The world is reeling from the Covid-19 crisis. The governments all over the world are taking steps to control the spread of the disease. This included the cancelling of large gatherings of people. From the local level gatherings to international events such as the Wimbledon, top 5 footballing leagues in Europe, the Olympics. The list goes on. These cancellations have resulted into a loss for these events. Broadcasting contracts, advertisements, food and beverages, players’ contracts all of this is currently in an uncertain position. This results into a massive problem for the organisers of the events. With no revenue visible in the near future and cash required for the expenses which do not stop, this article looks at the ways some of the problems faced can be addressed by the organisers such as pandemic insurance, act of god and doctrine of frustration.
Keywords: Pandemic Insurance, sports, contracts, frustration, act of god.
The Coronavirus Pandemic has had a colossal impact worldwide, including every aspect of life. While the pandemic’s effect on the sports industry is of secondary concern, it is nonetheless the case that enormous disruption has been, and will continue to be caused in sports events, in every country and at various levels.
With the mass cancellations of sporting events around the globe, the sports industry is significantly affected. No matter if you are not a fan, an athlete or a future leader, the question regarding the future of sports will surely cross your mind. The economic and social impact of sporting events also raises sharp concern – as it brings people together in large numbers along with commercial and cultural values of many of these events.
In recent times, various sports organisations around the world has been forced to confront the harsh reality that this global pandemic is likely to have a significant impact on the industry, – not just short term but in the long term as well.
Cancellation of Sporting Events and related risks
As the virus continues its rampage, it is increasing manifold and continues to have a widespread effect on the sports industry with major sporting events all over the world getting cancelled.
The Tokyo Olympics 2020 has been postponed to summer of 2021, UEFA Euro Cup 2020, Copa America 2020, Wimbledon, F1 races among others have been postponed or cancelled.
The Wimbledon have been cancelled for the first time since World War II. All Major football leagues around the world have been postponed. Apart from the disappointed fans and the athletes, the monetary ramifications caused by the cancellations is considerable.
Consider, for example, that the broadcasters have already paid billions of dollars to buy the streaming rights for live events that may/ may not happen. Such an event has already taken place, with BeIN Sports suspending €42m Ligue 1 rights instalment. Managing closed stadiums also becomes an insurmountable task, as a major source of revenue of the clubs is lost.
For this uncertain scenario, there is no doubt that this is a complex situation for the clubs. The NBA has a clause which allow the team to deduce the salaries of the players’ contract by 1% per game not played.
As an example, only in 2019, the Allianz Arena (Stadium of FC Bayern Munich) had a turnover of almost €7 million for the beers, sausages and soft beverages sold during the match and €10 million for the visits to the FC Bayern Munich. From the figures, we get a clear idea of how the clubs are losing their revenue when the clubs play closed door games, as it was done in the beginning of the pandemic. Not only does it affect the clubs economically but also affects the players psychologically. Players time and again remind us of how difficult it is to concentrate without the reactions of their fans at the stadium and the coldness they feel after they make a great play. In the stands, the visible and audible emotion of a game is produced, and without it the television stations lose interest in broadcasting.
Due to this pandemic, the litigation implications are almost endless: claims by broadcasters against those who are not fulfilling their obligations; by spectators who have bought tickets of matches and maybe travel packages for watching the games; by players who claim negligence in exposing them to virus; and clubs who have lost substantial revenue.
However there will without a doubt be various further considerable dubious lawful issues – imagine a scenario where a shirt sponsor who has paid 3 of 4 instalments to have a player’s image on the front of a club’s shirt until 30 May 2020, yet the season doesn’t end until the finish of June? A reasonable reaction of the gatherings may be to alter their agreement, concurring the genuine intention was for a season long sponsorship – yet either party may have different reasons they don’t need or can’t manage the cost of for the agreement to proceed. On the off chance that the football season went past the finish of the middle of summer, when numerous players’ contracts end, there might be a plenty of issues for clubs. Shouldn’t something be said about clubs who can’t acquire coordinate day income during any time of postponement, while as yet being required to pay players wages, providers solicitations and tax invoices? Will the various financial fair play rules have to be relaxed or even temporarily suspended?
Disputes will surely arise with respect to the fact that whether compensation can be granted and who is liable to pay for it. There is a lot of solidarity at the moment, but the economic impact may force the stakeholders to seek legal remedy to address their needs.
Pandemic Insurance: A Panacea?
This incident of Covid-19 will surely cause a surge for pandemic insurance. But unfortunately, in the sports industry, the uptake of pandemic insurance is quite low. Organisers are hesitant to buy this insurance as the cost of premium is sometimes too high, owing to the low occurrences of pandemics, such as the devastating Spanish Flu pandemic in 1918. Moreover, after the SARS outbreak in 2003, many insurers applied for standard commercial policies for losses caused by pandemics.
The organisers of Wimbledon have paid around £1.5m ($1.87m) per year in pandemic insurance since the SARS outbreak in 2003. The organiser has paid out roughly £25.5m over the 17-year period and is set to recover around £114m. However, this will only amount to less than half of the losses arising out of coronavirus. But nonetheless, Wimbledon will be at a much stronger position than most of the other events as it was able to limit its damages because of the insurance cover.
Thus, it can be seen that even when sporting events have taken a pandemic insurance, the returns are quite low. So, in our understanding this will not be a solution to the current crisis or even in the future.
The Resolution of Contracts in the Current Crisis
Doctrine of frustration is the doctrine which can be used for legal recourse in such a scenario. Let us understand what it actually means.
Doctrine of frustration is an integral part of the contract law as it evolved. Basically what it says is that if the performance of the contract becomes impossible due any circumstance then the contract stands frustrated. But delay of performance of an obligation is not necessarily a frustrating event.
Another option that is available is that of force majeure. Force majeure clause is the clause in the contracts which absolves the parties from performing the contract when a natural event over which no person had control occurs and makes the performance of the contract impossible.
These are the two options available to the organisers of the sporting events. Covid-19 is a pandemic. Many advisories have come from the WHO saying that it is important to contain the spread of the disease. Many countries have also banned large gatherings of people. Under this circumstances it becomes impossible to actually hold these events.
Matches behind closed doors are a way out. Bundesliga currently is holding such matches. But this is not an option for many events. Ticket sales contribute a lot to the finances of the events. As also mentioned earlier there are also other ways spectators generate revenue by being present. Advertisers, food and beverage sells, tickets are just some of those ways. Players are also affected. Thus, closed door matches are not really an option.
There certainly are a host of legal of problems accompanying the closure of the big leagues. If a claim for contractual damages succeeds against the clubs or the organiser they will face huge losses.
The smaller clubs will probably sink and go out of business. Transfer markets won’t be active this season due to the financial crunch. This means a lot of smaller clubs will be hit as the transfer money contributes a lot to their revenues. For example, the SL Benfica for 2019/20 season, it made a profit of 158 million pounds in the transfer season. This money will not be available to the clubs this time.
Litigation though for the sponsors may feel like a solution to their financial problems, but the same might not be so. The reason for this is fairly simple that the case is ripe to be lost as the organizers and clubs can claim frustration of contract. This means that a souring of relationship could take place. On the off chance that the sponsors or broadcasters do win the case there is a possibility that the clubs or organizers would go bankrupt.
The general insurance seems like the only way to somewhat soften the blow of the financial crunch. But that too has a host of problems, the least of it being that whether a general insurance will cover damages caused due to a pandemic considering there is a special pandemic insurance as taken by the organisers of Wimbledon. Another problem that arises is about how much will the organisers and the clubs receive and will the amount be enough to stop the clubs from going bankrupt.
No one can say with 100% certainty whether a General Liability policy will pay for part or all of a COVID-19 transmission lawsuit. The insurance carriers did not contemplate that this policy would pay for liability arising from a pandemic. But whether the carrier will be forced to respond and pay for a legal defence is a complicated matter. The answer depends on a number of factors including the exact causes of action alleged in the lawsuit papers, the facts in a particular case, the existence of certain exclusions in the policy, and how the various courts and jurisdictions interpret the policy provisions.
The only certainty in these most uncertain times is that Covid-19 is likely to generate a plethora of future legal disputes which will shape our legal landscape, especially in the world of sports.
Author: Aditya Mundra and Ninad Ajane from Maharashtra National Law University,Mumbai