liability on to the athletes.

Legal precedent relating to the extreme sports sector is scarce, but is likely to develop over time. However, under English law the potential responsibility of event organisers and others involved in putting on or backing event is well established.

By statute (*1), occupiers (and others with a degree of control over a site) assume responsibility for athletes and spectators on their premises – for example, where a climber has fallen off an indoor climbing wall (*2) or a racing car has crashed into a crowd injuring spectators (*3).

Taking on risk and waiving liability

The first step in establishing where liability should reside is in determining the respective roles of sponsor, event organiser, sports rights holder and athlete. Where there is a pure sponsor / rights holder relationship (eg Ford / X Games), the outcome is relatively simple to decide: the sponsor is simply putting money towards, and its name to, an event in return for exposure and the rights holder (with whom the sponsorship contract will be) should assume responsibility arising from the event.

Accordingly, a well-drafted sponsorship contract would require the rights holder to organise a safe event in compliance with all laws, to conduct all necessary safety checks and to indemnify the sponsor against any action brought against the sponsor arising from incidents occurring at the event.

The indemnity is critical as injured parties are likely to turn to the deepest pockets or the biggest name when making a claim, which will often be the sponsor.

The line becomes more blurred where the brand stages and owns its own event. In this case, there is no rights holder to transfer liability to (as the brand is itself the rights holder). The ability to pass on responsibility will depend whether the event is organised in-house or outsourced.

In the author’s experience, it is likely that organisation will be outsourced to a third party agency in which case the same considerations and protections as are put in place with a rights holder deal apply, whereby obligations as to safety and indemnities can be required from the event organiser in order to safeguard the brand.

Whatever the structure of the event, risk is always offset (or attempted to be offset) further down the chain to the athlete, typically in the form of a disclaimer.

In the United Kingdom, contracts between sponsors / event organisers and athletes are unenforceable if the agreement excluded a sponsor’s liability for death or personal injury resulting from the sponsor’s own negligence (*4). Similar, but not identical laws, apply across Europe. The boundary of where liability lies is therefore clearly marked and no waiver of liability clause will prevent the sponsor from its own negligence which leads to the injury of an athlete. What is less clear however is when negligence is not a factor, just how much risk and subsequent liability each party will take on.

Assumption of risk clauses or disclaimers, detailing that athletes act at their own risk and are responsible for their own well-being are standard in the industry. This clearly attempts to transfer the risk to the athlete by establishing that they assume the risks in the performance of their sport.

What is less clear however is i) how effective such a clause is from having the effect of discharging liability from the event organiser / sponsor and ii) whether athletes appreciate the risk to which they are signing up.

The effectiveness of waiving liability

It is a common misconception that obtaining a signed disclaimer from participants provides complete protection. This is not necessarily the case. Notwithstanding the fact that liability for death or personal injury resulting from negligence cannot be excluded, The Office of Fair Trading is quite clear in stating that disclaimers of this kind are acceptable to waive liability for the event organiser but only if fault for the injury can be attributed somewhere else other than the event organiser. This is supported by case law on “reasonableness” under the Unfair Contract Terms Act.

The consequence is that the burden of proof is flipped on to the event organiser to demonstrate that the cause of the injury was attributable to something or someone else. To take the Caleb Moore example, if we were to speculate that Moore was required to sign a disclaimer or waiver of liability clause as part of his participation agreement, and the accident had occurred in the UK, it would be for the X Games to prove to the satisfaction of the court not only that it had not been negligent but that the cause of the accident was attributable to Moore, his snowmobile manufacturer or someone else in order to rely on the disclaimer. This demonstrates just how high a responsibility the event organiser faces and this is something of which they should remain acutely aware.

In North America, case law has developed further on the efficacy of disclaimers. In an Ontario case concerning a scuba diving accident (*5), subsequently cited in numerous US courts, a three stage test was established to determine whether a signed waiver of liability is valid:

1. Is the waiver valid in the sense that the plaintiff knew what he/she was signing? Alternatively, if the circumstances are such that a reasonable person would know that a party signing a document did not intend to agree to the liability release it contains, did the party presenting the document take reasonable steps to bring it to the attention of the signatory?

2. What is the scope of the waiver and is it worded broadly enough to cover the conduct of the defendant?

3. Whether the waiver should not be enforced because it is unconscionable. The test is logical and applies a welcome dose of common sense. Whatever the jurisdiction, testing waivers against each of these three steps would be a prudent measure to assess their likely validity.

The level of risk athletes are taking on

In being signed by a sponsor or by taking part in an event, athletes will undoubtedly have to accept large proportions of the risk, the impact of which is to reduce the sponsors remit for liability. But does the athlete actually know what they are signing or appreciate the risks they are undertaking?

Although not always obligatory, it would be prudent for the event organiser or sponsor to take reasonable steps in order to inform the athlete and draw to their attention the exclusion clauses they are signing up to. Not only does it assist with reasonableness, but there is an argument that there is an ethical responsibility to let participants know where they stand. It is easy to perceive waiver of liability clauses as a game of ‘hot potato’ between the sponsor, event organiser and athlete, with each party trying to push its liabilities on to the other as part of the initial contract negotiation process. This view however is a narrow one and for extreme sports to continue to thrive in the future, it is suggested a more collaborative approach is to be required.

Extreme sports are different to conventional sports in that the boundaries are a lot less defined. This may be a daunting prospect for some, but it is the precise appeal which makes action sports so appealing to others. An event organiser or sponsor must carefully assess where its liability lies, however in doing so the unique benefits of extreme sports should not be overlooked. Whilst managing their liability risks and with a lack of defined boundaries; it is possible for both the event organiser/sponsor and athlete to work together in order to push what is possible and share a hand in crafting their sport. It is suggested that insurance is the key, rather than passing the buck contractually as to liability, and that event organisers and sponsors can get comprehensive protection through the implementation of extensive (albeit costly) insurance.

Event organisers, sponsors and athletes are all reliant on each other for success. Travis Pastrana an action sport athlete who is sponsored by Red Bull demonstrates the point of how sponsors and athletes should collaborate.

“Red Bull, every year they go to every athlete and say, how can we help you progress your sport. And in doing so, how can you help us take something and make it bigger than it’s ever been done, not just by a little bit, but by a lot.”

The progression of this mutually supportive relationship should be built upon and is key to help manage the legal risks and to take the sport to new heights.

Collaborating closely, identifying the specific risks faced in each sport and ensuring appropriate insurance is in place will cumulatively enable athletes, event organisers and sponsors to minimise their legal risks without sacrificing the excitement that fuels the popularity of their sport. As the circus comes to town and athletes stare down a 50ft ramp this may not be at the forefront of their mind, but without the necessary legal planning granting subsequent protection to those concerned, they might not have made the ascent beforehand. How high extreme sport can climb is still unknown and the best may still be yet to come.

First published in LawInSport, Wednesday 18 December 2013

*1 Occupiers’ Liability Acts 1957 and 1984. Occupiers liability could extend to sponsors and event owners if they have control over the premises. The Acts create an obligation to put in place measures which sufficiently protect both athletes and spectators.

*2 Poppleton v Trustees of Portsmouth Youth Activities Committee [2008] EWCA Civ 646. The Claimant injured himself whilst falling off an indoor climbing wall. The premises did not check how competent a climber the Claimant was or provided him with any training. The court ruled that the owner of the premises was not liable on the grounds that the risk of falling was plainly obvious.

*3 Hall v Brooklands Auto Racing Club [1933] 1 K.B. 205. Spectators were injured when two racing cars crashed and went into the crowd. In dismissing this claim, the Court balanced the need for the event organiser to protect spectators from foreseeable risks and for the spectator to accept the reasonable dangers involved in watching such a sport.

*4 Section 2 Unfair Contract Terms Act 1977.

*5 Isildar v. Kanata Diving Supply, [2008] O.J. No. 2406 (OSCJ)