While the ruling by federal judge Susan Nelson Monday and subsequent refusal to grant a stay pending appeal by the NFL may have technically halted the lockout in the near term, the labor situation is far from over. And, just around the corner, we have another labor debate to look forward to with the NBA’s current deal set to expire on June 30th. NBA owners are looking for a significantly revised collective bargaining agreement (CBA) that shrinks the percentage of basketball-related income the players receive.
Honestly, this stuff will make your head spin so I don’t want to take too much time on the merits of the different sides’ positions. Lost in the drama is how labor strife affects corporate sponsors of the leagues and/or individual teams. Will sponsorship agreements be voidable should a work stoppage (in the case that Judge Nelson’s ruling is overturned in appeal) result in missed games? Short answer; not likely, since work stoppage is generally factored into Force Majeure contract language. Unless a contract is negotiated extremely poorly on behalf of the sponsor, any work stoppage should at the very least result in a refund or make goods on a pro-rata basis for the missed time. But, that doesn’t mean a contract can instantly be voided just because games are missed. In our view, the big concern for sponsors is in the devaluation of the overall brand association.
In the case of the NFL, there is a little tarnish beginning to build up, but there is such strength that to date, there’s been no lessening of interest in the property. On the contrary, last night’s kickoff to the NFL draft and the related buzz is proof positive the NFL is still the king. Speaking broadly though, a sponsor will always want to have some ability to alter or extricate themselves from a contract should their ability to utilize the property as they intended be lessened in such a way that cannot be solved. These are the sections of contracts that take the most time and are often the most contentious.
Some keys to keep in mind when negotiating contract language with a major sports property:
• Be aware of the current labor status. How long is current deal in place? When will discussions be opened up? What is track record of league in working with its labor?
• Don’t assume a work stoppage won’t occur. Both sides tend to like dragging things out as it creates pressure points in the negotiation. That being the case, work stoppage is always a possibility.
• Be sure that rebates are well-defined in case of missed action. If they are all or partially in the form of “make-goods” be aware of what the make good-options are and that they present value to your brand.
• You sponsor to increase value of your brand. If a situation deteriorates to the point that you can no longer effectively market around the property, you want to have recourse to extricate. The larger the property, the tougher this language is to get, but it’s imperative that the property understand and respect your view on brand value.
One closing thought…I’ve always been amused that work stoppage is often included in force majeure clause of a contract. Force Majeure, or a natural or unavoidable catastrophe (i.e. Act of God), doesn’t seem quite the right description for one group of wealthy people battling over how to split a rather large pile of money with another group of fairly wealthy people. dp