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With the AFL and NRL conceding the possibility of playing matches in empty stadiums and other major events considering postponement or cancellation, leading sports law professional, Chris McLeod, suggests it is opportune for sponsors and rights holders to audit their commercial agreements.

McLeod is a partner at law firm Clayton Utz and has 25 years' experience in intellectual property law. He has assisted many major brands including Toyota and adidas with their sponsorship agreements.  

McLeod advises that an audit of sponsorship arrangements should be undertaken to see where sponsors and rights holders stand legally and commercially in the event of radical changes, or cancellations.

He said the audit should first examine the agreement to see if it required the event to actually take place and whether it has any protection or remedy if there is a radical change or cancellation resulting in damaging the sponsorship’s value.  For example, its value might be diminished if the event proceeded without live spectators, McLeod said.

If the agreement contains contractual promises and protections, the question is would the  sponsored organisation avoid  a breach because COVID-19 was deemed an event of force majeure, he added. 

How a force majeure clause was drafted, and why the event was cancelled or altered, were important considerations.  If the event was cancelled because of government intervention it might be more appropriate for a rights holder to rely on force majeure protection, he said.

The drafting of a force majeure clause should also be examined to determine if a sponsor would receive a refund or if there are other remedies for benefits that are not delivered.

McLeod cautioned that even if a sponsor has full legal cover, it still must decide if it wants to enforce the agreement, given the adverse impact it might have on the rights holder. 

The latter could suffer significant financial stress if the event can’t proceed, McLeod said.  So, not only would sponsorship revenue be in jeopardy but also gate receipts, merchandise, food/beverage sales and media rights, he added. 

A sponsor should consider adverse PR consequences in this scenario and look at how the relationship could be restructured to agree a suitable outcome for all parties. 

McLeod said the same applies for rights holders if a force majeure clause sees it not required to refund sponsorship fees. 

It would need to consider if it is in its best interests to insist on payment of full sponsorship fees but deliver less than was expected, McLeod concluded.

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