Frankfurt Kurnit Klein & Selz

June 29th, 2020

June Sports Industry News 2020

Inching Back to the Starting Line

With July approaching, several US sports leagues are set to return – many of which will attempt to do so in a “bubble” concept (the NBA, NHL, MLS, and WNBA in Orlando, and just this past weekend, the NWSL kicked off a month-long tournament in Utah). They no doubt have paid attention to how top-flight leagues in Europe – mainly the German Bundesliga and English Premier League, which both set ratings records – restarted their seasons. And while some US sports have already begun, the pandemic reminds us that there are still risks – a handful of PGA Tour golfers and caddies and UFC mixed martial arts fighters tested positive for COVID-19 after their sports returned, a number of college football players tested positive for COVID-19 upon return to campus for workouts, and the Orlando Pride had to withdraw its entire team from the NWSL tournament before it even started due to several players and coaches testing positive. 

What does this mean for broadcasters, advertisers, and sponsors? Broadcasters often have the right to terminate or withhold payment if a certain number of games/events are not held, so restarting will help fulfill US leagues’ obligations to broadcasters under their distribution agreements. Likewise with sponsors, where leagues and teams are working on make-goods for their current partners in order to fulfill sponsorship agreements. Consider the following:

• Without fans being able to attend most, if not all, of the restarted sports, broadcast ratings should see an increase. For example, the June 21 Everton-Liverpool match was the most watched Premier League game ever on British television.
• Rather than signing up new sponsors or selling to new advertisers, the focus for US leagues and teams will likely be on satisfying current partnerships – even when new or alternative assets are rolled out, those will be offered to current partners before going to the open market.
• However, such make-goods will need to be viewed through the lens of fan-less venues – for example, in-venue advertising signage that is TV-visible will be much more important than signage meant to be seen by fans in the venue.
• Because matches are being played “behind closed doors” without fans, English Premier League clubs have installed tarps over the seating areas that include sponsor logos and other club messaging. The NFL is considering a similar idea when its season begins – placing camera-visible tarps over the first six to eight rows of seats in their stadiums, which will be without fans this season and which will create lucrative marketing assets for teams to sell to local sponsors.
• Virtual signage appears to be a big part of the return to live sports. MLS plans to implement virtual advertising and other technologies to fulfill a portion of lost revenue when it returns with its “MLS Is Back” tournament. MLB is considering adding six virtual signage positions near the field in order to “ease the financial pressures of the coronavirus pandemic.” And the NBA is also working on a plan to allow teams to provide on-court and near-court virtual signage for games played at the Disney facility in Orlando in order to “fulfill sponsorship agreements from their most valuable business partners and offer make-goods for missed games.”
• Even revised sporting rules are being turned into commercial opportunities. Given the long layoff, FIFA has mandated that soccer leagues include hydration breaks once a half, and this past weekend’s NWSL tournament ran commercials during that break period.

Sponsorship and Licensing: Recent Disputes and Summer Games Intrigue

• MLS club FC Cincinnati (“FCC”) and its sponsorship sales agency Premier Partnerships brought dueling lawsuits against each other, each arguing breach of contract for bad faith activities arising out of their consulting services agreement. Premier, responsible for finding a naming rights sponsor for FCC’s new stadium, among other sponsorships, alleges in a federal court complaint that after successfully obtaining several sponsors for FCC, FCC hindered Premier’s ability to perform its services as a pretext in order to terminate their agreement – and avoid paying commissions. FCC, filing in state court in Ohio, alleges that Premier’s breach cost them tens of millions of dollars in revenue, including the failure to find a naming rights sponsor in accordance with MLS rules. Each party argues breach of contract, with Premier adding a claim for breach of the implied covenant of good faith and fair dealing and FCC asking the court to void the agreement. 
• Under Armour issued a notice of termination of its Athletic Product and Sponsorship Agreement with UCLA, which, at the time of execution, was the most lucrative deal in college sports. By issuing its notice now, Under Armour is attempting to exit the 15 year, $280 million agreement in just the fourth year of its existence, noting that it has “been paying for marketing benefits that we have not received for an extended time period.” Indeed, the agreement includes several triggering events that could lead to termination, such as breach of the agreement that is not cured within 30 days of notice; if coaches, staff, and team members fail to wear Under Armour supplied products in breach of their exclusivity obligations; and the lack of “Core Teams” (football, men’s and women’s basketball, and baseball) not participating in a complete regular season (although there is an exception if such non-participation is due to force majeure). The brand argues that “the agreement allows us to terminate in such an event and we are exercising that right.” If they are not simply invoking breach, the brand is most likely invoking that latter termination right for the failure of completed seasons. Given the amount of sponsorship dollars at stake, UCLA will presumably challenge this termination.  
• With local organizers set to produce a more simplified version of the Summer Games and with most sponsorship deals expiring by the end of 2020, Japanese broadcaster NHK found that two thirds of current local Japanese sponsors are undecided as to whether to continue their sponsorship in 2021. And it’s even possible that the Tokyo Olympics may not happen at all – the local organizing committee has stated that it would wait until Spring 2021 to decide whether to go ahead with the Summer Games.
• The municipality of Elk Village, Illinois plans to sponsor a US Olympic team for the (now 2021) Tokyo Olympics. Elk Village, which already has a somewhat unusual sports sponsorship (of a college football bowl game in the Bahamas), intends to offer “a $100,000 sponsorship before governing bodies of nearly 20 summer U.S. Olympic teams.” Like the bowl sponsorship, this sponsorship "would help promote Elk Grove's massive village business park and 'Makers Wanted' tagline." With Olympic teams’ likely running low on sponsor dollars for 2020, even such an unconventional sponsorship would be a welcome addition.

Name, Image, Likeness Rights Coming to Sunshine State Campuses First

Florida’s governor signed a law that will allow college athletes in the state to profit off their name, image, and likeness starting in July 2021, which is about two years earlier than when the rights under California’s similar law will go into effect. With the NCAA to propose rules on this issue no earlier than January 2021, Florida’s law may press the organization on providing similar rights and on an earlier timeframe. However, a new federal bill, proposed by Florida Senator Marco Rubio, would require the NCAA to change its name, image, and likeness rules by June 2021, but – and for the benefit of the NCAA - would also protect the NCAA from legal challenges to any such new regulations. One of Senator Rubio’s concerns, which is also that of the NCAA, is the possibility of 50 different separate laws, potentially altering the competitive balance of NCAA schools depending on which state’s laws apply.

And Now, a Word From Our Bloggers

Maura Wogan looks at the recent dismissal of former New York Mets player Lenny Dykstra’s defamation lawsuit against his former teammate Ron Darling.

Noted and Quoted

Frankfurt Kurnit is honored to have been listed as a top tier firm for Advertising and Marketing, Media and Entertainment, and Cyber Law in the latest edition of The Legal 500, with many of our attorneys being recognized individually.

Want to Learn More?

Jordyn Eisenpress presents “The Rise of Influencers and What They mean for Marketing (and Law)” during the Rocky Mountain Intellectual Property & Technology Institute’s 2020 virtual conference on July 23.

We’re taking a break from in person conferences and presentations, but please visit our website to see if there is a webinar that may interest you.

If you have questions about sports industry legal matters, please contact Christopher Chase at cchase@fkks.com or (212) 826 5568, or contact any other member of the Sports Group at Frankfurt Kurnit.