Similar to the case between Rangers FC and Sports Direct which we covered last year, the recent case between sportswear manufacturer, New Balance, and Premier League football club, Liverpool FC, shows yet again the importance of drafting a clear matching clause.
A well drafted matching clause is a useful commercial term, providing a supplier with the opportunity to stay ahead of the game and extend (or at least renegotiate) its existing agreement with a customer by offering the same terms as its competitors.
Unlike the Rangers and Sports Direct case, it was the football club that came out on top this time, with the High Court dismissing New Balance's claim that it had the right to renew its kit supplier agreement with Liverpool FC, as it concluded that New Balance had not matched the offer of a rival sportswear manufacturer in all material ways.
US sportswear brand and Liverpool FC's current kit supplier, New Balance Athletics, Inc. ("New Balance") commenced legal proceedings against The Liverpool Football Club and Athletic Grounds Limited ("Liverpool FC") to prevent the European Champions from signing a merchandise sponsorship deal with competing brand Nike, once New Balance's deal expires in May 2020.
The dispute concerned New Balance's argument that Liverpool FC failed to honour the agreed term (the matching clause) in the kit supplier agreement between the two which gave New Balance the option to renew its kit supplier agreement with Liverpool FC by matching any competing offers.
The key question for the High Court was whether the terms of New Balance's counter offer were less favourable to Liverpool FC than the "the material, measurable and matchable terms" of Nike's offer, which was favoured by the football club.
The High Court dismissed the case, ruling that Liverpool FC was not bound by New Balance's counter offer and could enter into the agreement with Nike on the basis that the two competing offers were not materially alike. The offers were distinguished on the basis of the superior marketing reach that Nike could make available to Liverpool FC. In particular, Nike's commitment to promoting Liverpool FC merchandise and products through endorsement deals with "global superstar athletes" and celebrities "of the calibre of LeBron James, Serena Williams, Drake etc" was crucially omitted from the New Balance offer.
What to consider when drafting a matching clause
The key to drafting a matching right is to specify the duration and scope of the right and to consider what exactly the supplier must match. The case highlights that matching or exceeding the terms of a competitor's offer in one sense (price) will not counteract a shortfall in another (marketing reach). As such, any agreement should clearly specify which terms must be matched.
Had the matching right in New Balance's agreement with Liverpool FC specified that price was the only consideration to be taken into account, rather than marketing ability as well, we might have continued to see New Balance, rather than Nike, on Liverpool FC's kits and merchandise for the foreseeable future. For a time it looked like we were more likely to see New Balance and Liverpool FC together in the court room rather than the football pitch from next season onwards. However, it's now looking unlikely to be either scenario with New Balance's appeal being refused on 1 November.
Confidentiality is increasingly important in football, so much so that players have even taken to covering their mouths on the pitch to prevent others from overhearing or lip reading their conversations. Returning to the business world more generally, it is crucial to consider confidentiality in respect of matching clauses.
A matching clause requires that the party benefitting from the clause is notified of competing offers so that it can assess and match them. A business that has granted a matching right should therefore ensure that any company making an offer permits disclosure of the terms of that offer to the party benefitting from the right. After all, disclosure without that permission could represent a breach of confidentiality, leading to the potential for a costly penalty.
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.