Covid-19: the view through a football broadcaster’s lens – is a legal dispute inevitable?
In a meeting on 18 May, the English Premier League (EPL) clubs voted unanimously in favour of allowing teams to resume training in small groups. EPL clubs have since returned to training, and competitive matches are set to recommence from 17 June.
Across the border, however, the Scottish Professional Football League (SPFL) clubs have determined that completing their campaign is unfeasible and have accordingly concluded the season based on “sporting merit”.
We explore (i) the importance of broadcasting and other commercial contracts as a key driver in determining the different courses of action taken in England’s and Scotland’s top divisions; and (ii) the possibility of a legal dispute flowing from these crucial - and often highly lucrative - deals.
The importance of broadcasting contracts
As set out in UEFA’s latest Club Licensing Benchmark report, the commercial drivers of the English and Scottish leagues are very different:
- The EPL generated €5.4 billion in annual revenue, of which 53% is attributed to TV broadcasting rights (and this income accounts for more than 80% of revenues for seven of its 20 clubs); 7% to revenue from UEFA; 13% to gate receipts; 26% to sponsorship/commercial revenues; and 1% to other revenue streams.
- The SPFL, on the other hand, generated €229 million, of which 10% is attributed to TV broadcasting rights; 18% to revenue from UEFA; 43% to gate receipts; 26% to sponsorship/commercial revenues; and 3% to other revenue streams.
EPL football therefore appears to be far more reliant on TV and other commercial revenues (responsible for 79% (approx. €4.3 billion) of its revenue), as compared to the SPFL (where TV and other commercial revenues account for 36% (approx. €82 million) of its revenue). On the other hand, gate receipts are more fundamental to the SPFL and its clubs (responsible for 43% (approx. €98 million) of its revenue), as compared to the EPL (to which gate receipts account for 13% (approx. €702 million) of its revenue).
Covid-19 has exposed the gulf in revenue streams between these two leagues. With no prospect of any gate receipts or match-day income for some time, a major source of revenue for Scottish football has been frozen. Together with a myriad of other legal, commercial and health considerations, this has forced a premature end to the SPFL. As noted by Neil Doncaster, the Chief Executive of the SPFL, there was “no realistic option but to call the Ladbrokes Premiership”.
Shifting focus to the EPL, one driving motivation behind “Project Restart” may have been to limit the rebates that might be owed to broadcasters and other commercial partners if the season is not completed. Given the impact of TV and other commercial revenues on English football finances, untangling these high-value, complex, commercial contracts is likely to be a last-resort measure. The Chief Executive of the EPL, Richard Masters, has warned that if the current season cannot be completed, losses would likely be in excess of £1 billion. Football matches played behind-closed-doors, but, crucially, still televised, would limit such financial consequences. Nevertheless, even with the season’s resumption, broadcasters may reportedly be entitled to a £330 million rebate.
Notwithstanding the different courses of action taken in England and Scotland, the pandemic has placed great strain on the contractual performance originally contemplated by the broadcasters and other commercial partners on the one hand, and the leagues and their clubs on the other. It raises the question of whether camera lenses might soon be turning their focus from the pitch to the courtroom.
Is a legal dispute inevitable?
Much depends on both the strength of the commercial relationships and the wording of the broadcasting and other commercial contracts at play. Putting commercial relationships aside, the starting point when interpreting any contract under English law is the words chosen by the parties, with effect to be given to their natural meaning wherever possible.
These contracts are not in the public domain and disputes of this kind are rarely straightforward. However, the following issues are likely to arise:
- Where football is resuming, broadcasters and other commercial partners may argue that the product that they are televising/sponsoring is not the one that they contracted for. Empty stands are a reality for the foreseeable future and some of the spectacle is arguably lost. As a basis for a contractual claim, broadcasters and sponsors may rely on one of the sport’s favourite clichés – “football is nothing without its fans”. Such arguments, however, are reportedly contested by EPL clubs who argue that this in fact only increases the premium on televised football.
- Reports suggest that the EPL’s broadcasting contract provides for significant further financial penalties to be borne by the league and its clubs for each week beyond 16 July that the season fails to complete. Given the recent pressure on football’s bottom line, clubs would have every incentive to argue against accepting liability if that deadline cannot be met. Other commercial partners will also be considering whether similar provisions exist under their agreements.
- As we have considered in a previous blog post, all parties to any contract are currently likely to be closely scrutinising any force majeure clauses and the exact legal consequences which flow from these, for example whether they justify non-performance. Where no such clause exists, it remains open to a party to argue that the contract has been frustrated and cannot be performed, thereby bringing it immediately to an end. Even with football’s imminent or recent resumption in many leagues, these clauses and arguments will remain relevant, particularly if the current season cannot be completed, for example because of a “second spike” in Covid-19 cases.
A legal dispute of some kind is not just inevitable, but likely already underway. The key question is what comes next. The decision to commence court proceedings is not one that will be taken lightly. As well as the costs involved, such disagreements often attract media scrutiny and unwanted publicity. Legal action would also inevitably threaten long-term commercial relationships. Before a disagreement becomes truly contentious, both sides might consider alternative dispute resolution mechanisms, including confidential commercial negotiations or mediation to search for a middle ground. If matters do become contentious, parties might consider arbitration. This route, much like the football it relates to, takes place behind-closed-doors and away from spectators, providing parties with a greater prospect of preserving confidentiality.
Out of adversity comes opportunity
What should not be lost amongst these issues is that lockdown provides both sides not just with risk, but also opportunity. With no match-going fans, the number of armchair supporters will inevitably be on the rise. With creativity and collaboration, increased subscription revenues could yet provide financial comfort for all concerned.
Sky recently announced that it will show a record 48 games for the SPFL’s 2020/21 season, with novel ‘virtual season tickets’ presumably giving fans the option to subscribe to a bespoke package, allowing them to watch live coverage of their team’s games. Sky noted that this will provide an alternative source of matchday income for SPFL clubs while social distancing measures prevent fans from attending matches. The announcement, part of a new five-year deal, confirmed that financial liabilities resulting from unfulfilled fixtures from the 2019/20 season will be spread over the duration of the contract. Reports suggest that Sky is set to tread a similar path in respect of the EPL, with rebates to be deferred until the 2021/22 season on the proviso that the current season concludes by mid-July. It remains to be seen whether other broadcasters will follow suit.
The importance of commercial revenues in guiding the decision-making of leagues and clubs is only likely to increase as long as games are behind-closed-doors.
For clubs in Europe’s top leagues that have the benefit of lucrative deals, this may be a saving grace. For those that are more heavily reliant on gate receipts, financial problems look likely to persist, although proposals like the ‘virtual season ticket’ in Scotland may mitigate issues in this respect. Nevertheless, calls for greater solidarity payments from elite clubs to lower leagues are likely only to get louder, accompanied by renewed attention on the possible introduction of controversial salary caps as clubs further seek to cut costs and level the playing field. Pressure is also likely to mount on governments to provide financial support to prevent the collapse of the foundations of the footballing pyramid.
What is clear is that the relationship between football and its commercial partners has never been more important. Despite the increasing risk of litigation, for those leagues and clubs that benefit from this crucial revenue stream it potentially offers a financial lifeline. For broadcasters of leagues that are resuming, there are still opportunities to attract subscribers and make up for lost time (which also bring with them significant benefits for the commercial partners of those clubs).
Whatever side you’re on, the game might be changing, but there’s still plenty to play for.