Developments since this article was published
On 23 March 2020, the IOC was reported as having stated that a decision on whether to cancel, postpone or proceed with the 2020 Tokyo Olympics would not be made until late April 2020, however cancellation or postponement of the 2020 Olympics was stated to be unlikely. Then, within 12 hours of our article being posted, veteran IOC member Dick Pound was reported widely as having confirmed that the IOC had decided to postpone the Games. A mere coincidence?? Perhaps, but in any event, we are pleased to see that broadcasters, sponsors and advertisers now have certainty and can seek to mitigate their losses (losses which would have invariably been much greater if this decision had been drawn out any further).
What you need to know
- The IOC is continuing its commitment to staging the 2020 Tokyo Olympic Games in July this year despite increasing international lockdown, and global concern about the risk the Games would pose in increasing the spread of COVID-19 coronavirus.
- While the IOC appears adamant the Games will continue, the threat to the Olympic Games creates a massive uncertainty for athletes, sponsors and broadcasters, as other international sporting events continue to cancelled or postponed as the virus spreads.
What you need to do
- If you are an official sponsor, broadcaster or non-official sponsor of the 2020 Games, it is important to carefully review the terms of your contractual arrangements.
- Consider ways in which commercial and financial exposure can be mitigated in the event the Olympic Games are cancelled, postponed, or continue, but with a significantly reduced competition and audience.
While high profile sporting codes around the globe are cancelling or significantly curtailing their 2020 season as a result of the risks posed by COVID-19, one event stands out in stark contrast. To date, despite calls from athletes, sponsors, health professionals and it seems even reluctance from host nation Japan, the International Olympic Committee (IOC) has been unwavering in its message. The 2020 Tokyo Olympic Games must go on.
The Games are set for 24 July to 9 August 2020 and, in normal times, the Games present an excellent opportunity for brands and advertisers to engage with an international event, watched by over 3 billion people around the world.
However, these are extraordinary not normal times. The international escalation of the outbreak of COVID-19 in recent weeks is preventing international movement of people, resulting in cancellation of nearly all large-scale international sporting events taking place in the coming months. Countries are closing borders, and health officials are calling for cancellation of all events in an attempt to minimise the spread of COVID-19.
Japan's Olympic minister has publicly suggested that the Games may be postponed until the end of 2020. However, the IOC has confirmed that at this stage, the Games will go ahead as planned. It is hard to see how they can, and even if they do, it is yet to be seen whether countries will permit their athletes to travel to Japan and compete.
The IOC's insistence that the Games will continue, in circumstances where this seems increasingly unlikely, leaves sponsors, broadcasters and advertisers in a difficult position. How can they best protect themselves?
Olympic sponsorship and broadcasting rights
Olympic sponsorship arrangements come with a significant price tag. Official sponsorship revenue for the 2020 Tokyo Games was reported as totalling over $3 billion, but that's not where the spending stops. An official sponsor will typically invest heavily in "leveraging" the sponsorship. This invariably involves significant investment in widespread advertising campaigns, "activations" (ie different forms of advertising) across multiple different platforms, individual "ambassador" agreements with high profile athletes and the purchasing of significant volumes of advertising spots in and around the official broadcast to name just a few leveraging activities. What's more, investments by sponsors and local official broadcasters begin many, many months ahead of the Games themselves. This of course means that any last minute decisions to cancel, postpone or significantly vary the nature of the Games risks causing major losses and disruption. Those losses and disruption will be felt globally.
What happens if the Games don't go ahead?
Risk of Frustration
There is a risk that if sponsorship or broadcasting contracts have not contemplated the Games being cancelled or postponed, the agreements in question will not have effective contractual mechanisms in place to deal with the fall out if the Games are cancelled or postponed. Sponsorship and broadcasting contracts may then become frustrated, due to the unanticipated interference of COVID-19 and subsequent bans on travel and mass gatherings, on performance of the contract.
Each contract will need to be assessed on its merits and in light of the governing law of the contract, but as a general principle under Australian law, if a contract is frustrated, it comes to an end and each party is liable for its own loss. This is likely to lead to significant financial loss for sponsors and broadcasters, as well as the IOC and Japan, the host nation.
Contractual clauses
To avoid the risk of frustration, agreements should include a force majeure clause, which is drafted to contemplate an unforeseen event taking place and makes provision for parties being unable to perform their contractual obligations as a result of that unforeseen event. An effective clause should clearly state the process to be implemented if such a force majeure event occurs.
It will depend on the drafting of a force majeure clause to determine if, on its construction, the clause covers COVID-19 and its impact on the Games. A clause which merely refers to a ‘force majeure‘ event for example, may risk being void for uncertainty, however broadly drafted clauses which cover "any circumstance beyond the control of the parties" for example, may extend to complications caused by COVID-19.
Termination
Sponsors and broadcasters may have the ability to terminate their respective Olympic contracts under a specific termination clause. There will also be a range of other contractual relationships that have been set up to enable leveraging of the sponsorship or broadcast rights.
Whether a right of termination is available will turn on the construction of the termination clause in question. In some limited instances, there may be a right to terminate for convenience.
Agreements should include clear and prescriptive drafting as to when and how a party's ability to terminate arises, and how the parties will be discharged from future obligations.
Insurance
Some official sponsors have already spent hundreds of millions in securing advertising space and preparing promotions for the Games.
Sponsors and broadcasters should check the terms of their insurance policies in respect of their commitments for the Games. These policies should be reviewed as COVID-19 develops, to determine if coverage is available in the event that the Games are cancelled and the scope of that coverage. Insurance policies may cover cancellation due to COVID-19 in broadcasting and production contracts for example, if the COVID-19 is considered to be an unforseen or supervening event. However, whether broadcasters are able to recover anticipated ad-driven profit in the event the Games are cancelled is a separate question.
Non-sponsors who have invested in preparing Olympics themed commercials and promotions are unlikely to have the same level of insurance protection if the Games are cancelled or postponed.
How long will the IOC delay its decision?
Some IOC officials have said that the IOC may delay the decision until late May 2020. The later a decision is made, this greater the difficulty for sponsors, broadcasters and advertisers in mitigating potential losses.
What should organisations do?
Sponsors, broadcasters and other advertisers should carefully review the terms of all relevant contracts and insurances policies and get their game plan ready for what seems to be an increasingly inevitable change in tack by the IOC.
Authors: Anita Cade, Partner; and Maggie Kearney, Lawyer.
Article updated 24 March 2020, 11.00am
