Labor disputes caused a few professional sports leagues to call a timeout in 2011. For example, the National Football League locked out its players for nearly four months before the league and its players union agreed to a new collective bargaining agreement a little more than a month before the start of the 2011 season. Another example was the labor dispute involving the National Basketball Association.
The cancellation of games and the empty airtime on game nights presents a massive lost opportunity for companies that relied on these events as a means of advertising their product in front of millions of viewers. The legal questions this raises are complex, one of which is what provisions a business can incorporate into its sponsorship agreements with a league that will protect it in the event lockouts impair an originally scheduled professional sports season?
First, many sponsorship agreements include “force majeure” clauses. A force majeure clause generally excuses one party from failing to perform its contractual obligations due to an event that is beyond the non-performing party’s control. These clauses are commonly included in sponsorship agreements, but sponsors would be wise to also include language that incorporates a lockout or similar labor dispute in the definition of what constitutes force majeure. Specifically, the clause should address if and how long such a clause protects the league from its obligations to the sponsor and what the sponsor’s payment requirements are during such a period. The agreement’s language should also be broad enough to account for a variety of labor disputes that would impair the league’s ability to fulfill its obligations. Any definition of “labor dispute” should be broad enough to encompass (or should specifically enumerate) a lockout, strike, decertification, injunction or any other labor-related event that would preclude the scheduled games from being played.
Sponsors should also consider how any absence of games affects the sponsorship term to which the company and league agreed. For example, if an agreement between a soft drink company and a hockey league states that the agreement is to last for five years, and a one-year lockout falls within those five years, how does that affect the term of the agreement? One option would be for the sponsor to have the term that is lost due to a force majeure or similar event be suspended from the amount of time that is counted as completing the term of the agreement. Language could be inserted in the agreement that gives the sponsor the option of extending the agreement for a term that is commensurate with what was lost due to the labor dispute.
While sponsorship payments are generally not due during the offseason, the cancellation of regular season games can complicate what and when payment is due. A sponsor can negotiate into the agreement a reduction in the sponsorship fee for situations in which a labor dispute might postpone the regular season. Since sponsors generally have to plan their advertising campaigns well in advance of the season, this sort of clause can help the sponsor avoid a situation in which it would be committed to regular payment despite a lack of games.
© 2012 Nissenbaum Law Group, LLC