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.