With the coronavirus outbreak sweeping across the globe, sports have not been spared. In fact, the sports industry has been heavily impacted and in many ways, paralysed by the pandemic. Sporting events at international, regional and national levels have either been cancelled or postponed – the most major being the postponement of the Tokyo 2020 Olympics to July 2021.
Parties impacted – athletes, teams, clubs, leagues, sports associations, sponsors and the media – will face not only sporting and financial challenges, but will also have to take a hard look at their legal and contractual covenants.
While revenue losses in terms of broadcasting rights, tickets, sponsorship and advertising sales are inevitable, let's take a glance at the impact of COVID-19 on sports events and sports contracts.
1. Digital Transformation in Sports
The disruption caused by COVID-19 has prompted many to rethink and potentially transform the definition of sporting experience. With the assistance of digital technology, sports did its part to adapt and respond to the circumstances as the world went into lockdown.
New and unique content was developed for rights holders and broadcasters in efforts to continue fan engagement despite the remote connectivity, with social media platforms as the main base.
Traditionally, sports personalities would be required to appear at a venue location personally. But teams, clubs and sponsors have pivoted these appearances digitally through virtual hangouts, video messages or even playing video games together with fans.
These appearances may amount to a variation of the original contracts signed between parties; in particular sponsorship/endorsement contracts or even appearance contracts, in efforts to maintain interaction with the most significant stakeholder in the sports industry i.e. the fans.
Now, as sports is slowly but surely returning, the question that remains is when will fans be allowed back into the stadium? At this juncture, the “stands” are filled with live streams of fans in the comfort of their homes. Players are buoyed by cheers which are channelled through applications and piped into the speakers on game day.
This accelerated mediatisation of sports could permanently alter broadcasting rights and may also enrich the involvement of fans in the event process through commentary and even production of event clips. This enhanced power of fandom could then give rise to new forms of sports contracts to make the sports ecosystem more inclusive.
The 2020 Wimbledon Championships was originally scheduled to be held on 29 June to 12 July 2020. But on 1 April 2020, the All England Lawn Tennis Club (AELTC) and the Committee of Management of The Championships announced that for the first time since World War II (1945), The 2020 Championships would be cancelled due to public health concerns linked to the coronavirus pandemic.
Following the SARS outbreak in 2003, the AELTC had the foresight to purchase a pandemic insurance policy for the past 17 years and collected a payout of approximately £114 million ($142 million / €126 million) for the cancellation of this year's championships.
All other sporting event organisers are also likely to try to claim their event cancellation insurance (if one was purchased) for cancelled or postponed events. The question that will arise is whether COVID-19 or the Movement Control Order (MCO) here in Malaysia is covered within the scope of the said insurance as it would highly depend on the nature and range of the policy.
The insurance policy's wordings will be scrutinised to determine if an infectious or contagious disease such as COVID-19 is included or excluded from the policy. The policy may contain a general exclusion clause related to contagious diseases such as flu variants or even government orders or closures related to or as a result of such conditions. Alternatively, the policy may also contain a force majeure clause which is discussed in further detail below.
Event organisers may now consider investing more in their insurance policies to limit their damage for future events. We may even see the supply of new policies to cater to the needs of the current times and the increasing frequency of such crises. Conversely, insurance providers may look into reviewing their coverage and potentially expressly exclude such outbreaks in the future.
3. Ticketing Terms & Conditions
Although the President of the International Olympic Committee (IOC), Thomas Bach is “very, very confident” that spectators will be able to attend the postponed Tokyo Olympics in 2021, ticket holders ought to be aware of the terms and conditions attached to their ticket purchase.
In the Tokyo 2020 – Terms and Conditions of Ticket Purchase and Use, “Force Majeure” is defined as “any cause beyond Tokyo 2020's reasonable control, including, without limitation, acts of God, war, insurrection, riot, civil disturbance, acts of terrorism, fire, explosion, floor, theft, malicious damage, strike, lock out, weather, third party injunction, national defence requirements, public health emergency, and acts or regulations of national or local governments”.
Article 46 of the said Terms and Conditions then goes on to provide that “Tokyo 2020 shall not be liable for any failure to perform any obligation under the Terms and Conditions to the extent that the failure is caused by a Force Majeure”.
The Tokyo 2020 Olympic and Paralympic Games organizing committee recently announced the ticket refund policy for ticket holders who are no longer able to attend the Games in 2021. No mention however, has been made thus far on the applicable policy if the stadiums or event arenas are unable to accommodate full capacity should social distancing still be required when the time comes.
Before cancelling or postponing a sports event due to COVID-19, the first step that should be taken by any event organiser is to look at the relevant contracts. Particular attention should be paid to whether the contract contains a force majeure clause which may be relied on as a form of legal remedy to relieve parties of their contractual undertakings.
As the contents of a force majeure clause will differ from contract to contract, depending on the complexity of the agreement, the question of whether parties can rely on a force majeure clause will depend highly on the wordings contained in the provision.
There are times when a specific list of events are listed in the force majeure clause to describe what amounts to a force majeure event. In this instance, particular words like “pandemic” or “epidemic” may trigger the applicability of this clause.
However, notwithstanding the assessment by the World Health Organisation (WHO) that COVID-19 can be characterised as a pandemic, the mere existence of a force majeure clause in an agreement does not necessarily mean that parties can automatically invoke the clause. One would need to study carefully the contents and intricacies of their respective contracts, specific rights and steps to be taken by parties under the agreement.
In the absence of a force majeure clause and if the governing law in the contract is Malaysian law, the doctrine of “frustration” under Section 57(2) of the Contracts Act 1950 may be relied on when the performance of a party becomes impossible or unlawful.
Section 57(2) of the Contracts Act 1950 provides that:
“A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful”.
Regardless, discussions between parties should commence in efforts to host the event in a safe and conducive environment or to resolve the matter in a favourable manner.
4. Potential relief for sports events and sports contracts in Malaysia
The Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill 2020 was recently gazetted and enforced on 23 October 2020.
Part II of the Bill covers “Inability to Perform Contractual Obligations” and Section 7 in particular provides:
“Inability to perform contractual obligations
7. The inability of any party or parties to perform any contractual obligations arising from any of the categories of contracts specified in the Schedule to this Part due to the measures prescribed, made or taken from under the Prevention and Control of Infectious Diseases Act 1988 [Act 342] to control or prevent the spread of COVID-19 shall not give rise to the other party or parties exercising his or their rights under the contract.”
The Schedule for Section 7 lists the categories of contracts and the two which apply to the sports industry are:
“3. Professional services contract
5. Event contract for the provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods or services including, for any business meeting, incentive travel, conference, exhibition, sales event, concert, show, wedding, party or other social gathering or sporting event, for the participants, attendees, guests, patrons or spectators of such gathering or event.”
In other words, a party who is unable to perform its contractual obligations arising from the scheduled categories of contracts due to COVID-19 or the Movement Control Order (MCO) may have some reprieve as the other party is prevented from exercising their rights such as terminating the contract.
Part II of the Bill has retrospective effect from 18 March 2020 and shall continue to remain in operation until 31 March 2021.
Do however, take note of the Saving Provision in Section 10:
10. Notwithstanding section 7, any contract terminated, any deposit or performance bond forfeited, any damages received any legal proceedings, arbitration or mediation commenced, any judgment or award granted and any execution carried out for the period from 18 March 2020 until the date of publication of this Act shall be deemed to have been validly terminated, forfeited, received, commenced, granted or carried out.”
This means that if a contract has already been terminated or if any legal proceedings were commenced, judgment or award granted or execution carried out before 23 October 2020, Section 7 would not be applicable and such termination, legal proceedings, judgment, award or execution shall remain valid and binding.
Another option available for parties is to refer the contractual dispute to mediation, pursuant to Section 9 of the Bill:
9. (1) Any dispute in respect of any inability of any party or parties to perform any contractual obligation arising from any of the categories of contracts specified in the Schedule to this Part due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 to control or prevent the spread of COVID-19 may be settled by way of mediation.”
The Malaysian government has since established Pusat Mediasi COVID-19 (PMC-19) to assist the ‘rakyat' to resolve contractual disputes where the dispute sum does not exceed RM 300,000. Subsidised mediation cost is also available to certain categories of individuals and SMEs (Small Medium Enterprises).
We applaud what appears to be the commitment of the sports industry to persevere through this crisis. Still, we foresee an influx of cases where contractual relationships will be closely inspected to determine who will bear the cost of losses suffered in attempts to recover some form of compensation.
Nonetheless, such clauses and claims for purported losses are likely to be considered by the courts by analysing the facts on a case-to-case basis. The courts may also look into whether parties took any reasonable steps to mitigate the impact of COVID-19 – for example; proceeding without the physical presence of spectators.
Without a doubt, COVID-19 has accelerated the application of technology in sports. Substantial usage of augmented or virtual reality, mobile ticketing, cashless payments, touchless entries, online food and beverage concessions, stand to form the new norm.
While the sports industry continues to find innovative ways and strategies to alleviate the impact of COVID-19, until such time sports and fans are allowed to return safely, we also need to remain vigilant of government policies and guidelines as these may also impact contract wordings in addition to the determination of the extent to which cancellations or postponements of sports events were involuntary or otherwise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.