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EVENT SPONSORSHIP IN LIGHT OF COVID-19 Mass cancellation of events due to the COVID-19 pandemic highlights the issue of contractual protection for sponsors. BTy Bird & Bird Associate Tom Macken. he impact of COVID-19 on the sports and entertainment industry has been particularly severe. Almost every major sporting event and competition has now been cancelled or suspended for the foreseeable future. This includes the Tokyo 2020 Olympics, postponed until next year. Considering the cost of a four-year sponsorship of the Summer Olympic Games is around $100 million, sponsors such as Coca-Cola, Visa and Proctor & Gamble have a lot at stake when such a high-profile event fails to go ahead. This raises the question of how much contractual protection event sponsors have in these circumstances. Our experience is that the answer is often ‘not enough’, especially where the approach taken is that a sponsorship arrangement is a supply of services by the event organiser and the sponsorship contract contains the standard ‘force majeure’ clause from a typical services agreement. To illustrate this, consider the following hypothetical scenario: a leading retail brand (brand A) decides to sponsor a marquee sports event set to take place over a week at the end of the calendar year. While some sponsorship rights (eg, the right to use the event trademark) are delivered throughout the year, brand A will gain most of its value from the sponsorship during the event period itself when a global audience of hundreds of millions will tune in and engage with the brand. Notwithstanding that the bulk of the value for brand A arises during the event itself, and as is typically the case with sponsorship agreements, payments are made quarterly in advance by the brand. A few weeks before the event is due to take place, the event is cancelled due to a force majeure event. A review of the sponsorship agreement reveals within its boilerplate provisions a ‘standard’ force majeure clause that is typically used in an agreement for the supply of services. This article explains how this clause can leave an event sponsor such as brand A in an unacceptable position in a cancellation scenario. What is force majeure? A force majeure event is usually defined as one beyond a contracting party’s reasonable control, which prevents it from performing one or more of its obligations, eg, strikes, lockouts, floods, fires, wars, natural disasters, restraints or restrictions imposed by government authorities, etc. A standard force majeure clause in an agreement for the supply of services usually consists of: • A notification requirement. A requirement that the affected party notify the other party of the force majeure (FM) event, including the extent to which its obligations are affected and the estimated length of the delay. • A mitigation requirement. A requirement for the affected party to use its reasonable endeavours to mitigate the effect of the FM event on the performance of its obligations. • The affected party being excused performance. Acceptance that the failure by the affected party to perform the relevant obligations doesn’t constitute a breach of the agreement. • A termination right. The right for the non-affected party to terminate the agreement if the FM event prevents the affected party from performing any material obligations for an extended period (usually 60 days to six months). Application of the clause While the application of this clause to a typical services agreement usually results in a fair outcome for both parties, this is not the case in relation to an event sponsorship where the event is cancelled due to an FM event. Let’s assume the FM event is a government enforced lockdown due to COVID-19. The force majeure clause requires the event organiser to comply with the notification and mitigation requirements. Complying with the former would be straightforward. In relation to the latter, brand A could argue that the event organiser must mitigate the impact of the FM event by holding it later. However, the organiser would likely argue that, despite using its reasonable endeavours, postponing wouldn’t be feasible. One such argument could be that there’s no period in the subsequent calendar year during which all the athletes or performers required for the event are available. This leaves brand A in the invidious position where the event is cancelled (meaning the bulk of the value it had contracted for is not realised), but no contractual recourse to the event organiser is available and brand A is still required to pay the sponsorship fee in full, as well as bearing the sunk costs of activation campaigns that were planned but never executed due to the cancellation. To avoid being in this position, event sponsors should negotiate bespoke force majeure clauses to cover the cancellation scenario, including, among other things, an obligation on the event organiser to restage a cancelled event and an equitable fee reduction mechanism where the event is cancelled and cannot be restaged. LEGAL About Tom Macken Tom is an associate in Bird & Bird’s Media, Entertainment and Sport Group. He has experience advising in the sports and media sectors on commercial, regulatory and transactional issues, including sports media and marketing rights, sponsorship rights, sports governance issues and integrity matters. He also provides clients with regulatory advice on a range of advertising and gambling issues. About Bird & Bird Bird & Bird is one of the world’s leading international law firms advising industries where technology, regulation and intellectual property are driving change. With its strong Australian presence, clients enjoy global reach across various practice areas. MAY, 2020 RETAIL WORLD 67