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August 27th, 2020
August Sports Industry News 2020
The Old College Try: Asserting Force Majeure in an Attempt to Escape Major Sponsorship Deals
As we noted in our last sports industry alert, Under Armour issued a notice of termination of its Athletic Product and Sponsorship Agreement with UCLA (a 15 year, $280 million agreement that was just in the fourth year of its existence – and which just this week has resulted in a breach of contract lawsuit by UCLA ). Under Armour has also notified the University of California – Berkeley of its termination of a similar agreement (the “Official Outfitter Agreement”) and related Offer Letter – a 10 year deal signed in 2016 worth just over $85 million – and Cal-Berkeley is pushing back hard. Under Armour has argued that a force majeure event has continued “for more than one hundred (100) days” and therefore termination is appropriate under the force majeure provision in that agreement (which covers events such as “national emergencies” and “acts of any regulatory, governmental body and/or agency” – things that would arguably apply here, given local and state officials’ stay-at-home orders and the PAC-12 conferences suspension of sports competitions). Under Armour also argues that Cal-Berkeley breached the Official Outfitter Agreement and prior Offer Letter by allowing Nike products bearing the Cal-Berkeley trademarks to be sold on Fanatics.com and the official website of Cal-Berkeley sports and therefore Under Armour has the right to terminate for this breach. Cal-Berkeley refutes Under Armour’s position on several grounds: primarily, that the Official Outfitter Agreement was never signed and therefore the Offer Letter executed between the parties (a document that Cal-Berkeley calls the "Letter Agreement"), which does not contain a force majeure provision, governs the relationship; and regardless of which document governs, Under Armour does not have the right to terminate the relationship under either document. Cal-Berkeley argues that a force majeure event has not occurred (because Under Armour’s obligation to provide financial support and athletic gear to Cal-Berkeley’s teams is not prevented by any national emergency or act of a regulatory body) Cal-Berkeley also argues a breach of the exclusivity provision has not occurred (the Nike Cal-branded products were several years old, sales for which were immaterial (only 34 units during the time in question), and were subject to a license that pre-dated the Under Armour relationship). As we noted about the UCLA dispute, given the amount of sponsorship dollars at stake, this dispute will likely continue until addressed in court or settled with a mutually agreeable buyout.
Can a Company Argue a Morals Clause?
While morals clauses are often found in individual endorsement or other talent services agreements, including them in sponsorship agreements with companies may also be justified. Consider the recent actions against FirstEnergy Corp., an electric utility in Ohio that is the naming rights partner for the Cleveland Browns’ stadium (per a 17-year, $102 million deal signed in 2013). Federal prosecutors implicated the company in a racketeering case against state legislators and lobbyists, and following that, several class action lawsuits were filed against the company alleging securities fraud and RICO violations. Although morals clauses addressing the actions of a company are difficult to negotiate (unlike one in an agreement with an individual – where only one person’s actions are at issue), incorporating these clauses in long-term deals, such as naming rights sponsorships, should be considered. In those rare instances where a company itself may be indicted, a sports property may well want to take advantage of a termination right for a breach of the morals clause.
Who Owns Athlete Data?
A simple question, with a not so simple answer, but an ex-soccer coach and over 400 players in the United Kingdom assert that it should be the athletes themselves, as they have recently threatened to file a lawsuit against video game manufacturers and betting companies who use players’ personal data for their products. Invoking the EU’s General Data Protection Regulation (“GDPR”), the players claim that they have neither given consent to these companies’ use of their personal data nor have they been given the chance to be either reimbursed for the use or have their personal data removed entirely. They also argue that they have not received the chance to change data they feel misrepresents them, which may include basic characteristics such as height and weight. (In the US, the ownership and use of athlete data is something that is collectively bargained between the applicable players association and league.) If filed, this will be an important lawsuit given the recent uptick in licensing deals for athlete data in team sports, and one that will likely come down to whether the data at issue is personal data falling within the purview of GDPR or whether the data is publicly available information that is not subject to that law.
IP Rights, Sliced and Diced
Two recent examples show how intellectual property rights in the sports world are often owned by different parties and how sponsoring entities can take advantage. First, the NFL Players Association has licensed their members’ names, images, likenesses, and numbers to 2K Sports for the creation of a “non-simulation” football game, while EA Sports (which has long used these rights for its Madden franchise) retains the right to produce “simulation” NFL games. This is a license of the same IP rights, but ultimately for a different – albeit similar – usage. (What will “non-simulation” football look like). Second, in the same Summer that Premier League champs Liverpool FC begins a lucrative kit sponsorship with Nike (following a lengthy lawsuit), its well-known manager Jurgen Klopp signs an endorsement deal with Adidas. While the team will be wearing Nike logos on their jerseys, their manager will be sporting Adidas footwear on the touchline. As you can see, rightsholders in sports can provide competitors with similar rights for similar uses without, presumably, breaching other rights agreements.
Looting Game Players?
In a recent trend in class action litigation, aggrieved plaintiffs have sued video game publishers over the use of “loot boxes” – an in-game microtransaction paid for with real or in-game currency that allow game players to “open” a virtual container to receive randomized items – arguing, among other things, that the purchase of these items constitutes unfair business practices, breach of contract, and false advertising. In a new twist, a recent action against Electronic Arts over “loot boxes” appearing in the publisher’s Madden and FIFA franchises argues that these items constitute illegal gambling under California law: a purchase (which plaintiffs argue is a wager), a chance to win (which plaintiffs argue is limited), and a prize (which plaintiffs argue is often not very valuable). Plaintiffs argue that the “loot boxes” here - “Ultimate Team Packs” in which a player may find a legendary athlete - “are nothing more than a gambling bet, [featuring] completely randomized chances to win valuable professional players and other items.” Electronic Arts, which has not yet filed an Answer to the complaint, will likely argue that the California anti-gambling statute never intended to cover “loot boxes” and, in any event, the end user license agreements for these games require game players to resolve disputes via arbitration. (As noted below, Franfurt Kurnit's Sean Kane participated in the Federal Trade Commission’s public workshop related to microtransactions in video games: “Inside the Game: Unlocking the Consumer Issues Surrounding Loot Boxes” in August 2019, the findings from which were recently published by the FTC.)
And Now, a Word From Our Bloggers
Jeffrey Greenbaum covers a federal court decision addressing the materiality of a false advertising claim in a case brought by RotarySwing Golf, a subscription golf instruction site, against a competitor, Axys Golf.
Noted and Quoted
Risks with Summer Olympics Ticket Purchases
Christopher Chase spoke with the Associated Press about whether or not ticket refunds will be available following the postponement (or possible cancellation) of the 2020 Tokyo Olympics.
Microtransactions, Loot Boxes, and the FTC
The FTC recently published its findings from their day-long public workshop held in August 2019: “Inside the Game: Unlocking the Consumer Issues Surrounding Loot Boxes,” in which Sean Kane participated.
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If you have questions about sports industry legal matters, please contact Christopher Chase at email@example.com or (212) 826 5568, or contact any other member of the Sports Group at Frankfurt Kurnit.
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