Sneaking in a Force Majeure Clause During Overtime

By: Nick Flowers

When the National Football League (“NFL”) and the NFL Players’ Association (“NFLPA”) agreed to a new Collective Bargaining Agreement (“CBA”) on March 15, 2020, it brought greater certainty to the upcoming free agency period and the promise of eleven years of labor peace. However, headline developments in free agency (see Tom Brady to Tampa Bay) coupled with the surge of the COVID-19 pandemic meant that, perhaps, not enough attention was paid to the closely-decided CBA’s content. The significant increase to minimum-salary contracts, which account for 65% of the NFL’s contracts, meant that the CBA was seen as a win for the NFL’s “middle class”. However, the NFLPA’s greatest victory in negotiating the CBA would not become apparent until later in 2020.

As sports leagues around the world shut down in the wake of COVID-19, analysts and reporters focused on a new buzz phrase: force majeure clause. This seemingly innocuous clause prevents a party from being in default where performance of their obligations is prevented by an “act of God”. Such an act is any extraordinary or unforeseen circumstance resting beyond either party’s control, which perfectly describes COVID-19. Oftentimes, these clauses have been relegated to what is known as “boilerplate clauses” – standardized terms included in a contract, which are rarely scrutinized during the drafting and negotiation process. But as COVID-19 has shown, the drafting and wording of force majeure clauses is key to determining the ability of a party to invoke such a clause.  Of course, for the analysis of a force majeure clause to come into play, it is imperative that such a clause be included in the contract in the first place.

For example, the NBA has a force majeure clause in Article XXXIX of its collective bargaining agreement. Major League Baseball makes use of wording akin to a force majeure clause under paragraph 11 of their Uniform Player’s Contract. This is mirrored in paragraph 17a of the National Hockey League’s Standard Player Contract. The NFL’s constitution states at Article 19.2 that, “there shall be no postponement of regular-season games unless said game cannot be played because of an Act of God or because of a state, federal or local prohibition.” While this resembles a force majeure clause, there is in fact no force majeure clause in the CBA other than one related to international games under Article 2, Section 5. This makes the omission of a force majeure clause concerning domestic NFL games from the CBA, or any other provision dealing with the inability to play domestic games due to force majeure events, curious.

This omission gave the NFLPA uncharacteristically strong leverage when it came to working with the NFL in deciding how to proceed with the 2020 season. Simply put, the NFL was precluded from relying on a cancelled season due to COVID-19 as a justification to prevent paying players their fully guaranteed salaries. Rightfully so, the NFLPA would under no circumstances allow the NFL to rely on a non-existent force majeure clause. The players wanted clarity around accrued seasons and player opt-outs, while the owners wanted a way to mitigate their risk exposure (in part due to the absence of a force majeure clause). To address these competing concerns, on July 24, 2020, the NFL and NFLPA announced a series of amendments to be made to the CBA aimed at ensuring a “COVID proof” plan for training camp and the 2020 season. The amendments, emphasizing players’ “health, safety and financial well-being,” dealt with the salary cap for 2020 and beyond, player opt-outs, and roster sizes, amongst other things. These amendments were formalized on August 3, 2020.

There  was one further crucial development related to how a season’s cancellation affects salaries. The NFL CBA has a mechanism for dealing with “Cancelled Games” (at page 82) and the implications thereon for annual revenue and the salary cap, but clarity was needed for players’ contracts. As NFL Network’s Ian Rapoport detailed, if games are stopped, all unearned salaries and incentives will go away. Any amount of a guaranteed base salary that is not paid in 2020 becomes guaranteed in 2021 for a player. “Likely to Be Earned” and “Not Likely to Be Earned Incentives” will have pro-rata reduced performance targets combined with pro-rata reduced bonuses, depending on the date of a potential cancellation. A roster bonus that has been earned and remains due shall be paid as scheduled (even if over the course of the season), regardless of whether the 2020 NFL Season has been cancelled.

An additional CBA amendment influences contracts (and the salary cap) if players decide to opt out of the 2020 season. In this regard, a two-tier distinction is drawn between medically designated and voluntary opt outs. Players diagnosed with one of 15 different illnesses (or pre-existing medical conditions) including sickle cell disease, cancer, hyper tension, or high blood pressure, are categorized as “high-risk.” These players will receive a $350,000 stipend and an accrued NFL season, meaning their missed season will not lengthen the time period before they become an unrestricted free agent. The New England Patriots’ starting right tackle, Marcus Canon, who was diagnosed with non-Hodgkin’s lymphoma in 2011, was one of the most high-profile players to have opted out under this designation. Players not falling under one of the designated categories will receive a $150,000 salary advance to be paid back in 2021, but no accrued season. This means that they will have to wait an additional year before they are able to reach unrestricted free agency.

Additionally, under both designations, the contract will toll, meaning that their length is increased by a year and only previously paid bonuses (such as a workout or offseason roster bonus) are counted towards the 2020 salary cap. The remainder of a player’s contract, including conditions and amounts, will all be shifted forward by one year. The cap hit for the signing bonus proration of a player will also move forward by one year.  It is unclear yet whether the stipends themselves will count towards the salary cap.  The prudent move for clubs would be to roll over this short-term cap relief in anticipation of the expected cap reduction for the 2021 season, which has been established to have an agreed floor of $175 million.

Irrespective of the designation used in opting out, the decision is irrevocable, and the player will be unable to play in the season. Under the CBA amendments, players were given until 4p.m. ET on August 6, 2020, to decide on whether they will participate in the season. Following the deadline, approximately 67 players opted out. There are two instances where a player may opt out once the season commences: 1) a player receives a new diagnosis of one of the identified high-risk conditions; or 2) COVID-19 (or a related condition) results in a player’s family member dying, becoming hospitalized, or moving to a medical facility.

As already shown during the restart of MLB, a COVID-19 outbreak can have potentially devastating ramifications on both a team and their schedule. This is particularly paramount in football given that the schedule consists of only 16 games (excluding playoffs). In an effort to reduce the likelihood of an outbreak, an updated discipline schedule was put in place by the NFL Management Council. Players will be subject to suspensions and fines for attending bars, clubs, or house parties without personal protective equipment (“PPE”), or involving more than 10 people (seen as “High Risk COVID-19 Conduct”). Refusal to submit to testing, failing to wear masks, PPE, or a tracking device, and failure to adhere to social distance protocols during team travel will also result in fines for a player.

Despite having no force majeure clause to rely on, the NFL was still able to succinctly implement a “no play, no pay” policy for the 2020 season. The NFL’s teams will still have to pay, yes, just at a time more commercially viable for them. The CBA’s COVID-19 amendments bear the hallmarks of a force majeure clause in shape, form, and remedy. The successful negotiation of these amendments should be viewed as a success for the NFL who successfully converted a 4th and inches on the eve of training camp.

The Biggest Concerns for E-Sports During COVID-19

By: Max Budowsky

There is no way around it, COVID-19 has been devastating for sports fans around the world. Some countries are having an easier time adapting sports to the COVID world, like Baseball in Korea and Soccer in Germany. However, there is one category of sport that has had a much easier time adjusting to a socially distanced society: E-Sports. While E-Sports have had an easier time making the pivot to socially distanced competition, it has by no means been seamless.

As with all sports, any major competitive league’s primary focus is ensuring that everybody is playing fair and has equal access to success. While some external factors like sports betting are placing pressure on E-Sports leagues and teams alike to ensure fair-play, internal changes will likely be the most effective. Prior to COVID, most E-Sports leagues hosted live events, with the largest leagues selling out arenas around the world. Most of these tournaments are “offline events,” which means that players, coaches, announcers, and fans are all together in person. This level of control ensures that players are not using cheating software such as “aim-bots,” something that is not inherently true of online play. Most leagues have prioritized fair play and effectively pivoted to online play by maintaining a fair degree of control over team communications and requiring anti-cheat proprietary tools on athletes’ computers. A great example of some of the fair play measures taken by E-Sports leagues are the steps taken by the League of Legends Championship Series (“LCS”). The LCS has required screen recordings of players, in-game communications to run through league-operated servers, and have begun broadcasting games on a delay so players can’t watch competition. Despite E-Sports leagues’ best efforts, surrendering any control over integrity will lead to accusations. A Counter-Strike: Global Offensive (“CS:GO”) recently found two of its teams enthralled in an “episode” when one team, MIBR, accused a player on Chaos Esports Club (“Chaos”) of cheating by using “aim-bots.” In response, BLAST Premier (“BLAST”), the league hosting MIBR and Chaos, has installed proprietary software that it claims is the “most effective anti-cheat tool” for CS:GO to ensure the integrity of its league.

Moreover, offline events provide less concern about anyone losing connection to the game servers and compromising the experience or legitimacy of the match. With COVID making in person tournaments difficult and unsafe for the athletes, one of the most important concerns for E-Sports leagues is how to deal with potential connectivity issues. In June, a major online CS:GO tournament, BLAST, ran in to a connection issue during a match between FURIA and MIBR, two Counter-Strike teams who were competing online. The stoppage in play should have resulted in MIBR, the team who had the technical issue, forfeiting the match. BLAST instead allowed the players to vote on whether the stoppage should result in a loss for MIBR or a replay of the match. The players chose to replay.

Thankfully, most leagues have been able to make simple logistical adjustments to solve bandwidth issues, and the drama of the FURIA/MIBR match was largely non-contentious for the players. The issues were not, however, free from controversy. Online allegations were levied against MIBR accusing them of purposefully sabotaging the connection. While there is largely no merit to that claim, it is something that E-Sports leagues should take note of. Ensuring that play is disrupted as minimally as possible will help boost the legitimacy of these online E-Sports matches.

A final major issue that nearly every E-Sports league is facing is how to continue normal schedules with players being unable to occupy the same space. The Toronto Ultra (“Toronto”), a professional Call of Duty League team based in Toronto, Canada, was preparing to open a brand-new practice facility prior to COVID which forced them to work remotely. Toronto was able to avoid any major problems because many of their players and staff live at the same apartment complex in the city. Unfortunately, not all teams are so lucky. Complexity Gaming (“Complexity”), an E-Sports organization owned by the Dallas Cowboys’ owner Jerry Jones, is facing difficulties with their CS:GO team as they are largely “spread out across Denmark, with one player currently based in Bulgaria.” While certainly a concern, players and staff being separated by COVID appears to be the most manageable issue that E-Sports leagues and teams are dealing with. Dominique Gelineau, the general manager for Toronto Ultra, says that “[t]he biggest challenge . . . has been . . . making sure [our young players are] supported and know they’re not alone in this.” Complexity’s COO echoed Gelineau’s concerns, placing players safety and “mental space” as its top priorities.

With that being said, it has not been all bad. E-Sports leagues have largely been the only sports leagues to not only survive, but thrive in the COVID world. The ESL Pro League, a CS:GO league, had it’s single most-watched broadcast day on its second day of online play, and the LCS has maintained a consistent level of viewership, with its Chinese counterpart seeing a 30% increase in viewership. However, while players and organizations are happy to see the increase in numbers, most still want the virus to go away, and to return to normal.

Esports: The New Frontier of Sports and COVID-19’s Effect on Growth

By: Bryce Wasserman

When traditional sports were paused in March, sports fans across the globe began trying to fill the void that the departure of sporting events left. While some watched marble racing or cornhole, many sports fans switched their focus to Esports games. Esports leagues have been fighting to grow against traditional sports, and this pandemic has been the perfect opportunity to increase their footprint in the sports world. However, COVID-19 has still negatively affected Esports league operations in a similar way to traditional sports leagues.

In a time full of uncertainty and turmoil in sports, Esports have seen a massive growth of viewership. To preface the broadcasting statistics, one must understand the video game market’s size. According to the World Economic Forum, “the global video game market is forecast to be worth $159 billion in 2020.” This is four times larger than all box office revenues in 2019. Regarding Esports revenues, close to 75% comes from advertising and broadcasting. This model has helped Esports earnings skyrocket due to large increases in viewership. Twitch, one of the main Esports streaming websites, experienced an estimated 31% growth in viewership during the month of March. This growth is seen from March 8 to March 22 where Twitch total viewership went from 33 million to 43 million. Many of these viewers are new to Esports, which is not shocking considering many sports fans needed a new outlet when March Madness was cancelled on March 12. The true test for whether Esports are here to stay will be when traditional sports games return on television in the coming weeks. It will be interesting to follow the viewership statistics and whether there is a sharp decline in the coming months. The Esports viewership statistics that are released after traditional sports return will be telling as to how many casual fans Esports can retain.

While Esports have pivoted and put on live events during the pandemic better than any other professional sports league, Esports leagues, teams, and players still face many problems similar to the traditional sports leagues. Esports events have sold out seats in massive arenas across the world. Like all other professional sports, Esports leagues have been unable to host live events and sell tickets to fans. For example, the 2020 League of Legends Championship is supposed to be held at Shanghai Stadium in front of over 56,000 people. This event is now in serious jeopardy. The financial impact in the form of lost ticket and gameday merchandise sales is similar to other traditional professional sports leagues. When Esports events return to live venues, they will have the same return to play issues seen in other sports. There must be protocols in place to protect players, fans, and staff from the virus. This will be especially important due to the intimate nature of these Esports events. For example, fans are placed much closer to the action than other sporting events and engage with players by taking pictures and asking for autographs after the game. Establishing protocols that will ensure safety will be a large hurdle to cross if the goal is to have stadium events soon.

From a legal standpoint, Esports player contracts are incredibly intricate and factor in many of the unique aspects of a player’s life. Sample player contracts place a large emphasis on marketing and promotional requirements. Moreover, teams sometimes choose a streaming service and require players to stream a minimum number of hours in order to stay in the forefront of the industry. This is very interesting because it is a contractual performance obligation outside of playing in a normal event. Imagine the Dallas Cowboys telling Dak Prescott that he must play in the local Wednesday night flag football league during the off-season. That situation would obviously never happen and makes the clause unique to Esports contracts.

Esports have enjoyed a large boost in their viewership since the start of the pandemic because of their ability to adjust and broadcast live events online. The future of Esports will be determined by how the leagues handle their return to play protocols along with their ability to retain newly gained fans.

LPGA v. COVID-19

By: Rivers Ridout

The LPGA Tour finds itself in the same position as most professional sport leagues in the wake of COVID-19—nonexistent. Events like the Honda LPGA Thailand, the HSBC Women’s World Championship, the Blue Bay LPGA, and the Founders Cup are just a handful of the major LPGA tournaments cancelled because of the pandemic. Fortunately for golf fans, in early June, the PGA Tour played its first tournament in months. The tournament was played without fans in attendance but was considered a success with no new confirmed COVID-19 cases detected. This has left many wondering why the LPGA Tour has not attempted to return in a similar fashion.

There are many reasons why we still have not seen the LPGA Tour make a comeback. First, unlike the PGA Tour, a business model without fans would be difficult for the LPGA Tour to afford. According to Randall Mell, “[w]ith LPGA tournaments working under a different business model than the richer PGA Tour and its enormous TV rights package, the prospect of playing without fans . . . is more daunting to women’s events.” A tournament without fans is also against the LPGA Tour’s core values. One of its major goals is to have a positive effect on the tournament site’s community. Chris Chandler, the Dow Great Lakes Bay Invitational tournament director, said that allowing the community to take part in the event is a core value of each tournament. According to Chandler, the Dow Great Lakes Bay Invitational made a $12.7 million impact on the community last year. He stated that if you are unable to achieve your core values like support for the community, “that’s a tough message.”

Another reason for the LPGA Tour’s delayed comeback is various international and domestic travel restrictions. Liz Moore, the Chief Legal and IT Officer for the LPGA, notes that 75-80% of the average LPGA Tour field consists of international players. This is far greater than the number of PGA Tour international players. As a result, the LPGA Tour must deal with significantly more travel restrictions, which makes it difficult to run a tournament. Even if travel restrictions were not an issue, both the LPGA Tour and the PGA Tour must take the health and safety concerns of individual players into consideration. Some players have already decided that even if they are allowed to travel internationally, health concerns and mandatory quarantine requirements that exist in some jurisdictions are too burdensome to make it worthwhile to play in one or two tournaments. When asked whether or not he will be competing in Texas in June, PGA Tour veteran and United Kingdom citizen Lee Westwood stated, “[r]ight now, I won’t be playing in them. Not with having to leave here two weeks before, quarantine, then play the two tournaments.”

The LPGA Tour is hoping to incentivize international players into traveling by increasing 2020 tournaments purses. According to LPGA Communications, the total available purse remaining for the year has increased to more than $56 million. This means that LPGA players would be competing for an average of $2.7 million per event.

Luckily, the LPGA Tour is beginning to see the light on the horizon with the scheduling of the Marathon tournament in Toledo, Ohio, for August 6-9. After approval by Ohio Governor Mike DeWine, the Marathon tournament will allow a limited number of fans so long as they remain socially distanced. LPGA Commissioner Mike Whan stated that the Marathon tournament, in addition to a new event called the LPGA Drive On Championship, will allow the LPGA Tour to test its new COVID-19 protocols before planning future tournaments. The Marathon Classic Tournament Director, Judd Silverman, said that these new protocols would include thermal scanning of temperatures of fans and support staff entering the site, as well as routine testing of all players, caddies, and tournament staff. There are even plans for safe food preparation like allowing only packaged goods to be available at concession stands and hospitality areas.

Both fans and LPGA Tour members hope that the Marathon Tournament will be as successful as the PGA Tour’s restart at the Charles Schwab Challenge in Fort Worth, Texas. Regarding the PGA Tour restart, Tod Archer wrote, “[f]rom a health standpoint, no players, caddies, or staff tested positive for COVID-19. From a golf standpoint, the strong field with the top five ranked players in the world and 16 of the top 20 did not disappoint.” Although several PGA Tour members have tested positive for the virus in the weeks following the Charles Schwab Challenge, it appears that things are headed toward normalcy for both the PGA and the LPGA Tours. Commissioner Mike Whan said it best when he stated, “‘Fluid’ is the word for 2020. Every day you wake up and realize all the things you didn’t know. I do believe we will get started in Ohio in July and then be off and running. But what I believe and what the virus will be in control of in the next 30 days are two different things.”

Surviving the Second Wave: Navigating Cancellations in the Wake of COVID-19

By: Max Budowsky

On March 6, 2020, the first domino fell. South by Southwest (“SXSW”) announced that the City of Austin had cancelled the music festival, scheduled to take place that month, for the first time in 34 years. Four days later, Miami’s Ultra Music Festival announced in an email to ticket holders that its festival would no longer take place in 2020. Some festivals, like Southern California’s Coachella Music Festival or Tennessee’s Bonnaroo Music and Arts Festival, initially postponed their festivals to the fall in the hope that the virus’s impact would be short lived. However, four months later, both festivals have now announced that they will no longer be taking place in 2020. This unprecedented pandemic has decimated live music. Some venues and promoters are getting creative in how they host concerts this year, but with COVID-positive numbers in the U.S. continuing to rise, most health officials do not think large festivals or concerts can be safely organized until a vaccine is developed. As a result of the fact that live music may not return for a year or longer, events companies across the country are grappling with the question of what their financially liabilities are in the wake of COVID-19.

In the months following the cancellation of major national events, “force majeure” has become common vernacular in the entertainment, arts, and sports industries. In the simplest terms, a force majeure event is an unforeseeable circumstance. Force majeure clauses are often included in contractual language to excuse performance by one or both parties in the event of unforeseen circumstances. The language of force majeure clauses varies by agreement, and the specific language included in these clauses is incredibly important. A great degree of deference is given to the language of contracts, with provisions only being canceled by courts or arbiters in rare instances. Thus, language of a particular contract will usually dictate disputes between the contracting parties. When determining financial liability for cancelled events, parties should look for (1) the existence of a force majeure clause (not all contracts will have them); (2) the list of events that trigger the clause; and (3) any lingering liabilities.

If a contract does not have a force majeure clause, the parties will almost certainly be liable for any obligations, financial or otherwise, outlined in the contract. While other doctrines like “impossibility” or “frustration of purpose” may both be used to excuse contractual obligation, both are exceedingly difficult to prove and require potentially expensive litigation. However, it is likely that most COVID 19-related festival cancellations will happen under force majeure conditions.

If a contract includes a force majeure clause, the next thing to look for is the list of triggering events. A triggering event is a condition specifically listed in the contract that will excuse performance under the force majeure clause. At minimum, most force majeure clauses will excuse performance in the case of “acts of God,” war, insurrection, and government regulation. Other clauses may include specific language excusing performance in event of an epidemic, pandemic, or similar health and safety crisis on top of the aforementioned events. In general, the more specific the language of a force majeure clause, the more likely the parties involved will be excused if a force majeure event occurs. If the contract explicitly includes “epidemic, pandemic, or health and safety emergency” in the list of triggering events, it is very likely that both parties to the agreement will be let off the hook. Specificity is key. In the case of unclear or ambiguous language, force majeure protections may be unavailable. Intuition may cause a party to believe that a pandemic of COVID-19’s scale is an “act of God.” But in some jurisdictions, however, courts have held that contagious diseases are not “acts of God” for force majeure purposes.

If a contract includes both a force majeure clause and specifically includes “pandemic” as a triggering event, the next step is to see if there are any lingering liabilities left by the clause. Most force majeure clauses will not excuse payment of expenses already incurred in good faith. Prior to COVID-19, many force majeure clauses for concerts and other live events included a “ready and willing” condition that could expose festivals and concert promoters to incredible amounts of financial liability. The “ready and willing” condition essentially outlines that if an artist is “ready and willing to perform” at the time the event is cancelled due to a force majeure event, the artist is entitled to a portion of their guarantee (usually between 50% and 100%). Without this language, a festival is likely completely off the hook for the full guarantee. It is unclear how the “ready and willing” condition will function with COVID-19. But it is clear that “ready and willing” conditions will be highly scrutinized in future contracts. Live Nation, North America’s largest events company, recently sent a memo to talent partners outlining contractual alterations for concerts and festivals to be held in 2021. The language of the force majeure section of this memo is very specific: “If the artist’s performance is canceled due to an event of force majeure – including pandemic similar to COVID-19 – the promoter will not pay the artist its fee.” Smaller events companies may not have the clout to institute language that is this one-sided, but it is still a good indication of how industry leaders are approaching the post-COVID-19 world.

The most important determination that festivals must make is to weigh the potential negative externalities of actions they take. The entertainment industry is built on relationships. While some larger festivals may be able to frustrate artists, vendors, sponsors, and ticketholders and remain afloat on status alone, the same cannot be said for every festival and venue. Enforcing a force majeure clause that is detrimental to the artist may sour any future relationship between the festival and the performer. Refusing to offer refunds to ticketholders who may not be able to attend in 2021 may lead to a cloud of negative press hanging over the festival. Forcing a sponsor to fulfill an incredibly one-sided agreement may result in a payoff this year but may ruin any chances of working with that sponsor in the future. While it may seem easy to look at a contract strictly to determine where money can be saved and where it will be lost, this binary view of the crisis caused by COVID-19 is shortsighted. The best avenue for any festival, artist, vendor, sponsor, or any other party involved in event planning to take is to find a compromise. These stakeholders should work to provide as many options for ticketholders as possible, take this opportunity to extend contracts with sponsors, and make every effort to sign artists scheduled to perform at a cancelled event to perform in 2021. In the long run, financial solvency in 2020 will not guarantee the long-term security of events.

COVID-19 and the Future of Television Production

By: Jordan Gary

The ongoing global pandemic has adversely impacted the television and film industries in numerous ways. Between reviewing agreements and force majeure clauses, incorporating government regulations and new industry standards into production plans, and reassessing what television and film production will look like in the near and distant future, the entertainment industry must resolve many problems to reduce the severity of losses.

One of the first things companies may do is review the force majeure clauses in their agreements to see whether coverage exists for increased costs or losses in revenue or staffing as a result of COVID-19. If coverage exists, they may have opportunity to get out of agreements, reduce losses, or find remedies such as postponing production.

In order to generate revenue, many companies and projects are moving towards reopening sets and continuing production. Those that do will have to incorporate a growing number of government regulations from both the Center for Disease Control and Prevention (CDC) as well as state and local governments. Additionally, task forces, trade associations, and guilds have released COVID-19 industry-specific safety guidelines. While companies are legally obligated to follow government regulations, many will also implement other guidelines released by these associations and guilds as they are created by industry experts who consider industry practices while aiming to reduce the risk of both disease and liability.

As an example, filmmaker and studio owner Tyler Perry recently announced his plan for reopening Tyler Perry Studios for production in July. The plan requires that all cast and crew: (1) be tested in their hometown and fully quarantine themselves for 16 days prior to traveling; (2) travel to the studio on private flights and using private car services; (3) be tested upon arrival at the studio and sequester until test results are available; (4) remain inside the studio “quarantine bubble” for the 14-day filming period; (5) fill out health survey questionnaires and do temperature checks every day; (6) wear face masks at all times except during hair and make-up or when on camera; (7) undergo continued testing after arrival; and (8) be tested prior to studio exit upon completion of the shoot. Though the plan is likely to prove costly once it is implemented, Perry is taking significant precautions beyond the government regulations to protect his cast and crew, reduce liability, and still provide a steady flow of entertainment to his brand’s faithful consumers.

Perry noted that part of his reasoning in providing such a comprehensive plan for returning to production is because of how Black people are disproportionately affected by coronavirus. Because Perry’s studio is Black owned and has a predominately Black cast and crew that makes media for Black audiences, this is a vital consideration to highlight. It is one that should be seriously considered across any industry that relies heavily on one group of people to continue business, especially as awareness to the ways in which Black people are disproportionately and negatively affected by systemic racism grows in the nation.

However, not every project will be able to take the many precautions that Perry’s team is taking. Perry’s studio compound is built on 330 acres of a former army base in Georgia, which is becoming a “Southern Hollywood” in television and film production, due to tax incentives given to filmmakers in the state. His compound has many of its own outdoor filming spaces, making it one of the largest production facilities in the United States. But not every studio or production company has access to such expansive facilities to create their own quarantine bubble. Thus, many companies are implementing alternatives to some of Perry’s more costly measures.

One example is NBCUniversal. The company is incorporating mandatory face masks, social distancing, sanitizer stations, reconfigured floor plans, and other measures to reduce the possibility of contamination. Additionally, they are limiting on-site access to people who need to be physically involved in production set up—everyone else is scheduled to work from home until and unless their physical presence is necessary on set. It also ran a production drill to work out logistics for every part of the day, including check-in, temperature checks, catering, and shooting scenes. It incorporated both government regulations as well as industry suggested measures in the drill and in plans for resuming production. The noticeable difference between NBCUniversal and Tyler Perry Studios is that NBCUniversal is not planning to have a quarantine bubble for most of its productions.

In addition to these measures, many companies are starting to think about how COVID-19 precautions will shape the future of television and film production. Ryan Millsap, CEO of Blackhall Studios, points to new technologies that he believes will be used on sets beyond the pandemic, such as air filtration systems. He also suggests that more studios will acquire their own space for outdoor scenes like streets or small towns to create more controlled sets rather than filming on location, which increases travel costs and disease exposure.

Changes to production itself are also being implemented, such as virtual meetings on Zoom. These changes eliminate the need to travel between cities and countries to plan and budget in pre-production and edit in post-production. Many foresee these changes extending into a post-Covid world, as they would reduce travel costs, increase flexibility in scheduling, and allow for late changes to editing that otherwise would not be feasible.

Ultimately, as COVID-19 alters the landscape of film and television production for the foreseeable future, companies will continue to institute many of these changes and more to get back on track with production schedules.

An Insurance Policy for the End of the World

By: Rivers Ridout

As COVID-19 continues to threaten industries around the world, businesses are attempting to stay afloat by seeking coverage from their insurance providers. This blog focuses on the perspective of those businesses while outlining the avenues for relief that businesses can utilize during such trying times. It also discusses insights provided by lecturers in the University of Miami School of Law’s summer class about the impact of COVID-19 on the sports and entertainment industries.

It is no secret that COVID-19 has resulted in greater financial damage than physical damage to property. When it comes to property insurance policies, most require direct, physical damage to trigger coverage. In distinguishing whether or not coverage is appropriate, the presence of apparent physical damage can be quite obvious. In the era of COVID-19, however, many courts have struggled to decide what qualifies as “physical” or “apparent” damage. Insurance companies hope that courts adopt a narrow approach, while at-risk businesses prefer one a bit broader.

According to lecturer Alycen Moss, Co-Chair of the Property Insurance Group at Cozen O’Connor, several courts have ordered coverage where there was no apparent physical damage, but the business lost its “essential functionality” or was deemed “temporarily unfit for occupancy.” For example, in Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of Am., 2014 WL 6675934 (D.N.J. Nov. 25, 2014), where an accidental release of ammonia into a facility caused the facility to shut down for one week, the court ruled that although there was technically no physical damage to the property, the damage rendered the facility temporarily unfit for occupancy. Similarly, some businesses have received coverage when their “essential functionality” could no longer be performed. The court in Wakefern Food Corp. v. Liberty Mut. Fire Ins. Co., 968 A.2d 724 (N.J. Super. Ct. App. Div. 2009) considered whether a supermarket’s insurance policy included damage resulting from an interruption of electrical power. The court held that because the interruption was the result of physical damage to electrical equipment away from the property, the supermarket’s policy did in fact cover any losses suffered even if there was no apparent damage to the property itself.

While businesses hope for broad interpretations of what “physical damage” means, insurance companies attempt to make business interruption policies as specific and inclusive as possible. This is because courts rarely adopt a broad interpretation of the insurance policies. For example, in Westport Insurance Corp. v. VN Hotel Group, LLC, 761 F. Supp. 2d 1337 (M.D. Fla. 2010), the court held that damage from bacteria was coverable because the policy did not expressly list bacteria as a pollutant under the pollution exclusion section of the agreement. Insurance providers fear that if the specific reason for the insured’s damages is not expressly excluded from coverage under an insurance policy, the courts will order coverage. Due to this concern, providers have begun expressly including viruses and pathogens in the excluded-from-coverage sections of their policies in the wake of COVID-19. As businesses seek to obtain coverage for viruses and pandemics, insurance providers are working to ensure they are not paying millions for things they never intended to cover. Generally, any ambiguities within a policy are ruled in favor of the policy holder, not the drafter. Lecturer Richard C. Giller of Pillsbury Winthrop Shaw Pittman LLP explained that when a court cannot decipher precisely what an insurer intended in a policy, the policy will be construed in the light most favorable to the policy holder.

COVID-19 has resulted in businesses looking to their property insurers to recuperate lost income. In addition to property insurance, businesses have relied on event cancellation insurance to mitigate the financial toll of COVID-19. For example, the All England Lawn Tennis Association, which organizes the Wimbledon tennis tournament, is looking to recover an astounding $141 million after taking out pandemic insurance 17 years ago. By paying $2 million in pandemic insurance every year for the last 17 years, over $34 million in total, Wimbledon will likely receive almost half of its losses after being forced to cancel the tournament for the first time since WWII.

If COVID-19 struck a few years ago, the NCAA may have found themselves in a similar position to the All England Lawn Tennis Association with March Madness. After the TSARS outbreak of the early 2000s, the NCAA purchased event cancellation insurance that would cover roughly one-third of the tournament’s annual revenue. That, combined with $500 million accumulated in a risk management fund, gave the NCAA a false sense of security. After years of depleting that risk management fund to cover class-action lawsuits and with an insurance policy that only covers a portion of the revenue presumed to be lost from the cancelled tournament, the NCAA will lose millions at the hand of COVID-19.

It is obvious that most businesses effected by COVID-19 will attempt to purchase some form of a pandemic insurance moving forward. The real question is whether it will be available at a price that makes commercial sense. Purchasing an event cancellation policy like Wimbledon’s will likely be easier said than done after this year as insurance providers try to shield themselves by increasing prices for similar policies. Regardless of the price, it probably makes the most sense for businesses to pursue coverage, as COVID-19 may remain a financial threat for the foreseeable future.

COVID Coverage: Property Insurance Claims from the Company Perspective

By:  Kevin Stone

How will sports and entertainment organizations earn money during the COVID-19 pandemic? This question is not only ever-present as the pandemic continues to paralyze the sports and entertainment world, but it also remains unanswered as professional leagues and venues have yet to resume operations. One way ownership groups and organizations have looked to capture some of the lost revenue is through filing insurance claims. Either by way of property insurance or business interruption insurance (“BI”), owners and venue operators are combing through their policies to determine how, or if they can recover on a claim.

Wimbledon made headlines when it secured a $141 million payout from its insurance company after it suspended the famous tennis tournament due to the virus. Wimbledon’s policy included a premium on specific coverage for loss of revenue due to communicable diseases, viruses, and pandemics. Wimbledon was paying a steep price for coverage over the last 17 years, yet its payout was more than three times the expense spent on coverage. Unfortunately, many organizations do not have targeted coverage like Wimbledon’s. Wimbledon’s policy included specific event-cancellation coverage, which is unlike a blanket BI policy. Because the event is held within just two weeks and is just a single tournament on the professional tennis tour, it made sense for the organization to insure the specific event. It would not make sense for professional leagues like Major League Baseball, for example, to take out insurance for every single game within the regular season. It would be too expensive and illogical to insure each game in the 162-game-season for 30 teams, which spans from March to August. As a result, legal battles may ensue between the insureds and their insurance companies to determine what types of claims, if any, will be successful under property insurance or business interruption insurance.

Under regular property insurance, claims are legitimate if the insured party can prove that the property suffered “direct physical loss or damage.” Courts have addressed this issue, and the majority have narrowly defined “physical loss.” For example, the courts in Universal Image Prods. v. Chubb Corp. and Mama Jo’s, Inc. v. Sparta Ins. Co. defined physical loss to mean an actual physical alteration to the property, like damage typically caused by flooding or fire. Furthermore, courts that have taken this narrow view, such as the courts in Mastellone v. Lightning Rod Mut. Ins. Co., Great Northern Ins. Co. v. Benjamin Franklin Federal Sav. & Loan Ass’n., and Newman Myers Kreines Gross Harris P.C. v. Great N. Ins. Co., have ruled that economic loss resulting from some physical contamination is not recoverable when there is no physical alteration or damage to the property’s structure. Claimants are unlikely to recover in jurisdictions that adopt this majority view because COVID-19 does not structurally alter the physical appearance or functionality of the property. Even though claimants will likely argue that COVID-19 has a physical component (the CDC has acknowledged the virus can be spread on surfaces), courts following the majority rule will be reluctant to find coverage where structural damage to the property does not occur.

Even if a claimant finds itself in a minority jurisdiction, it may have an uphill battle. In order to recover on a claim in a jurisdiction that has held that physical loss or damage is not limited to actual physical alteration, the claimant must show that the property loses its essential functionality, as the courts required in both Wakefern Food Corp. v. Liberty Mut. Fire Ins. Co. and Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of America. A court’s analysis of an “essential” business function is a subjective interpretation that operates on a sliding scale. It may be difficult to prove that an organization’s property lost essential business function if the organization could still operate executive functions and maintain some capacity at the venue.

Some organizations also pay premiums on BI. Many BI coverage policies include language that grants coverage when there is a loss of significant revenue or some force prohibiting access or essential business functionality. For example, most BI policies provide specific coverage when property access is prohibited by civil authority or government order. This type of coverage may be the best option for an organization looking to recover. However, BI policy language requires that the civil authority prohibition of access must be a direct result of physical loss or damage to the property or surrounding premises. The physical loss or damage requirement circles back to the aforementioned argument herein, thus leaving insureds with a difficult battle when they file claims and bring lawsuits in majority jurisdictions.

Under a BI claim, in addition to proof of physical loss or damage to the property, the insured party must prove complete prohibition from the premises due to the civil authority order. The courts in Kean, Miller, Hawthorne, D’Armond McCowan & Jarman, L.L.P. v. Nat’l Fire Insurance. Co. and Bienville Partners, Inc. v. Assurance Co. of America held that when a civil authority prohibits access, claims are not recoverable if the property is accessible in limited numbers. Thus, in states and counties where prohibition by civil authority was not a complete bar from access and organizations were allowed to work in limited numbers under certain precautions, it may be harder to recover on a BI claim.

Ultimately, the first court cases will set a precedent for those looking to file claims because the COVID-19 issue is new and uncharted. Should policy holders succeed in convincing a court that significant financial losses due to the virus are covered by their policy (barring any specific exclusions), it could create a wave of claims that would seriously financially burden insurance companies. Insurance companies will argue that because the organizations had the ability to specifically foresee and insure against the type of BI resulting from COVID-19, they should not be liable when the organizations failed to bargain for coverage. When crafting the policies, parties could have priced the premium for specific coverage under COVID-like circumstances. In the event where parties fail to contemplate that sort of coverage, the company will argue that they cannot be liable for payouts when the contract language is clear and unambiguous as to what is insured under the policy. Should courts uphold the specific, plain language of the policy, and only grant a remedy for parties that bargained to cover these incidents directly, many organizations will be stuck trying and find new ways to supplement for lost revenue.

Force Majeure Provisions in Unions and Guilds

By: Alyssa Levy

Force Majeure clauses have some inherent irony- they call upon the contract drafter to include language to excuse nonperformance of parties when an uncontemplated event or circumstance occurs, rendering performance impossible or impracticable. However, often times in order to be enforceable, the contract must have specifically mentioned the unexpected circumstance or event that the parties now need relief from. Further, before the onset of COVID-19, many industries either chose not to include force majeure clauses in their contracts or did not find them particularly useful. Now, we know how essential these clauses are.

On Monday, June 8, 2020, the American Bar Association held an online webinar entitled “No Lights, No Camera, No Game: Force Majeure Events & the Impact on Future Entertainment and Sports Negotiations.” Hosted by Mark Tratos, founding shareholder of Greenberg Traurig, the webinar explored how unions and guilds across the sports and entertainment industries have made use of and plan to use force majeure clauses in their collective bargaining agreements (CBAs) and other union contracts.  The panel featured Heather Pearson, general counsel of the International Cinematographers Guild, Anthony Segall, general counsel of the Writers Guild of America West, Gregory Riches, Vice President and Legal Counsel for MGM Resorts and the Las Vegas Aces WNBA Team, and Roman Stoykewych, Associate General Counsel of the National Hockey League Players’ Association.

The industries represented at the webinar have been disproportionately impacted by the COVID-19 pandemic. While cinematography took a huge hit as demand for production essentially came to a halt, the writers guild has gotten by relatively unscathed as the increase in streaming services requires a steady influx of scripts. Las Vegas, a city reliant on entertainment, sports, and gambling, has been devastated, yet has seen glimmers of hope in the form of the UFC opening at private venues and the Golden Knights securing a new arena. Although the NHL was able to complete the majority of their regular season, it has not had any games, fans, nor revenue since March 12.

These unprecedented times have called upon unions and guilds in the sports and entertainment industries to reexamine their CBAs, both to see how they may already be protected from the catastrophic economic fallout and, retrospectively, examining what they should include in future drafting and bargaining. For example, the NHL’s CBA has no force majeure provision and dictates a salary cap system in which revenues are split 50/50 between owners and players. Thus, revenue loss from the halt in the season has resulted in direct loss of player compensation. The cinematographer and writers’ guilds both had no force majeure clause in their respective CBAs, although the latter had provisions in the event of a strike, and while a few members of both industries still had the ability to negotiate individual contracts, any force majeure clauses were given little thought during negotiations and certainly did not adequately cover the pandemic.

As for why these unions never addressed force majeure events, answers range from a lack of historical need to the fact that it is unlikely the clause would even provide protection from liability if an event is truly unforeseen. Across the board, the webinar speakers seemed to agree that it is difficult to have a black and white provision when the parties are engaged in relationship-based bargaining. There seemed to be a consensus amongst the webinar panelists that there is an institutional expectation for parties to work out their problems via bargaining rather than by invoking a standardized clause.  All the safeguards in the world can be written into a contract, but when issues actually arise, these industries leaders emphasized that the parties involved must work out the issues amongst themselves.

This approach makes sense, as employers and employees have a mutual interest in negotiation. If parties have the flexibility to work out their own arrangements as issues come up, they’ll likely arrive at a more tailored solution than one inserted into a contract as a safeguard.  Further, negotiation-based problem solving preserves relationships better and is often the best route when planning long-term. While it might be easy for parties to act in their individual financial interests, rational actors recognize the value in avoiding legal battles through compromise and solutions that avoid adversarial actions that rely solely on contractual clauses.

While each panelist agreed that force majeure clauses were not typically a major point of consideration before the pandemic, they each agreed that these clauses will be given much more consideration in contract drafting going forward. This was an interesting end to the conversation because prior to this ultimate conclusion, the conversation surrounding force majeure clauses was that they either a) were unlikely to cover the specific unpredicted circumstances, and thus, were not useful in practice, or b) were unlikely to be enforced in an effort to preserve valuable relationships via compromise. I suppose that these panelists see the value in having some contingency plan or semblance of predictability just in case a party is unwilling to compromise. Regardless, I think it’s a safe bet that the words “pandemic” or “infectious disease” are likely to appear in some capacity in all major contracts’ force majeure clauses going forward.

Now What? Navigating Expectations and Reopening Guidelines in the Midst of COVID-19.

By: Catherine Perez

After months of closed museums and galleries, industries are eager to reopen their doors to ticket paying visitors who are also itching to escape quarantine as stay at home restrictions are lifted nationwide. While plans to reopen may bring hope to many financially distressed institutions, they also provide a maze of government guidelines to navigate, as well as questions on how to safely operate in the midst of a global pandemic.

 

The Law of Force Majeure course at the University of Miami School of Law recently hosted Ashwin Krishnan, Jeff Gewirtz, and Irwin Raij to guest lecture on the effects of COVID-19 on the future of stadiums and venues. While each lecturer is a respected professional in the sports industry, many of the concerns raised are also applicable to museums and the art industry.

 

The guest lecturers expressed concerns regarding how venues will implement and ensure compliance with government guidelines. Each state has started to release general and industry-specific requirements to reopen businesses. While at a minimum these state guidelines are requiring patrons and employees of venues to maintain 6 feet of physical distance, a reduction in occupancy, and thorough cleaning of frequently touched surfaces, each state has its unique approach to reopening. Some states like Texas are reopening on a state-wide basis, while others like New York have a regional reopening approach. Additionally, some states like Louisiana released museum guidelines to allow these spaces to reopen in Phase 1, while New York has said museums will not reopen until Phase 4. Further complicating a unified industry strategy is the long list of specific requirements, in addition to general state guidelines, that museums will need to check off before reopening their doors. Some states, but not all, require affirmative confirmation that regulations are implemented and enforced. The diverse nature of the art industry, coupled with the range of state approaches to reopening, demonstrates that each museum and gallery will need to take a highly individualized look at its space while collaborating with nearby museums to efficiently create its reopening plan.

 

For example, while the Metropolitan Museum of Art in New York saw approximately 7.4 million visitors in 2018, the smaller Frick Collection, down the street from the Met, saw only approximately 250,000 visitors. Even for institutions like the Frick and the Met that will operate under the same regional reopening plan, their efforts are bound to differ due to the differences in venue size and the number of guests that visit their halls. However, due to country-wide and international quarantines, museums will certainly see a large decrease in patrons, which should help ease the enforcement of physical distancing. But this raises the additional question of how these non-profit museums are going to fund efforts to ensure compliance with reopening guidelines. However individualized and regional each plan will need to be, there should be room for collaboration and resource sharing between museums within the same regions to help reduce costs and ease the transition.

 

The American Alliance of Museums (“AAM”) released its own considerations for museum reopenings. The AAM recommends that museums need to consider how to “limit person-to-person contact, monitor the number of visitors, and restrict or prohibit access to certain areas of the museum.” This could include online ticket sales, digital guides to visitors, interactive exhibit restrictions, capacity restrictions, no or limited access to certain spaces, group visit restrictions or cancelations, guided tours, public programs, new signage and barriers to enforce social distancing, changing the flow through the museum, and more. These guidelines will inevitably change the visitor experience and likely lead to further cancellations of blockbuster shows and events that cannot be smoothly and efficiently accommodated under new operating norms.

 

Regardless, museums should make great efforts to closely follow state guidelines to ensure that the new visitor experience is both safe and compliant. Strict compliance to incorporate these changes and requirements may bring high operating costs, but they will help museums and institutions avoid issues such as potential liability suits with visitors or employees for something as simple as not properly supplying hand sanitizer. An additional protective measure that museums can take is to include assumption of risk language on their tickets, informing visitors that they assume the risk of catching COVID-19 as part of their museum visit. The guest lecturers also discussed that while some venues and spaces have taken a look at their operating contracts for force majeure clauses as a route to potentially cut costs or excuse performance, many are hesitant to use these clauses due to the uncertain nature of the pandemic. Even with a clear-cut force majeure clause, institutions may not want to enforce these clauses and ruin relationships with landords who lease building space, publishers, and contractors who ship and assemble exhibits.

 

In short, museums should collaborate and dedicate resources towards navigating the reopening guidelines released by their respective states. These efforts will likely change the museum experience as we know it, raise operating costs at a time when museums are already suffering financially, and protect museums from potential liability issues down the line.