14 May 2020
It's not an exaggeration to say that the COVID-19 pandemic has completely derailed football, both as a sport and as a business. Despite experiencing exponential growth in revenue over the last 20 to 30 years, the football industry and its many stakeholders are not immune to the effects of the virus.
The effect of the COVID-19 pandemic hit Europe while the 2019/20 season was three quarters of the way through. At present, all football events – including league competitions such as the Premier League, other domestic cup competitions such as the FA Cup, and continental competitions such as the UEFA Champions League and UEFA Europa League – are suspended until further notice. This follows emergency regulations introduced by governments across Europe that restrict public gatherings (Government Restrictions).
In England, for example, reg. 7 of The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 prohibits a gathering of more than two people unless the gathering falls within one of the exemptions. Obviously, attending a stadium to watch a sporting event (or even taking part in a team sport) is not deemed a necessary activity within the exemptions. In short, the continuation of any football matches is not possible until restrictions are lifted or relaxed. The gathering of supporters in stadiums looks set to remain prohibited for the foreseeable future, even if football does return in some capacity.
Depending on how long the restrictive measures remain in place, the suspension of football matches may result in the 2019/20 football season being terminated early in much of Europe. Indeed, following government imposed bans on all sporting events until September, both the Dutch football governing body, KNVB, and the French football governing body, LFP, declared the 2019/20 season over within their respective jurisdictions.
Early termination of the 2019/2020 season will have major legal implications for various stakeholders. Below, we analyse the effects that this might have on competition organisers, football clubs, football players and other stakeholders in Europe.
Many competition organisers negotiate collective broadcasting deals on behalf of all their participant clubs. Given the popularity of football as a TV sport, broadcasting deals are worth astronomical sums and are a major source of income for competition organisers and football governing bodies.
For example, in the context of competitions involving English football clubs:
Under the broadcasting agreements, the competition organisers have an obligation to arrange the full set of fixtures for their competition by a certain date every year. Usually this date will be around the end of July to coincide with the end of the European footballing season. The European new season automatically begins at the beginning of August. From the start date of the new season, organisers are under an obligation to organise the matches for that season.
Given that broadcasting agreements are usually set to run over multiple seasons and various current agreements are in the middle of multiple-season terms, the competition organisers are under pressure to complete the 2019/20 season and not overly disrupt the timetable for the following season, so as to comply with their contractual obligations. This will be a difficult balancing exercise.
Even if Government Restrictions are lifted or eased in the near future, the time-frame available to organisers to squeeze in 25% of the matches of the current season – without delaying the start or disrupting the timetable for the 2020/21 season – is limited. The longer the Government Restrictions continue, the more likely that other competition organisers and governing bodies will follow the lead set by the KNVB and the LFP and declare their competitions over for 2019/20. In this case, the competition organisers may be in breach of their obligations under broadcast agreements for not arranging up to 25% of the matches in their competition.
Broadcasters have largely been compelled to refund their customers for TV subscriptions for the rest of the current season and so have already taken a financial hit from the football ban. Given the large value of the broadcasting deals and the financial losses they have already sustained, some broadcasters might consider pursuing the competition organisers or football governing bodies for a breach of the broadcasting agreements, should the 2019/20 season be ended early.
Whether this is possible will depend on the precise wording of each contract (including any force majeure and other provisions) and any legal doctrines that might assist (such as the English law doctrine of frustration). It will also depend on what outcome the parties to the contract wish to achieve. It may be that broadcasters and competition organisers come to mutual commercial agreements to effectively share the burden of the financial hit. This may come in the form of discounts on future broadcasting deals.
Sponsorship revenue is the other major revenue for competition organisers. Due to their large popularity, companies have been willing to pay up to hundreds of millions of pounds to associate their brand with competitions.
For the Champions League, UEFA currently has high value sponsorship deals in place with Expedia Group, Gazprom, Heineken, Mastercard, Nissan, PepsiCo, Santander and Sony. It also has 'secondary' sponsorship deals with Adidas, Macron and Hublot.
The Premier League has major partnership deals with EA Sports, Barclays Bank, Budweiser, Cadbury, Coca Cola, Nike and Tag Heuer.
All such deals would be for a term over multiple seasons.
Under sponsorship agreements, the competition organisers usually have an obligation to improve the visibility, recognition, value and regard of the sponsoring brand. As such, the competition organiser usually grants certain sponsorship rights to the brand owner that include:
To the extent that 25% of matches in the 2019/20 season are not played, competition organisers may not be able to comply with their obligations and grant all of the agreed sponsorship rights. It is possible that a brand owner may have a claim for such breaches, again depending on the precise wording of the contract and other common law doctrines. As with broadcasting agreements, it might be that the parties will want to consider a negotiated variation to the contract. This could include part refund of fees, replacement of sponsorship rights or roll-over of sponsorship rights to next season.
Based on the figures for the 2017/18 season, the match day revenue (the figure comprising of ticket, food and merchandise sales during match days) for Premier League clubs stood at an average of £33.5m per club per season. For those clubs involved in European competitions, such as the Champions League, the match day revenue is much higher than the average. For example, despite having a modest stadium with a capacity of around 42,000, Chelsea's match day revenue for the 2017/18 season amounted to around £74m.
Even if some competitions for the current season are concluded at some point during the summer, they will most likely be played 'behind closed doors'. That means that 25% of the matches may be played without the clubs generating any match day revenue from those matches. Clubs have already put measures in place to refund fans for fractions of season tickets that correspond to any un-played (or played 'behind closed doors') matches, and other already-purchased single match tickets. The loss of tens of millions from match day revenue will be a heavy financial blow for clubs.
Revenue from broadcasting rights is distributed from the competition organisers to the clubs competing in that competition. Usually this is done using a formula whereby the better performers take a larger cut. On average, broadcasting revenue makes up around 59% of Premier League clubs' revenue. This percentage increases when excluding the 'Top Six' clubs (Chelsea, Manchester United, Manchester City, Arsenal and Tottenham Hotspur); with the lower clubs heavily reliant on these distributions.
Any financial hit that competition organisers take as a result of an inability to complete the 2019/20 season will be passed on to the clubs, who will have a smaller pot to share. Coupled with the loss of up to 25% of their match day revenue, these unexpected losses in revenue will have a major impact on many clubs.
All clubs have sponsorship deals, including shirt sponsorships, kit deals and other partnerships with brands. Securing a deal with a major and/or successful club is another way in which brand owners can achieve an increased visibility, recognition and value for their brands.
In the 2017/2018 season, Manchester United had sponsorship revenue of £276 million from a total of 25 sponsorship deals, including major sponsorship deals with Adidas and Chevrolet. The average total revenue for Premier League clubs from sponsorships for the same season was around £65 million.
Under the typical sponsorship agreement, clubs will grant brand owners sponsorship rights such as exclusive association within the sponsor's brand sector, due prominence of the branding at stadiums during matches (including on advertisement boards), allowing the sponsor to set up stands outside the stadium during match days, providing a set amount of match day tickets and hospitality packages, allowing access to and/or the right to organise a number of club events, and allowing access to players.
If the 2019/20 season is not completed, clubs may not be in a position to comply with their obligations under these sponsorship agreements. Unless commercial resolutions can be reached between clubs and sponsors, clubs might be opened up to possible breach of contract claims (again, depending on the precise wording of the contract and the applicability of other legal doctrines). However, in some circumstances, a club might more readily find a replacement sponsor, so might be prepared to get out of any agreement if there is a legal threat or potential legal threat hanging over it.
Even if competitions are completed in the summer of 2020 with matches played 'behind closed doors', clubs might still not be in a position to fulfil their obligations under sponsorship agreements.
If clubs are forced by competition organisers to complete their fixtures at neutral venues, there is a possibility that they may further struggle to fulfil any obligation to give due prominence to the sponsor brand. Although clubs have the ability to place a certain amount of advertising boards promoting sponsors at their own stadiums, they might not be able to do this at a neutral venue. Therefore, if matches are played at neutral venues, sponsor brands may not get the desired exposure during TV broadcasts.
When stadiums are finally opened for fans, lingering fears may lead to reduced attendance, lowering the number of individuals present at stadiums to whom the sponsor brand is being promoted, which in turn may mean that clubs may continue to be in a position where they cannot fulfil their obligations under sponsorship agreements.
Despite the very significant drop in revenue, clubs will still be under obligation to pay their players. Player wages amount to almost 60% of expenditure for Premier League clubs. The estimated total wage expenditure for Manchester United for 2020 is £332 million.
If any clubs default on wage payments, they are opening themselves to claims from players. Some clubs have taken the unprecedented measure of asking their players to agree to wage cuts (or wage deferrals) during this period. The world governing body, FIFA, has encouraged players to attempt to reach agreements with clubs over wages during this period.
Some clubs, including major Premier League clubs, considered taking advantage of the government furlough scheme to cover 80% of the wages of non-playing staff during this period. Given the reputational harm caused to various clubs when such plans were leaked by the media, many of the clubs decided to reverse their decision and are now (on the large part) continuing to cover all staff salaries.
A player contract is usually set to run until the end of June of the last year of its term. That means that some players, including major well-known footballers who ply their trade in the Premier League, are set to be out of contract on 30 June 2020. Clubs would normally have been willing for some playing contracts to lapse at this time (as it coincides with the end of the current season and the start of the summer transfer window, during which clubs could find replacement players).
To the extent that some competitions resume during the summer, clubs may be faced with the prospect of having to play some matches with depleted squads if some of their players leave at the end of their contracts at the end of June. Clubs would not be in a position to unilaterally extend contracts (even for a few months). It may be that, most players in such a position would be happy to extend their contracts on a temporary basis and see out the 2019/20 season. However, to the extent that a player wants to leave, clubs will have no choice but to let them go.
Competition organisers and governing bodies have not clarified any changes to rules that may allow summer signings to be registered for matches played in the summer to complete competitions. In any event, there is a questions as to whether the integrity of the competition will be affected if the richer clubs are allowed to use new players to finish off the season, while some less financially well off clubs are left with depleted squads during that period.
The current situation will invariably have lasting implications on the players too. Commercial pressures on competition organisers and clubs may force them to restart football earlier than necessary (or player a greater number of games in a shorter period of time). In such a situation, there are issues as to whether the clubs, organisers and governing bodies are breaching their duty of care towards players by putting them under unnecessary danger.
Some prominent players also have major personal sponsorship agreements with major brands. Such agreements may include obligations on players to make a number of public appearances at events during every season. The Government Restrictions may mean that players might not be in a position to fulfil their obligations under such sponsorship agreements. Again, the implications will depend on the precise wording of each contract.
A lot of players are under pressure to agree collective pay-cuts (with their teammates). Players will be worried about the reputational harm they could face if they do not agree to such wage cuts, even though they are contractually entitled to their full wage.
The lack of football may come at the wrong time for some players who are either at the start or the end of their careers. A prolonged period without playing may lead to loss of form and to lost career opportunities. Players who are set to be out of contract at the end of June 2020, may find that they are in a worse negotiating position than they would otherwise have been. They may have to accept a lower wage packet under any new potential playing contracts they can negotiate with a club.
As already mentioned, France and the Netherlands have already cancelled the remainder of the 2019/20 season. These countries will not see any football played domestically at least until September 2020. It remains to be seen if other major European football governing bodies follow suit.
In Germany, the Chancellor, Angela Merkel announced on 6 May 2020 that domestic football can resume later this month so long as matches are played 'behind closed doors'. The Bundesliga is currently deciding whether to resume on 19 May or 22 May 2020.
It has been widely reported in the English media that the Premier League has extensively explored plans to resume the current season at the end of June and play the rest of the matches 'behind closed doors' at certain designated neutral venues. The media reports suggest that under such plans up to 300 people are needed per match for it to be played (this includes full matchday squads, coaching staff, match officials, medical staff and TV staff).
On 11 May 2020, the UK Government published Our Plan to Rebuild: The UK Government's COVID-19 recovery strategy in which it stated that as part of Step Two of a phased easing of restrictions – planned to come into force on 1 June 2020 at the earliest – the government will be "[p]ermitting cultural and sporting events to take place behind closed-doors for broadcast, while avoiding the risk of large-scale social contact". Some football managers and players have publicly voiced reservations about playing under such conditions unless their safety can be assured. Whether these plans go ahead remains to be seen.
Some clubs fear that even some portions of the 2020/21 season may have to be played 'behind closed doors'. If these fears come to pass, clubs will be faced with an even greater loss of match day revenue.
UEFA released guidelines on 23 April 2020 with information for national football governing bodies on how to proceed, especially given that club participation in UEFA's competitions for 2020/21 (including the Champions League and the Europa League) depends on the clubs' performances this season. According to the guidelines, UEFA strongly prefers that all outstanding matches in national competitions are completed.
However, where this is not possible (for example, due to Government Regulations), UEFA requires participation in its competitions to be determined on 'sporting merit'. National governing bodies have some discretion as to how to determine 'sporting merit', but this could either involve using current league positions or applying a 'points per game' formula. All national governing bodies or national league organisers must inform UEFA on how they are to proceed by 25 May 2020.
UEFA currently plans to resume the 2019/20 Champions League and Europa League competitions in August 2020. National league organisers who are planning to resume their leagues are under pressure to complete all outstanding matches before UEFA competitions resume in August.
Whenever football does eventually return, the landscape may look different, at least for the immediate future. The loss in revenue will certainly lead to less extravagant transfer fees and to a possible slowdown to the rapid increase of average player wages. It is likely that the number of player transfers between clubs will decrease over the next couple of seasons and clubs may have to rely more on promoting players from their own academies in order to refresh their squads.
The value of broadcasting deals will invariably be affected. Some broadcasters may no longer be in a position to bid for broadcasting packages, leading to less competition and therefore to a decrease in the amount offered for those packages.
It is also likely that the way in which football is broadcast changes going forward. Video on demand services (VODs) have had an increase in revenue during the recent period, and following Amazon Prime Video's successful pioneering attempt at broadcasting live Premier League matches, more VODs may feel they are in a better position to compete for football broadcasting rights (especially if traditional sports broadcasters have lost their financial advantage).
We may also see a change in the types of brands that continue to sponsor competitions or clubs. Some brands who have been omnipresent football sponsors in the past (eg betting companies) have been affected badly by the current situation and may not be in a position to continue spending via sponsorships – at the very least not to the extent that they have done in the past. Other brands, such as food and drinks delivery companies and/or technology companies (who have done better financially recently) may be more willing to provide sponsorship in the near future.