Commercial arrangements as long-term relationships

All events are cancelled or postponed. Could there be a bigger commercial impact to an industry? The silver lining is that leagues, teams, and promoters are actively planning to reschedule events as much as possible, as soon as possible. That will, of course, depend on how long the COVID-19 pandemic lasts.

Our sports and entertainment clients tell us that they continue to broadly see commercial parties taking a collaborative approach to address commercial impracticalities or impossibilities. That probably should not come as a surprise. The sports and entertainment industries rely, perhaps more than others, on long-term relationships, joint ventures, positive branding, and reputation. Sponsors and media partners are generally aligned with leagues and teams for years to come. The same goes for venue owners, venue managers, ticketing partners, and concessionaires. The strength of these relationships is of paramount importance as the industry deals with this pandemic.

Just like other industries, we’ve been assisting our sports and entertainment clients with analyzing force majeure clauses and early termination rights, often with the help of artificial intelligence software, in order to assess their options in the event it becomes (or is already) impossible to fulfill commercial obligations in connection with cancelled or postponed live events. To aid in this effort, we’ve put out this jargon free force majeure analysis checklist. We have also prepared a California law focused primer on force majeure that may be of particular interest to our sports and entertainment clients.

Fan engagement and ticketing matters

Naturally, our sports and entertainment clients are experiencing extremely high volumes of inbound communication from holders of tickets to suspended or cancelled events. Despite remote working and other employment challenges presented by the COVID-19 pandemic, our clients tell us they’ve responded by dedicating additional personnel and information technology resources to engage with concerned ticket holders.

For rescheduled events, pre-sold and season ticket purchases will, in most cases, be applied as a credit for replacement dates. That should help to minimize the cash flow impact of broad-scale ticket refunds, while allowing fans the opportunity to enjoy the rescheduled event. But for cancelled events, ticket refunds will likely prove inevitable. In any case, so long as events remain on hold, our clients are dealing with decreased advance ticket sales for future events and the loss or deferral of walk-up or gate ticket sales, parking fees, and merchandise and concession revenues.

At the same time, we’ve been assisting our sports and entertainment clients with public messaging and fan engagement topics in light of the COVID-19 pandemic. Here are a few themes:

• Communicate your genuine care for your fans, artists, players, and employees – above all else. This is a time to engage (albeit electronically) with fans; they miss cheering on their favorite teams and going to their favorite concerts.
• Communicate not only factually, but transparently, as now is a time when both fans and employees need clarity. In this period of heightened anxieties, it is important that communications clearly anticipate and answer your fans’ and employees’ questions.
• ​Reassess your communications channels to determine if the way you have traditionally reached your fans will still work when their content choices are changing. It may be time to add more short, creative video communications distributed via Facebook, Twitter, and Instagram, or email where you explain new policies regarding ticket exchanges, or to advertise upcoming summer events that will remind fans that there will be a day in the not so distant future when this crisis will be over. As fans work from home, they are now, more than ever, clicked into their social media platforms and appreciate visual communications.

Protecting employees and facilitating remote working arrangements

There is no more human and direct impact from COVID-19 than on a company’s employee base. Our clients around the world are facing unprecedented challenges managing a large-scale shut-down of their workforces. In order to manage these challenges, we are recommending that all of our sports and entertainment clients designate an individual or establish a core team responsible for staying on top of the latest COVID-19 developments and leading efforts to develop or further refine COVID-19-related policies and procedures.

But perhaps the most pressing need employers are facing in the short-term is how to manage a workforce that, for the most part, are no longer needed at, or in some cases, prevented from coming into, work, while at the same time still complying with labor and employment laws that are changing on a nearly daily basis. We are seeing our clients vigilantly reviewing and evaluating their legal compliance obligations, both to their employees and to their independent contractors. Given the value our clients place on their workforces, many are trying to go above and beyond those requirements during this outbreak.

As with many other employers, our sports and entertainment clients place a tremendous emphasis on safety but at the same time balancing the rights of their workers. Implementation of key safety measures, such as asking those who have been exposed to the virus to self-quarantine, including athletes exposed during league play prior to the recent suspensions, remains a top priority for our clients, and we continue to field inquiries related to employee and athlete testing. Moreover, consistent with the recent governmental guidance, we are seeing clients take a cautious and coordinated approach with respect to travel, including domestic travel.

We’ve developed an employment blog, All in a Day’s Work: The Employer’s Legal Guide, and we are constantly updating the blog with content relating to COVID-19 to help our clients stay apprised of the continually shifting and unprecedented landscape in which they must now navigate.

Addressing liquidity concerns

With all live events on pause, the COVID-19 pandemic is presenting unique liquidity challenges, particularly in the short-term. Our sports and entertainment clients are facing a new reality – meaningful deferral or loss of revenue sources such as ticket sales, sponsorship, and media, but continued payroll, rent, and other expenses. Simply put, it is not easy for these companies to shut off relatively fixed expenses despite the fact that COVID-19 may be crippling their income.

In this environment, cash-flow forecasting based on revised revenue and expense projections is paramount. Sports and entertainment clients with debt leverage are assessing impacts to their financial covenants, material adverse change (or MAC) provisions, and also taking proactive steps with their relationship lenders. In many cases, we are helping clients to increase their overall working capital borrowing capacity and draw down on their revolving loans in order to help alleviate these short-term liquidity concerns – see related content from our COVID-19 Topic Center.

For professional sports teams, we are seeing capital calls from ownership groups and, in some cases, our clients are evaluating bringing in additional minority owners as a way to tap some extra cash. In either case, we are working with our clients to closely evaluate league requirements and capital contribution, preemptive rights, and governance provisions within their existing organizational documents.

Insurance coverages and recovery

As our sports and entertainment clients take stock of the “new normal” that is suspended operations and cancelled or postponed events, they are carefully reviewing their insurance policies to determine the availability and magnitude of coverage for losses that are likely to arise from the COVID-19 outbreak. Specifically, our clients are first evaluating whether they may be able to avail themselves of coverage of event cancellation policies, to the extent such policies have been procured, which generally include coverage for losses that directly result from the cancellation, abandonment or postponement of events, subject to any exclusions. Many event cancellation policies for larger events obtained prior to the COVID-19 outbreak did not exclude communicable diseases, and therefore, those may present an opportunity to recover for losses associated with cancellations, abandonments, or postponements of their marquee events.

To the extent event cancellation coverage was not procured or is not available, our clients are also reviewing other potential avenues for loss recovery, including pursuant to any robust property coverage for contingent business interruptions, supply chain disruption, civil authority orders, and even specialized pandemic policies, where available. However, many of these policies often include a “Bacteria/Virus” exclusion that may make recovery for COVID-19-related losses more difficult. Regardless of the policy coverage being pursued, it is important to be mindful of sublimits that may curtail loss recovery, as well as claims-made policies coming up for renewal, as it is likely the new policies following renewal may include specific exclusions for COVID-19-related losses. Importantly, the scope and availability of each of these coverages is subject to the detailed and often negotiated wording of each client’s policy, so we highly recommend that each of our sports and entertainment clients carefully analyze potential avenues for recovery.

Conclusion

Navigating this uncharted territory presents the sports and entertainment industry – and the rest of the economy – with insistent challenges, but working together, planning for the unforeseen, and developing creative solutions, we fully expect that we will be able to return to enjoying the entertainment that defines us as fans.

[View source.]