COVID-19: The fundamental issues being faced by PL and EFL clubs

With the rise in coronavirus (COVID-19) cases in the UK and the country having now entered into week 3 of lockdown, football’s governing bodies, leagues and clubs are struggling with uncertainty around legal issues in these unprecedented circumstances.

Professional football in England has been suspended indefinitely due to the ongoing COVID-19 pandemic. At a meeting that took place on 3 April 2020, between Premier League Shareholders, it was acknowledged that the Premier League will not resume at the beginning of May and that the 2019/2020 season will only return when it “is safe and appropriate to do so”. It is understood that the restart date is under constant review. Similarly, a statement from the EFL on the same date also read that “the situation will be kept under constant review with matches only returning at an appropriate point and based on the latest guidance provided by the relevant Government departments and health authorities”.

In light of the indefinite suspension to the current football season, here are some of the key issues and questions being raised by football clubs, and some practical guidance which we hope assists clubs when navigating these issues.

Commercial contracts

The social, economic and commercial impact that ‘behind-closed-doors’ (“BCD”), delayed or cancelled matches may have on clubs will be huge (even before there is a negative impact on the current television deal):

• Sponsorship and advertising deals (for example perimeter advertising deals - which carry a significant pound per minute premium in the Premier League) are valued largely on a brand’s exposure to fans in the stadium and viewers on television.
• Hospitality and catering service providers will have deals with clubs which include matchday revenue sharing from sales, as will ticketing and betting facility service providers.
• Service and product providers such as photographers, data collectors, security personnel and other casual labour contractors will likely have contracts with clubs which largely revolve around the complete matchday experience – with the presence of fans.
• Season tickets and purchased matchday tickets.

Most commercial contracts (with sponsors, partners and insurers) will include ‘force majeure’ clauses, which allow parties to absolve themselves of any liability to perform their contractual obligations if something outside their control prohibits them from doing so. So, many clubs and partners are asking the questions: is the outbreak of coronavirus a force majeure event? This depends on the facts of the situation and the wording of the contract. However, it should be noted that, just because the government imposed ‘lockdown’, ordered as a result of a pandemic, might immediately raise suggestions of it being a ‘force majeure event’, many contractual force majeure provisions will only be engaged if the party, wishing to rely on its protection, is delayed or prohibited from fulfilling its obligations under the contract. If there is no delay or failure in performance, caused as a result of a force majeure event, then it is unlikely to be a force majeure event.

Before even analysing whether a force majeure event has taken place, clubs need to assess the current status of the respective parties’ performance under those contracts, and likelihood of still being able to perform any outstanding obligations which might be linked to this season. Performance of obligations might still be (arguably) capable and / or there may be other contractual provisions which can absolve or mitigate any potential breach of contract in the current circumstances.

What should clubs be doing now?

• Reviewing all key matchday related contracts and identifying any terms which relate to non-performance, express cancellation and ‘force majeure’. In particular, clubs should consider whether they have any outstanding obligations which have not yet been discharged under the contracts – what is the likelihood that the obligations can still be performed? Are the obligations specific in number, e.g. is a commercial partner entitled to attend a certain number of matches / to have a certain number of minutes of advertising for a certain number of games, or are the obligations more generic?
• Identifying areas of uncertainty (which there will be in these circumstances) and formulating a practical strategy as to how to best manage the relationships with other parties.
• Ensuring that you are aware of any steps which must be taken to correctly perform your obligations under the contract. For example: a force majeure clause may impose an obligation on the affected party to promptly notify in writing the other party as soon as practicable, or to take all reasonable steps to mitigate the effect of the force majeure event. Some force majeure clauses give parties the right to terminate after a certain amount of time. As a result, clubs should take care when determining whether to declare a force majeure event, and should consider whether any other options are available.
• Avoiding doing anything that will constitute a breach of contract. Maintain delivery of all obligations under the contract, e.g. social media posts advertising your partner’s brand, or approving use of your partner’s own online activities which feature your club’s brand.
• Awaiting final decisions from governing bodies in respect of matches (whether they will be rearranged, cancelled or played BCD) before making any ticket refunds, whilst maintaining open communications with fans. Refunds may be required for season tickets and matchday tickets, but the extent of this obligation is not yet clear. Clubs should review their ticketing and hospitality terms and conditions to make sure that they comply with consumer protections laws, and make sure that they are aware of what refunds (if any) may be due to fans over the coming months.
• Uncertainty around the interpretation of contractual clauses in these circumstances is unavoidable. Our advice is to engage in early dialogue with your contractual partners and avoid overly legalistic discussions. Focus on working together to identify a practical way forward, and seek appropriate legal advice if anything is unclear.

Player related Issues

As previously outlined, one of the major issues that clubs will need to deal with in these unprecedented circumstances is that the majority of player contracts will have a natural expiry date of 30 June. Given that it is now inevitable that the current season will go beyond 30 June 2020, clubs face a real dilemma of having players out of contract during the season.

Unsurprisingly, clubs will be anxious about their ability to maintain the strength of their squads beyond 30 June. If fixtures do continue past this date then any players out of contract are in effect ‘free agents’ and they would not be under a contractual obligation to attend training or play for the club.

It is rumored that a FIFA Working Group is currently reviewing the impact of the suspended season on player contracts and registrations. A number of proposals and “guiding principles” have been suggested, including unilaterally extending all contracts that are due to expire on 30 June, to the actual (revised) end of the season.

However, it is important to emphasise that concrete and official guidance is yet to be circulated. This is unknown territory for PL and EFL clubs and the position of football’s governing bodies is likely to continue to develop over the coming days.

So what are the options available to clubs?

• Identify those players who will be out of contract. If clubs aren’t already doing so, they should be considering the contracts of all players and identifying any of those which expire on 30 June 2020. Clubs should act promptly on any next steps in order to secure the player’s signature.
• Option to extend? Clubs should identify immediately whether a player’s contract contains a unilateral extension clause (“UEC”) and determine whether they wish to activate this. Often referred to as an ‘option’, UEC’s are contractual clauses contained in a player’s employment contract that are usually drafted in favour of a club. UEC’s grant the club the exclusive option to extend the employment relationship with the player, without needing to obtain the player’s consent to activate such right.
• A new deal? Provided all parties are on the same page, the simplest solution, to this potentially unavoidable scenario, is for a club to agree a new contract with the relevant soon to be out of contract player. Any new contract will undoubtedly have a contractual term that will run beyond 30 June of this year and, therefore, enable the player to participate in any fixtures which take place past that date.
• Can the contract be amended / varied? Although the standard Premier League and EFL Player Contract does not include an express amendment or variation clause, domestic regulations provide that a club shall be at liberty at any time to reach agreement with a player to amend the terms of his contract. However, clubs are reminded of the fact that if such an agreement increases the player’s remuneration then (unless the agreement is made out of season – which will not be the case here) it shall be a term thereof that the player’s current contract is extended by a minimum of one year. Crucially, no variation of a player contract will be valid unless that variation is in writing and signed by, or on behalf of, each of the parties. A copy of the amended contract must also be lodged with and accepted by the relevant league.

Some more analysis of the key contractual, regulatory and commercial issues regarding player contracts that club should be considering in these uncertain times can be found here.

As a result of the financial impact of COVID-19, various headlines have reported recently that clubs are asking their players to agree to wage reductions, deferrals and or caps to their salaries or, in some cases, the implementation of ‘furlough status’. We considered the legalities behind wage reductions, variations to player contracts and the Governments Coronavirus Job Retention Scheme in our recent article which can be found here. In addition, in a separate article we also analysed what the current circumstances mean for clubs in relation to loan agreements and players on loan.

Further, when weighing up the financial benefit of implementing any wage structure changes (including furlough), clubs should also factor in the cost of any negative publicity and reputational damage that may be caused, should the move be perceived negatively by the public.

Insurance

A number of insurers have been taking proactive steps to confirm that loss of revenue for cancelled events will not be covered under certain standard insurance policies. Depending on the nature of the event and the sophistication and extent of the insurance coverage, some policies contain “notifiable or communicable disease” and / or “denial/prevention of access (non-damage)” extensions that may cover business losses (e.g. ticket refunds and the cost of unfulfilled contractual obligations with third parties).

On 5 March 2020, the government announced that a statutory instrument was made into law that adds COVID-19 to the list of notifiable diseases. Whilst this is beneficial news for many, clubs need to be aware that some insurance policies in relation to future events may now expressly exclude Covid-19 as a ‘pre-existing circumstance’.

Clubs need to be mindful that the current situation is outside the normal business experience of many insurers and therefore, if clubs are able to bring a claim, settling it may take months which means that the clubs will need to prepare to face the short-term liabilities. However, some policies may allow for interim payments to be made to clubs on account. This is particularly helpful where clubs are facing financial hardship and are struggling to meet their short-term liabilities. 

Clubs competing in international competitions and / or who have arranged pre-season tours need to review the terms of their travel insurance policies as these may also exclude Covid-19. For clubs who may not have renewed their travel insurance or are new to international travel, the implications are grave with a number of UK insurers having stopped the sale of travel insurance to new customers with immediate effect. Other insurers through fears of immeasurable claims have significantly increased their renewal costs. Insurance is designed to provide cover for unforeseen and unexpected events and is priced on that basis.

What should clubs be doing now?

• Checking all relevant insurance documents (policy schedule and policy wording) carefully;
• Notifying your insurers of a potential claim under your policy as soon as possible. Policies usually contain strict liability clauses that require “immediate” notice or notice “as soon as possible” in the event of a circumstance which may give rise to a claim under the policy.
• Speaking with your professional advisors to better understand the scope of your insurance, the extent and / or limitations of cover, any applicable excess, as well as the notification and duty to mitigate provisions;
• Calculating your potential losses and forecasting cash flows, as well as gathering and maintaining as much documentary evidence of losses as possible; and
• Implementing sensible savings, cash flow and procedural management strategies.

If you have any queries about how your club should be dealing with any coronavirus related issues then please contact either Lydia Edgar or Andrew McGregor.