By: Kevin Stone
As professional teams begin to return to the playing field, many new challenges face owners and front offices as they try to honor sponsorship and advertisement agreements while still creating a safe and healthy environment for fans and competition. Front office legal teams will look to maximize their revenue both by incorporating some in-person fan experience and crafting “make-good” agreements to provide substantial alternative benefits to those enumerated in contractual language with existing corporate partners. Specifically, the National Football League (“NFL”) has been planning ahead to adjust to the post-COVID world without having to worry about suspending competition mid-season like other leagues. As states begin to reopen their economies and stay at home orders have been lifted, players are training again and legal officers in NFL front offices have returned to work, feverishly brainstorming what the return to play will look like in the fall. The State of Florida has just commenced phase two of its post-COVID economic opening plan, and after an in-depth conversation with legal officers of NFL teams within the state, one can begin to picture what the 2020-21 NFL season might look like.
The situation surrounding return to play in a post-COVID world is extremely fluid and will depend on existing CDC and governmental social distancing guidelines. Nevertheless, teams have been looking into ways to adequately distance fans in their stadiums. By creating zones within the stadium and ensuring that fans remain within their party and seat zone, teams might be able to create a live experience for fans. In addition to guidelines within the stadium, teams are also looking into ways to limit cross party interaction outside of the stadium. Tailgating zones will also likely be severely limited if fans are permitted to attend the games. Those fans looking to tailgate will probably have to remain in confined areas in the parking lots and only associate with those people in their seating party. In addition, we can expect parking spaces to be adequately distanced pursuant to state guidelines. Fans will likely have to enter the stadium with masks, during specific entry times, and may be subjected to temperature tests and waiver forms. With fans in attendance, organizations might be able to rake in at least a portion of normal attendance revenue.
As previously mentioned, “make-good” agreements will likely be negotiated with corporate partners so that teams can operate in accordance with existing sponsorship and advertisement contracts. Under “make-good” language existing in many of these agreements, a team reserves the right to modify the obligation of the agreement to provide a substitute benefit of substantially equivalent promotional value as determined by that team. It may be difficult to see how substitute benefits will manifest, but they could materialize previously untapped potential in in-person advertising, as well as television/streaming advertising. For example, teams could place corporate sponsor logos on uniforms or paint them on the field (like in college football bowl games) or on stadium inner bowl walls. Teams could even utilize property on the outside of stadiums and the property surrounding them to advertise to people that simply pass by but never set foot inside to see a game. If fan seating zones are covered with seat covers, company logos can be displayed on the tarps that cover the seats much like how logos appear on Major League Baseball field tarps. Notably, the aforementioned alternatives would require modifications of the current league rules. Alternatively, teams could opt for make-goods that do not require league rule modifications such as extending the term of deals, increasing advertising, altering team’s social media to create more impressions, or offering tickets and hospitality assets in future years as things return to normal. Furthermore, with sporting events expected to set record television and other streaming service viewership when they return, there may be ways to incorporate more advertisements during games to honor some of these existing contracts. Make-goods incentivize parties to workout mutually agreed upon alternatives in the event that the originally contemplated benefits are no longer available. In turn, both parties benefit from this good faith bargaining by avoiding breach of contract claims and costly litigation.
Make-good provisions and agreements will likely not supplement the original terms of the agreement, but they can certainly help teams maintain long term corporate partners and salvage some revenue from the 2020 season. It will likely be a challenge for teams to supplement terms of a contract with substantially equal benefits given the “new normal” and return to play. It is unlikely that the aforementioned prescriptions would adequately and effectively operate as the expressed terms of the contracts. Nevertheless, make-good provisions will likely preserve the long-term relationships between parties by preventing arduous and costly litigation on the matter.