College Athletics, Compliance, and Contracts in the Age of COVID-19

By: Jordan Gary

The National Collegiate Athletic Association (NCAA) is facing major issues regarding how to proceed with scheduled sporting events in the wake of the global coronavirus pandemic. The pandemic has affected every level of college athletics from playoff tournaments, to future scheduling concerns, to drastic financial losses for universities, with these problems only worsening as the future of this pandemic is increasingly uncertain.

In March, the NCAA opted to cancel the 2020 men’s and women’s NCAA basketball tournaments, marking the first year the tournament has not been played since its creation in 1939. The NCAA has also cancelled all other winter and spring sport championships that were scheduled. With most campuses closed down since March, many spring sports seasons effectively ended. As a result, the NCAA recently voted to give spring sport athletes an extra year of eligibility, though it excluded winter sport athletes in its decision, noting that a majority of games for the winter season were already played.

A major concern for schools with an unaccounted for group of returning athletes is whether to offer and how to fund scholarships for those athletes. The NCAA left that to each school’s discretion and offered funding through the NCAA Student Assistance Fund to help schools pay for the additional scholarships. These and other financial concerns are exacerbated by severe budget impacts as schools plan their upcoming football season.

College football is a $4 billion annual market, with the average Power 5 school generating half its athletic department’s revenue from football, and some schools generating upwards of 75% of its revenues from the sport. Needless to say, the outright cancellation of the season could gut college athletics as we know it. Estimates put football revenue loss for each Power 5 school at roughly $62 million, with $18.6 million attributable to ticket sales losses, and an additional $4.7 million attributable to loss of game-day spending by fans. Consequently, the possibility of playing without fans in attendance this fall would put a major dent in revenue, especially in light of revenue already lost from the cancellation of NCAA basketball tournaments.

The NCAA recently released a plan to help schools bring athletes back to campus for practices during the pandemic, which demonstrates the hopefulness that officials have in moving forward with the fall sports season. However, it will be very important for schools and conferences to ensure that they remain in compliance with federal, state and local guidelines to reduce liability and protect player and staff health and safety. With constantly changing CDC guidelines and regulations that vary greatly from state to state and even city to city, schools will have to adapt quickly and account for changes in laws and government regulations in the force majeure clauses of any agreements or deals they make related to the fall season. These often overlooked clauses in contracts are becoming increasingly important in sports and entertainment deals as “acts of God,” the public health pandemic, and government action prevent parties from being able to fulfill the original terms of their contracts.

In fact, force majeure clauses will be essential for schools, conferences, and the NCAA in various areas of revenue in the upcoming season. The previously mentioned revenue loss estimates do not account for potential losses in media revenue, which could have devastating impacts on athletic departments. Schools and conferences will need to carefully examine their broadcast agreements to see if force majeure clauses will allow for renegotiation of the deal due to the coronavirus pandemic. If so, schools may be able to not only save revenue losses from media deals, but potentially make up for losses in other budget areas.

Some schools have already decided to cut sports programs including men’s soccer, men’s cross country and golf, and women’s tennis. The Power Five conferences sent a proposal to the NCAA asking for, among other things, a waiver of the requirement to sponsor at least 16 varsity teams for Football Bowl Subdivision (FBS) schools. This raises potential compliance issues with Title IX requirements that a certain percentage of a school’s scholarships go to women, as well as problems for teams that operate as Olympic team feeders but lose revenue for their athletic department. While extraordinary measures will have to be taken to ensure athletic departments stay afloat in the face of hardships, the long-term success of a department could suffer if these issues are not carefully considered before programs are cut.

One way schools have tried to offset the losses in football revenue they expect to face is through pay cuts for high-earning staff such as the head coach and athletic director, who have a greater ability to absorb reductions in salary than lower earning employees. Many coaches and athletic directors at FBS schools are taking between 5-10% pay cuts for the upcoming year. Some schools are instituting mandatory time off, unpaid days, furloughs, and bonus freezes in order to save on salary costs. While this may be effective, and voluntary pay cuts can be extremely helpful, it is important for schools to consider the mandatory nature of these policies and whether it opens them up to breach of contract liability for staff members. In these instances, force majeure clauses may also play a roll if a public health pandemic is a covered event, as it may open the door for mandatory changes to be made to the agreement while ensuring it remains enforceable by law.

Force majeure clauses will end up being vital tools in the hands of the schools and conferences that had the foresight to institute them, and they will serve as a lesson to any lawyer drafting a contract or agreement in the future. These clauses, coupled with regulatory compliance and budgetary cost saving measures, may allow athletic departments to dig themselves out of a very deep financial hole due to the coronavirus pandemic.

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