Sports contracts in the age of COVID-19
The in-house legal function will be fundamental for the sports and entertainment sectors as we emerge from the global coronavirus pandemic, argues one professional.
In-house counsel hold a unique place in any business or organisation, but in the age of coronavirus, they are more integral than ever.
This is especially true, regulation legal manager Cassandra Heilbronn says, in the sports and entertainment sectors.
“In my experience, many clubs do not have the support of an in-house team, rather they have a strong HR function (which is generally where a lot of their legal issues arise), and the forward-thinking clubs already have a developed suite of precedents for their commercial contracts that were drafted by a law firm,” she explained.
“Governing bodies generally have a strong in-house team and the briefing of firms is limited to litigation and riskier matters. Clubs and entertainment companies without in-house counsel largely rely on their commercial team to negotiate and amend sponsorship contracts, or rely on the other party to provide the contract and amend some clauses as needed (often indemnity clauses and the ones that look overly legalistic are the first to go, generally because of a lack of understanding of their importance).”
In light of COVID-19, Ms Heilbronn noted, the renegotiation of commercial contracts will result in a number of challenges because many of the seasons or promotion of events had started prior to the shutdown and sponsors would have already made initial payments.
“The challenges we will see will be contract interpretations in terms of amending terms by mutual agreement and possible determination of contract frustration. In my experience, force majeure clauses are not commonplace in sponsorship contracts, but are more so seen in the naming rights agreements, particularly if government entities are involved,” she noted.
“Governing bodies, as we have seen reported in the media, have millions of dollars in expected revenue from TV rights deals. While these are long-term deals, the parties may need to come back to the table to renegotiate the terms to prevent walkaways by the broadcasters.”
This will be a time for a common-sense approach to determining contract issues, with the end goal to be to maintain the relationships on best terms for all involved, Ms Heilbronn said.
“This is not a time for hard-hitting negotiation tactics – we want to see more of the white, not black hat, approach. If we have learned anything from this pandemic is that sports and entertainment, despite being a multibillion-dollar industry in Australia, is dispensable,” she posited.
“In-house teams need to have a strong understanding of optics and being able to read stakeholders, which in this industry [are] largely the fans. Media releases should have legal input and ensure there is a balance in comms to the public.”
How in-house counsel sports and entertainment lawyers can help
From a business continuity perspective, Ms Heilbronn outlined, sponsorship agreements need to be maintained.
“I have previously sought to encourage sponsors and teams to think about contra and non-cash forms of sponsorship. With this [new] change in landscape, teams are going to be looking for that ongoing cash commitment, but sponsors may not have the cash flow they had previously,” she said.
“Teams need to be innovative with their sponsorship terms to ensure they can continue their longstanding relationships with sponsors and need to be open to negotiate the terms. This may be more money-cannot-buy (e.g. training sessions with the team, strategic lunches with the coach – once social distancing rules change of course!).
“The best thing parties can do is to get on the front foot with their agreements and reach out to the other party. This can be done on a without prejudice or open basis. By taking this step it allows for the parties to renegotiate terms (if required), rather than waiting for a breach event to occur. By taking this step both parties can plan for the future in terms of changes with payments so that the impact can be minimised to the extent possible.”
Elsewhere, a critical step will be to ensure that there is a representative from the legal team included in strategic and commercial decisions, Ms Heilbronn argued.
“Well-experienced counsel understand the delineation of duties, powers and responsibilities with being an in-house legal counsel and the potential blurring of lines with moving into a more strategic and business-facing role particularly in terms of when legal professional privilege will and will not apply,” she said.
“Counsel who is sitting at the table needs to have a strong governance skill set and be willing to speak up to address any conflict of interest or similar issues. Legal should not be there purely for note-taking purposes.”
There is often a heavy reliance on commercial managers to see a company through sponsorship issues, Ms Heilbronn continued, “but having counsel involved will offer a different perspective”.
“Our minds are trained to approach problems differently to a straight commercial role. This is where it is important to have an in-house team who [has] strategic strengths,” she said.
“This is where I think there is an opportunity for those in-house to develop their skills, and it may also assist in them transiting to a C-suite role later in their career.”
Ultimately, sports and entertainment contracts – particularly sponsorship and naming rights deals – are unique and cannot be treated or negotiated in the way a general commercial contract would.
“There needs to be an understanding, of the drafter, of the industry to ensure no rules of a governing body are breached, particularly in terms of sponsors in the same industry. For me, I would like to see as many contracts remain in play although I accept some terms may need to be amended,” she said.
“For those in the sports and entertainment industry without an in-house team, this may also be the time to consider investing in the hiring of a lawyer or even to take advantage of the programs offered by a number of firms or to have a seconded lawyer for two to three days per week.”