COVID-19 and Cancellations of Sports Events: A Story of Force Majeure and the Search for Compensation
10 min read
The sports sector is one of many hit hard by the COVID-19 outbreak and the measures taken by governments around the world to fight the spread of the virus.
Competitions have been suspended and major events postponed or cancelled across various sports, from football, through Formula 1 to cycling and sailing. Most recently, it was announced that the Tokyo 2020 Olympics would be postponed to July 2021, after weeks of uncertainty with knock-on effects on other events already planned for 2021 which will need to be re-scheduled to accommodate the new date of the Olympics.
Federations as well as event organizers and participants are confronted with a number of sporting and financial challenges, as they will not be able to meet the legal obligations set forth in various sponsorship, broadcasting or other contracts. TV right holders are suspending the payment of the amounts due for broadcasting competitions that no longer take place.1 Disputes will undoubtedly arise with respect to whether compensation is due and who is to be held liable. There is a lot of solidarity at the moment around the world, but the sporting and economic impact may well soon be such that the reality of survival for some participants may force them to seek some form of legal remedy to address their needs.
Most contracts will include force majeure clauses, sometimes referring to a list of events that shall be considered force majeure. Swiss law does not contain a general force majeure defence, but the notion of "force majeure" is recognized by the Swiss courts. In addition, Swiss law sets forth related defences such as Article 119 of the Swiss Code of Obligations which provides that "[a]n obligation is deemed extinguished where its performance is made impossible by circumstances not attributable to the obligor." Also related to the notion of "force majeure" is the concept of "undue hardship" (or clausula rebus sic stantibus) which allows a party to the contract to invoke a change in circumstances that is so as to make performance become excessively burdensome and obtain a modification of thecontract or its termination. This notion of "undue hardship" is recognized under Swiss law2 but may also be included in the contract itself. It is recalled that Swiss law governs most contracts concluded by many international sports federations based in Switzerland.
The Swiss Federal Tribunal defines force majeure as being an event that it is unpredictable, extraordinary and that occurs with a force that is irresistible.3 Under international law in general, force majeure excuses a party from its obligations under the contract when certain circumstances arise beyond the party's control making performance impossible. In principle, three cumulative requirements are necessary for the application of the principle of force majeure: (i) performance under the contract must be rendered impossible;4 (ii) the event giving rise to the impossibility of performance must be unforeseeable; and (iii) the situation must not be attributable to the party seeking to invoke the principle. The mere fact that meeting the obligations has become more difficult, financially or otherwise does not suffice.
While the COVID-19 pandemic is likely to meet the conditions of unpredictability and non-attribution, the material impossibility of performing the obligation will have to be determined on a case-by-case basis. For example, questions that could arise in case of challenges are whether it was really impossible to hold the Olympic Games at the time foreseen in the summer of 2020 or simply more complicated? And what about the European football leagues that have been suspended? Will clubs that are currently at the bottom of a league accept relegation if the competition were to be stopped at this moment in time? Is it impossible to play the last games, even in June or July and possibly without the crowds? The press has already reported that, for example, "Hearts owner Ann Budge says she would consider legal action should her club be relegated from the Scottish Premiership with eight games left".5
The French Minister of Sport had suggested that the Tour de France could be held without the crowds6 – a pure television spectacle to keep those confined to their homes fully occupied. Audiences will probably never be higher, to the satisfaction of the sponsors and broadcasters. But Amaury Sport Organisation ("ASO") may not agree and consider that a Tour without spectators on the side of the mountain is not in the spirit of the Tour. It has not yet decided to cancel the 2020 edition but may well soon do so. What will the legal consequences of that decision be in terms of the organizers' obligations towards their sponsors and those that bought the broadcasting rights for the 2020 edition? Timing is important in this respect since decisions are taken today for situations that relate to, for example, July or August when the health measures may well be very different from what they are today. To what extent do sport event organizers have a genuine choice or are they forced to cancel or suspend their events because it was impossible to maintain the event?
An in-depth, situation-specific analysis of the rights and obligations under the relevant contract and in the context of the specific jurisdiction in question will be required. If a force majeure clause is included in the relevant contracts, the implications of invoking a force majeure clause will depend on its specific wording and the devil will be in the details. It may well be that the force majeure relieves the parties of the obligations under the contract going forward but that liabilities remain in terms of the services already rendered even if they cannot be continued in the future. It may also require the re-negotiation of the contract going forward or still require some form of compensation.
A final point worth making relates to the recovery of the sports sector and compensation for the damage caused by the COVID-19 crisis. Governments will very likely be willing to provide financial support to assist the sports sector. In the EU, such support will in principle need to comply with the EU rules on State aid. Across the EU, measures vary from governmental loans and guarantees to deferral of tax and social contributions, all of which could be a form of State aid, which usually requires approval from the European Commission before it is implemented. The European Commission has announced that, in the time of crisis, it will show flexibility to ensure that State aid can flow to companies that need it and has already set up a webpage dedicated to the matter.7 As many sectors will be looking for compensatory support, it is unclear whether the support will be limited to event organizers or will be made available also to compensate the affiliated service providers such as the player's agents for example or the sponsors. The more united the sector can act, the more likely it is to be able to get support. But, of course, there is also the risk of distortions coming from individual government measures. Respecting the legal disciplines while making use of the flexibilities currently provided in State aid rules will be key to a proper and fair recovery of the sector. Without an intimate knowledge of EU State aid rules and understanding the mechanisms available under various legal regimes to obtain compensation, well-intended government support could quickly become the subject of intense legal battles for years to come.
One cannot exclude that some investors may argue that governments' strict health measures have indirectly expropriated a number of investors from their investment in, for example, the broadcasting rights of major events and the resulting revenue streams. It is not unlikely that some will turn to the relevant governments for proper compensation based on the principle as reflected in Article 17 of the EU Charter on Fundamental Rights of "no expropriation without compensation."8 In particular, investors that fail to survive may well have no other means than to seek to recover whatever they can through litigation. In this context as well, notions such as "indirect expropriation" and the possibility of seeking compensation even when governments act in the public interest and in situations of force majeure have a long history in international law. Knowledge of this history is essential in properly determining the rights and obligations of the various parties involved.
In sum, the effects of COVID-19 on the sports industry are such that concepts of "force majeure" and "undue hardship" may soon take centre stage as stakeholders are confronted with the legal and financial costs of the crisis caused by the virus. Obtaining support for the recovery of the sector from governments in line with relevant rules on State aid or subsidies will be essential. But, litigating to obtain compensation may be inevitable. In addition, there is the sporting impact that the virus has had and may have on all important questions of finalizing the competitions, deciding on championships, relegations, transfers, sponsorship deals, and the price of television rights for next season. Hopefully, we will soon be able to beat COVID-19, but the legal battle of who pays the price of the crisis will likely continue for a long time, with no winners.
White & Case is uniquely qualified to support sports entities seeking to better understand their rights and obligations under the law of the relevant sports federations, as a matter of Swiss Law, under EU law, and in application of the relevant European as well as international rules on State aid and investor protection. Our team is available under short notice to assist in a timely manner.
1 For example, Canal Plus and BeIn Sports are reported as suspending the payment of TV rights to the French League 1 for the live broadcasting of football games which are no longer being played. See, https://www.sportspromedia.com/news/bein-sports-lfp-ligue-1-tv-rights-instalment-suspended-coronavirus
2 See, for example, Swiss Federal Tribunal decision dated 26 September 1974 (ATF 100 II 345), consid. 2.b
3 See for example, Swiss Federal Tribunal decision dated 19 December 1985 (ATF 111 II 429), consid. 1.b): "la forza maggiore, evento imprevedibile e straordinario che sopraggiunge con violenza cui non si può resistere".
4 Force majeure is defined in Art. 23 (1) of the International Law Commission (ILC) Articles as "the occurrence of an irresistible force or of an unforeseen event, beyond the control of the State, making it materially impossible in the circumstances to perform the obligation". See, e.g. Rainbow Warrior (New Zealand v France) France–New Zealand Arbitration Tribunal (1990) 20 RIAA 215, p. 253. See also e.g. Karaha Bodas Award, ICC Case No. 2508, Award of 1976. para. 197: "There is not force majeure if the relevant event is not insurmountable.
7 See, https://ec.europa.eu/competition/state_aid/what_is_new/covid_19.html
8 See Article 17 EU Charter of Fundamental Rights: "Right to property : 1. Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest."
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