Sports Broadcasting: cancellation and compensation in the time of COVID19
Sports organisations are grappling with a range of issues as they look to get their competitions back up and running this year. Key amongst these, from a financial perspective at least, is managing their relationships with commercial partners including broadcasters promised rights in relation to events that have been rescheduled or cancelled altogether. How are these discussions likely to unfold and what role do the underlying contracts play?
Even my non-lawyer friends are now casually referring to “force majeure” when talking about coronavirus disruption so I’ll take it that enough has been written elsewhere on this subject in recent weeks! Suffice it to say that sports broadcasting contracts are likely to refer to force majeure in some form and the ability of a party to be excused from performance of its obligations for a period due to events beyond its reasonable control. But this is unlikely to be a silver bullet. At some point coronavirus restrictions will lift and in the meantime the affected party will have obligations to minimise the impact of the force majeure and resume full performance as soon as possible. The contract may even specify that compensation is due for non-delivery of certain rights regardless of the force majeure event.
If rescheduling becomes impossible and events are cancelled, the contract may entitle the broadcaster to a straightforward fee reduction or refund. This will often be a pre-agreed amount or calculated pro-rata in a season-long contract. Here, the sports organisation is left with a black hole in its finances, subject to any insurance cover it may have (although the complexities we’re seeing in that process at the moment could easily be the subject of their own article). The broadcaster is arguably happier, but not entirely, particularly if they’ve lost end of season matches that were expected to generate bumper audiences.
Alternatively, the contract may provide for compensation in a more general sense e.g. the provision of alternative rights of equivalent value. In recent weeks, we’ve seen sports organisations offering their broadcast partners archive footage, esports events and even magazine shows (such as LaLiga’s “stayathome” series) to fill the gaps left by live sport but these are probably seen more as gestures of goodwill as opposed to compensation. Each side’s view of what constitutes “equivalent value” may well differ and contracts will often provide for the matter to be determined by an expert in the absence of agreement.
Providing additional rights in future seasons may be feasible for some. In the UK, Sky are reported to want additional matches next season or an extension to their deal beyond 2022 rather than a refund if Premier League matches can’t take place. Extensions are less palatable for sports organisations who have (to date) assumed rights fee growth year on year, and things become even more complicated for those at the end of their current deals who have already sold rights in the next cycle to a third party.
Payment terms, or more particularly the timing of rights fee instalments, also play a role. Broadcasters that haven’t yet paid for matches have a stronger position than those trying to extract refunds or discuss compensation. For sports, fees from broadcast partners provide a lifeline in the best of times but even more so at the moment. Reports suggest that in Germany the Bundesliga have given Sky Deutschland a discount on its next instalment in return for early payment to bolster clubs’ distressed finances. Broadcasters will be reluctant to be seen as the ones who send clubs to the wall.
Another potential curve ball in these unprecedented times is the threat of government intervention. The French government looked poised to intervene in the stand-off between the professional football league (LFP) and its domestic broadcasters before the parties agreed a compromise deal this week. In the UK, the Department for Culture Media and Sport has apparently made it clear to the Premier League and its domestic broadcast partners that it expects them to ensure matches are widely accessible to fans at home when the competition resumes. Could Sky and BT really end up having to broadcast the crown jewels of their exclusive rights portfolio on a free, un-encrypted basis? What else will the League build into the overall compromise package to make this palatable?
So, whilst contract terms are by no means the only factor in these discussions, no savvy sports organisation will be going into battle with a broadcaster without a clear picture of where they stand contractually. By the same token, contracts could still prove to be decisive if compromise talks break down, and of course cancellation and compensation provisions will be the subject of much focus in all future deals.
This article was written by Jody MacDonald. For more information please contact Jody using the contact details on the right hand side of the page.
News & Insights
Focus Antitrust - 6 August 2020
The latest edition of our regular Focus Antitrust update.
Could your esports business benefit from the Government’s new Future Fund?
Esports is an increasingly competitive industry not just in the UK but on a global scale - could it benefit from the new Future Fund?