Without doubt, Covid-19 is having an enormous social and economic impact, a situation from which the sports industry is not exempt. Regardless of the sports practice, the country or the magnitude of the sport competition, we have witnessed during these last two months a continuous trickle of temporary postponements or definitive cancellations of competitions and sports events.
In what situation does this pandemic leave the sports industry in Spain? What are the legal aspects to be debated? What legal instruments do we have in Spain? What legal position do such important stakeholders have for this industry as sponsors or TVs and audiovisual platforms? Are there opportunities within this scenario? In summary, what challenges from a legal perspective in Spain does Covid-19 leave us within the sports industry and how to deal with the diverse legal matters that arise？
The consequences of the Covid-19 crisis in the sports industry have captured a lot of media interest in the last weeks. Below, we answer five legal questions which, due to their economic significance, will have an impact in the short or medium-term on the future of the sports industry.
Ⅰ. What is the status of contracts for professional team sportsmen and women?
Like any other entity, sports clubs and/or Limited Liability Sports Companies (in Spanish "Sociedad Anonima Deportiva or "S.A.D.") can also take advantage of the temporary employment regulation proceedings (ERTEs) for reasons of force majeure that are set out in Royal Decree-Law 8/2020 of 17 March (RDL 8/2020). It should not be forgotten that these entities as well as professional sportsmen and sportswomen are subject to the same labour regulations. For this reason, this report does not question the fact that clubs or S.A.D. can apply to the ERTE due to force majeure.
Similarly, the position of certain sports federations, such as the RFEF, which would like to see football clubs or S.A.D. not go down this route is unrealistic and unfortunate, especially as it is an entity that has delegated administrative functions and whose main mission must be to ensure the promotion and maintenance of the sport of football. It is worth remembering that a club or S.A.D. is not only made up of sportsmen and women but also of a large group of non-sporting workers. Indeed, either in football, basketball, roller hockey, or handball, several clubs have taken advantage of the ERTE's measure. Those clubs and/or S.A.D. that have not yet applied an ERTE may still benefit from it if they consider it finally necessary.
Another measure applied by the clubs or S.A.D. - at least in football and basketball - has been the collective private agreements of salary reduction with their professional players. It is fair to acknowledge the common sense, social sensitivity and solidarity shown by the vast majority of football and basketball players in this country in reaching such agreements to support the financial viability of their employer, as well as to preserve the jobs of their non-sporting colleagues.
The issue under legal debate at the moment, once the first impact of Covid-19 on the contracts of professional sportsmen and women has been overcome with success, is the validity and duration of those contracts that end on 30 June 2020. If the competition is resumed, it will most probably end later than such date foreseen in the contract. This is a question that has been usually anticipated and covered in the collective agreements signed between the clubs and their players.
On the other hand, it should be borne in mind that RDL 8/2020 establishes that those temporary contracts that, because of Covid-19, cannot comply with the initially agreed purpose, will be interrupted. Thus, the situation of those clubs or S.A.D. that have applied an ERTE to their sportsmen and sportswomen whose contracts have a termination date set at "the end of the 2019/2020 season" (i.e. with no express mention of 30 June) should be analyzed to determine whether those contracts would be automatically extended until the end of the competition beyond 30 June.
However, the extension of contracts beyond 30 June seems to have a "sport-administrative" obstacle in terms of the initial sports licence which was issued until 30 June. This should not be an obstacle to the continuity of the sportsman or woman beyond 30 June because the sports federation that issued the licence can perfectly well modify and extend the term of the licence.
In short, two final conclusions:1.the rights of professional sportsmen and sportswomen as workers prevail over the integrity of the competitions in which they participate. And,2.the circumstances caused by the coronavirus open up a world of possibilities that in the future must be provided for contractually, regulating and administratively.
Ⅱ. How are sports sponsorships?
Sports sponsorship is a sector that has not stopped growing in recent years. This 2020 has been a strong blow at a global level and significant losses are expected for certain brands in the sector. This new circumstance will affect certain current sponsorships and will open the door to new sponsors.
To date, companies sponsoring clubs or sports competitions in Spain have acted patiently and quietly in claiming reductions or refunds of sponsorship fees from their sponsored parties. However, it is only a matter of time - as is already the case in the United States, England, Germany or Italy - before several of these sponsors make demands for reduction or refund of sponsorship fees due to contractual considerations or applicable law which, in the case of the Spanish law, offers mechanisms to request from the moderation of the sponsorship fee to the early termination of the sponsorship contract by the sponsor.
When sports events are postponed and/or temporally suspended, sponsors -either of a club, event or athlete- lose visibility and the object of the contract is indeed frustrated. It should not be forgotten that sports sponsorship is much more than brand visibility, and that the cancellation of events or competitions or, where appropriate, their hosting without an audience affects the sponsorship itself. Although there are ways to keep sports sponsorship activated these days thanks to technology and social networks, the return on investment in sports sponsorship (the so-called "ROI") decreases. As an example, several sponsors use sports sponsorship as a tool to build customer loyalty or to attract new customers, actions that disappear completely in the current scenario and will most likely remain inactive both in the short and medium-term after the Covid-19.
In sponsorship contracts, force majeure clauses and solutions for both parties are usually established. In the contract, both parties "play on the same team", and therefore the most beneficial thing would be to reach an agreement. Therefore, despite the negative impact that Covid-19 has in the short term for both sponsor and sponsored party, it will be convenient to analyze the contract, the sponsorship situation and make a joint strategy in the medium-long term.
In the case of sports events postponed to a certain date in 2021, it would be best to agree - if not already provided for by contract - on an automatic extension of the rights and obligations of the sponsorship contract until a date later than the date of the event. Both the sponsor and the sponsored party have already made a significant investment, and breaking the sponsorship would only entail a loss for both. However, contractually, the new extension scenario must be well regulated, to avoid possible claims in case of failure to meet expectations.
Ⅲ. How to refocus TV/audiovisual rights?
It is clear to everyone that television revenues are a fundamental pillar of what professional sport collects, and the sports industry in Spain is no stranger to this. From a sports industry perspective and concerning those competitions/tournaments where TV rights are the major source of revenue, "the current season must be finished no matter what", not only for sporting reasons (promotions, relegations, qualification for future competitions) but above all for purely economic reasons.
Television and/or audiovisual rights contracts usually establish payment calendars, with a first payment before the start of the season and the remaining payments upon compliance of certain agreed milestones during the season. Therefore, in most professional competitions there are still payments to be met, but as the competitions are suspended, these will not be paid until they are resumed or at least, if payment is claimed, the television has cause to withhold it.
Generally, television rights contracts include force majeure clauses and even in the case of major sporting events or competitions, causes for suspension or cancellation are already provided for. Contrary to what public opinion may perceive, TV/media companies and/or platforms that bid for such audiovisual rights are few and far between and are very limited by the economic volume of these contracts, not to mention that the sale of these rights is established in a medium-long-term. For all these reasons, there is no point in starting a lawsuit, since it would be counterproductive to try to collect payments now and then break off relations. The key is to find a balance.
In conclusion, focusing on the short-term consequences, renegotiation of TV/media contracts is expected to come over and over and either to be downgraded or the duration or rights granted to be extended, since cash constraints are looming for audiovisual rights operators, as it happens in other industries.
Ⅳ. Will opportunities arise to invest in the Sports Industry?
It is anticipated that several clubs or S.A.D.'s in the professional leagues will suffer economically and financially to maintain their structure and level of competition. Although both international federations (e.g. FIFA) and national federations (e.g. RFEF) have announced financial support for their members, so far everything remains a proposal, although hopefully sooner than later will come. It is almost certain that this will not be enough to alleviate the delicate economic situation in which several clubs or S.A.D.'s in Spain may find themselves.
As a result of the anomalous economic situation that Covid-19 will leave to the clubs, some of them will become insolvent, that is, they will not be able to meet their main payment obligations, including the salaries of their players. For this reason, the club owners will seek financing on the market, opening the door to new investors in the club or even considering its sale. Those who do not succeed in their financing or sales campaign will be forced into an insolvency proceeding in the medium term. In fact, Spain already had a boom in insolvency proceedings in football (more than 20 insolvency proceedings between 2008 and 2014), which has led to a change in the shareholder structure of many S.A.D. Hence, it is not a bit too much to suppose that a similar effect may occur in the medium term after Covid-19.
In addition to football and other team sports, Spain has a large number of sports facilities and/or properties (golf courses, tennis academies, paddle courts, sports arenas, circuits/tracks, football academies, etc.) which, due to their privileged geographical location and climate, are attractive investment property assets, mainly for foreigners. Besides, owners and/or right-holders of sports events in Spain may consider going out into the foreign market to attract investment for their competitions.
Therefore, the challenge facing the sports industry in Spain will be to ensure and facilitate the entry of new "players" in order to have a more robust and strong industry.
Ⅴ. What does this period of confinement mean for e-sports?
Where some have a serious problem and lose, see traditional sport, the e-Sports sector has a great opportunity to continue to grow. Despite this, the Covid-19 has also stopped its competitions with a live audience. Thus, there are many more potential spectators online, through the different digital streaming platforms, but professional events have been reduced. This is an opportunity to promote competitions held from home or to bring this world closer to the reality of sports, carrying out campaigns like the recent ones, of LaLiga players playing FIFA in a charity tournament or NBA players doing the same with the 2K game of basketball and broadcasting some of these duels even on TV (ESPN in the United States). Some of the Moto GP riders also ran the first-ever virtual Mto GP Race. The Coronavirus affectation is temporary and initiatives like the ones mentioned above, serve to keep the flame in the fans.
As an example, sports betting companies that have suffered a significant drop in income due to the cancellation or suspension of sports competitions (football, basketball, tennis, golf, Moto GP, F1, etc.), in their search for alternatives, are making greater agreements and/or collaborations within e-sports, in these times in which the consumption of internet, online games and video games is the order of the day.
On a legal level, this situation is an opportunity to professionalize even more from a merely legal and contractual perspective this industry, as well as to legally advise those stakeholders of traditional sports to form their e-Sports division.
Written by Ricardo Oliveras
ECIJA Partner
Sports Law Practice
roliveras@ecijalegal.com
Translated by Yuzhou Lu
Grandall Shanghai Office