The disruptive effect of COVID-19 on the sports industry

Feb 7, 2021

Late last year, Tennis Australia CEO Craig Tiley, confirmed that the Australian Open would go ahead in 2021, albeit with a delayed start and strict new COVID-Safe guidelines for players and staff.
With play commencing this week, we are reflecting on the major disruptions that the pandemic has caused to the sports industry more broadly, in Australia, and around the globe.

Disrupted schedules

The Australian Open is just one of an array of major sporting events that have been postponed due to COVID-19. Many others have been cancelled.

By way of just a few examples, the Tokyo Olympics were postponed, Wimbledon was cancelled, and the English Premiere League and NBA seasons were suspended in early 2020. In Australia, a number of test matches have been postponed, the AFLW season was abandoned, and the AFL season was reduced to fewer and shorter games.

As a consequence, all stakeholders (including athletes, sponsors, suppliers, governing bodies, event organisers, clubs, owners, investors, and broadcasters) have been forced to review and consider where they stand in respect of their revenue streams, their commercial relationships and their contractual rights and obligations.

Disrupted revenue streams

There are three main revenue streams for most sports leagues:
• broadcasting;
• sponsorship and advertising partnerships; and
• match day revenue (i.e. ticketing and hospitality).

Whenever a sporting event was cancelled, postponed or played “behind closed doors” throughout 2020, each of these revenue streams were at best, significantly reduced, and at worst, completely dried up. As a consequence, countless stakeholders have been reviewing their multitudes of agreements to determine whether they can avoid their contractual obligations or terminate their applicable deals altogether, or whether they should approach their counterparties to renegotiate.

Disrupted commercial arrangements

This determination is usually subject to the effect of any force majeure clause that has (or hasn’t) been incorporated into those agreements. “Force majeure” is a contractual term that refers to an unforeseeable event, the occurrence of which, excuses the affected party from performing its affected contractual obligations.

This may sound unambiguous, however often times, it is extremely unclear from the language of an agreement, whether the pandemic does in fact constitute a force majeure event. So generally, rather than fighting over whether force majeure was triggered, parties would be better served by renegotiating and varying their contracts.

Negotiated solutions may allow stakeholders to minimize and distribute immediate losses appropriately between the parties, whilst maintaining important commercial relationships and avoiding expensive litigation.

If you are concerned about the impact that COVID-19 may have on you or your business, the KKI Commercial and Sports Law teams are here to help.