The Business of Force Majeure

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Ross D. Franklin, Associated Press
Ross D. Franklin, Associated Press

During difficult times, people and businesses often look for ways to cut costs and save money.  Others look for ways, sometimes simultaneously, to fill in space with dollars.  The lessons of the past teach that business relationships should be cherished and long-term.  However, during a pandemic, there seems to be a tendency to move to short-term expediency. 

What is a business supposed to do to survive?  What is the right thing to do?  Sometimes when a deal is brokered changed economic conditions force a business to make tough decisions.  Decisions that could lead to arbitration, litigation, business disputes, and disruption.

In California, generally frustration of purpose and impossibility can be justification for being excused from obligations in a contract.  A force majeure clause is a contractual provision that describes circumstances where a party or parties can be excused from a contract, performance, or obligations because of an act of God, government shutdown, or even a pandemic.  With it being very difficult to obtain pandemic insurance during a pandemic, parties are often looking towards ways at managing economic hardships.   

For example, Under Armour has sought to renegotiate or end its multi-million dollar marketing and apparel deals with the University of California at Los Angeles (UCLA) and Berkeley (Cal).  Learfield IMG has sought to renegotiate or end its multi-million dollar relationships with NCAA athletic departments.  The sports business is in a tough spot, no doubt.

There is some hope with professional sports returning in women’s soccer (NWSL), Major League Baseball, soccer (MLS), basketball (NBA), tennis and golf that marketing value will be driving upwards again soon.  Under Armour does have its history in sports, particularly with the MLB/Nike uniform switch, the NBA, and star Kevin Durant, but what justification is there other than the market has changed.  To date, Under Armour’s losses are specifically related to March Madness and cancelling of the tournament, while the 2020 college football season has not started yet.  There has been a larger discussion around past, current, and future loses, so it will be an interesting discussion and debate.

Two things are important to note here.  First, brand partnerships and marketing deals are all about relationships.  The parties have to want to work together.  Second, there needs to be room for understanding and negotiation where appropriate.  Meaning, if the parties are having difficulty living up to their expectations, the parties should have a dispute/negotiation resolution process built-in to navigate those circumstances.  On the other hand, there should be enough teeth in the agreement to force the parties to perform even when things get uncomfortable.  Otherwise, parties would just cry wolf every time the going got tough. 

It seems that during a pandemic everything is about force majeure and changed circumstances, but eventually the economy will rise in sports business as live sports return.  Contracting parties need to find a good place to weather the storm to find a balance between survival, success, and good relationships.  One place to find success is predicting where the market and consumer meet, not such an easy task.   

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