Sports Litigation Alert (Volume 8, Issue 19) just published a short piece I wrote entitled, ‘Battle of the Beers.’ It is reproduced below:
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In a country where ice hockey and cold beer go hand in glove, two of Canada’s biggest breweries have been battling it out over sponsorship rights as the official beer of the National Hockey League. On 3 June 2011, Newbould J. of the Ontario Superior Court of Justice held that the NHL and Labatt Brewing Company Limited reached a binding sponsorship agreement on 12 November 2010 which would have run from July 1, 2011 — June 30, 2014. As such, the NHL was consequently not free to enter into a similar but superior agreement with Molson Coors Canada Inc. on 8 February 2011. The NHL and Molson appealed and the court held in their favor on 12 July 2011.
In a ruling which has left Labatts all wet (and sudsy), the Court of Appeal for Ontario found that Newbould J. erred by making his finding in a manner not anchored to the pleadings, evidence, positions or submissions of any of the parties to the case. It was accordingly “procedurally unfair, or contrary to natural justice” for this conclusion to be reached [5]. Citing Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.), the court held that a theory of liability which emerges for the first time in the reasons for judgment is never tested in the crucible of the adversarial process and thus raises concerns about the reliability of that theory [6].
It is noteworthy that Labatt did not plead that the parties had reached a binding sponsorship agreement on 12 November 2010 [12]. Labatt did not assert during the application hearing that a binding sponsorship agreement existed between the parties and expressly disavowed that it had reached a binding sponsorship agreement with the NHL [13]. The appeals court accepted the NHL’s submission that if it had known that the existence of a binding sponsorship agreement between the NHL and Labatt was at issue, it would have conducted its defence to Labatt’s application in a very different fashion [15].
While hockey is a small fish in the big frozen pond of professional sport relative to their much larger counterparts in football, baseball and basketball, there is still significant money to be made (and lost). Kyle Norrington, marketing director of Budweiser and regional brands for Labatt in Canada, commented in an affidavit filed with the Ontario Superior Court of Justice on the relationship of hockey and beer: “The NHL and the access it provides to Labatt … is the single greatest opportunity to grow Labatt’s share in Canada. The nexus of sports / heritage / emotional / tradition in hockey has no other Canadian comparable.” In contrast to the $37.2 million over three years agreement that Labatt was pursuing, the Molson deal is worth a reported $375 million over seven years.
It is the combination of the trial judge’s analysis of the renewal option in the 2002 Labatt/NHL agreement and his conclusion that a binding agreement was reached at the 12 November 2010 meeting that created the procedural unfairness problem [18]. Quoting Cronk J.A. in Grass (Litigation Guardian of) v. Women’s College Hospital (2005), 75 O.R. (3d) 85 (C.A.), leave to appeal refused, [2005] S.C.C.A. No. 310, the appeals court held that, “at the end of the day, the issues between the parties are defined by and confined to those pleaded” [53]. Since this did not happen, the NHL and Molson were denied procedural fairness and the judgment of Newbould J. was set aside.
Revenge is a beverage best served cold. Earlier this year, Coors Light lost the bragging and sponsorship rights as the official beer of the National Football League to Anheuser-Busch for $1.2 billion over six years. The $375 million Molson Coors/NHL deal reportedly includes approximately $100 million for the rights, $100 million in guaranteed advertising buys and $100 million in activation costs for staging special promotions to capitalize on its rights.
On 6 October 2011, Labatt disclosed that it had received confirmation that the Ontario Superior Court of Justice had dismissed its suit against the NHL and Molson Coors thus ending this round of the battle of the beers. The court plans to release the reasons behind its decision at a later date and Labatt said it would review its legal options at that time.
The case essentially concerns the image rights contract between Wayne Rooney and his former agents (Proactive Sports Management Ltd). Proactive were seeking unpaid commission and invoices totalling between £1-3m against Wayne and over £200,000 against Coleen.
Essentially Rooney signed an Image Rights Representation Agreement (IRRA) with Proactive Sports Management Ltd, to represent him in his commercial affairs for the next 8 years. Midway through this contract, when his agent (Paul Stretford) was fired from Proactive and set-up a new sports agency, the Rooney’s followed him across and purported to sever links with Proactive on the 18th December 2008. Proactive sued Wayne and Coleen for liquidated damages and commission that they felt continued to be owed to them on the various sponsorship contracts negotiated on their behalf by Proactive.
The Rooney’s successful counter-claim against Proactive was based on their view that any contract between them is ‘void, invalid, unenforceable and of no effect’ as the 8yr term represents a restraint of trade.
Aren’t there rules governing Player Contracts?
On-field representation agreements are comparatively well regulated by the FA: they are limited to a maximum term of two years and must be in writing. Essentially these contracts are dependent on a player’s skill and given this, an agent would normally take an average fee of 5% to represent their one-off role in negotiating the contract.
By contrast however, contracts governing off-field activities (such as image rights) are wholly unregulated by both the FA and FIFA, although the Inland Revenue is now looking into this area closely (see http://www.dailymail.co.uk/sport/football/article-1311210/Wayne-Rooney-facing-crisis-taxman-gets-set-chase-1million.html). Unlike on-field agreements, these commercial contracts need constant servicing and brand protection / management, therefore agents will usually charge an average fee of 20% to reflect the additional work undertaken. It was this type of contract that formed the basis of the case.
17th July 2002, Rooney signed an 8yr, on & off field agreement with Proactive (this was later varied on the 16th Jan 2003 to strip out off-field components)
19th September 2002, Rooney again signed an 8 yrs agreement, however this was quickly torn up and replaced with Dec version (below)
14th December 2002, Rooney signed a 2yr on & off field agreement with Proactive, which was renewed in 2004 and 2006. Critics have suggested that this was only signed so a copy of the contract could be lodged with the FA.
16th January 2003, Rooney signed over his commercial rights to Stoneygate. Stoneygate in turn signed an 8yr representation agreement with Proactive.
1st Feb 2003, Rooney signed a playing contract with Everton FC (actually executed on or about 15th Feb 2003)
23rd August 2004, Rooney transferred to Manchester United FC in a £27m deal (the MUFC Image Rights contract was later varied to extend the contract to 30th June 2012)
Who was involved in the case?
Essentially, there were five main companies involved to some degree:
Proform Sports Management Ltd is the agency that Wayne was signed to as a 15 yr old by Peter McIntosh. This agreement was later held to be unenforceable (Proform Sports Management Ltd v. Proactive Sports Management Ltd [2006] EWHC 2903 (Ch)).
Proactive Sports Management Ltd is the agency that Wayne moved to at 17 and remained with for the majority of his professional career.
Stoneygate 48 is the limited company set-up to manage Wayne’s Image Rights
Speed 9849 is the limited company set-up to manage Coleen’s commercial affairs (Harper Collins, OK! Magazine etc). Although there was no formal contract between Coleen and Proactive, the Court implied this from past conduct [775] and calculated commission on the basis of a 20% rate.
Triple S Ltd – is a new company informally appointed July 2009 to act as Stoneygate’s Agent in relation to image rights following Paul Stretford’s move from Proactive.
And a number of key people:
Paul Stretford – formerly chief executive of Proactive until late 2008, Stretford is a Director of Stoneygate and his firm acts as Rooney’s on-field and off-field agent. While Mr Justice Hegarty QC found Stretford to be a highly able and effective agent, he was criticised in court for his failure to be a truthful or reliable witness [311].
Mel Stein – a solicitor and football agent who acted as key witness for the claimants
Gordon Taylor OBE – Chief Executive of the Professionals Football Association (PFA) who acted as key witness for the defendants
So what are Image Rights?
The Court defined these rights as:
“Image Rights means the right for any commercial or promotional purpose to use the Player’s name, nickname, slogan and signatures developed from time to time, image, likeness, voice, logos, get-ups, initials, team or squad number (as may be allocated to the Player from time to time), reputation, video or film portrayal, biographical information, graphical representation, electronic, animated or computer-generated representation and/or any other representation and/or right of association and/or any other right or quasi-right anywhere in the World of the Player in relation to his name, reputation, image, promotional services, and/or his performances together with the right to apply for registration of any such rights.” [187]
Once at Manchester United, Rooney was restricted to signing only 5 sponsorship agreements and 5 merchandise agreements. There were two main reasons for this restriction, the first was to avoid diluting the Rooney Brand, the latter was to ensure that Rooney had enough time to focus on his football rather than the demands of sponsors. At the time of the case, the main sponsors were:
Nike, unusually this was a 10 yr contract to take advantage of Rooney’s potential growth
Coca Cola (4 yr contract)
EA Games (3yr contract)
Manchester United FC
Asia Pacific Breweries Ltd (2yr contract to promote Tiger Beer)
Big Blue Tube
Pringles Crisps
How did Proactive argue their case?
The first attempt to derail the Rooney case was to cast doubt on the credibility of Paul Stretford. Earlier in 2008, Stretford had been charged with various FA disciplinary offences relating to the 2002 Agreement and terms. These related to making false or inaccurate statements at Warrington Crown Court during the trial of John Hyland, Anthony Bacon, Christopher Bacon for offences of obtaining money by deception (by demanding money from Mr Stretford in connection with Wayne’s move from Proform to Proactive). In Court, Stretford denied Rooney had signed any footballing representation agreement prior to 12th Dec 2002 (even though he knew Rooney had signed two agreements in July and Sept 2002), although he did acknowledge there was an IR agreement. When the truth was later discovered, the Crown decided it could no longer rely on Stretford’s evidence and withdrew its case, while the Jury entered formal verdicts of not guilty for the three men. Subsequently the FA Regulatory Commission commenced disciplinary proceedings against Stretford and decided on 9th July 2008 to fine him £300,000 and suspend him from acting as a player’s agent for 18months (with the final 9 suspended). Although Proactive paid the fine, Stretford later resigned as a director of Proactive on 20th May 2008.
Post-Termination Commission
The main debate in the case was in relation to any right to Post-Termination commission payable at the end of a contract. Essentially the question before the court was if an agent negotiates a sponsorship and is then replaced or fired, are they still entitled to receive 20% commission over the life of that contract, even if the player is represented by a new agent?
[469].….“On the one hand, it might be said that the legitimate commercial interests of the agent could only properly be protected if he was entitled to receive post-termination commission on contracts which he had negotiated. Otherwise, it might be said, he might find himself in a situation in which he had successfully negotiated a highly lucrative, long-term commercial sponsorship agreement just before the end of his contract only to find that his client immediately transferred his business to another agent, thus depriving the original agent of any proper remuneration for the work which he had done.
[470]. On the other hand, it might be said that if an agent was entitled to post-termination commission notwithstanding that a new agent had been appointed in his place, it would mean that he would continue to receive substantial sums by way of commission without having to provide any further services to his client. By the same token, in those circumstances, the new agent might have to service the inherited contracts without payment or the client might, in effect, have to pay double commission.”
After very long and at times technical legal arguments, the Court decided that a right to commission in this instance was dependent on a service being provided – no service provided by an agent, no commission [553]. One other factor helped in reaching this decision, that the right to post-termination commission was not explicitly drafted within the contract and this was essential particularly where there was an imbalance between a contract professionally drafted by solicitors (Proactive) and commercially unsophisticated parties without any independent legal advice (Rooneys) [554].
Termination Clause within the contract
Most of the arguments made by both parties in relation to the validity and effect of the termination clause within the contract were rejected by the Court. In particular, the Court was not persuaded by the estoppels arguments raised by claimants, or the mistake argument raised by the defendants [600]. The Court also rejected the argument that the contract was ‘affirmed’ by Mr Stretford passing on any knowledge and risks of the unenforceability of the IRRA due to his prior knowledge as a Proactive Director, as he would have been under a duty of confidence not to disclose privileged legal advice [678]. The case therefore effectively turned on the question of Restraint of Trade.
Restraint of Trade (RoT)
“Any contract or contractual stipulation which is in restraint of trade is Prima facie unenforceable unless it is reasonable having regard to the interests of the parties and the public.” [621]
While it is often possible to sever offending RoT clauses from the rest of the contract, this was not possible on this occasion. The Court felt that a number of factors needed to be taken into account, in particular, the fact that there was:
No meaningful negotiation
A Flat fee of 20% was payable on each sponsorship opportunity regardless of the amount of the contract
The Rooney family had no commercial experience and were utterly unsophisticated in financial and contractual matters
The Rooney family never took any independent legal advice
The Image Rights Representation Agreement was unique in the industry in many respects including its long duration (The Court did however note that a 2-5yr term could have been acceptable [723])
The IRRA imposed substantial restrictions on Rooneys freedom to exploit his earning ability
It was irrelevant whether any restriction on earning ability was partial or total
The cost of termination represented a significant disincentive to exit and was essentially penal rather than attempt to quantify the damages payable
Once this RoT conclusion had been reached, all that was left was to conclude was that Proactive were entitled to quantum meruit (a restitutionary award based on objectively valuing the services they had actually provided) for any contract payments falling due before the relationship had terminated. But importantly, nothing after this termination.
Jon and I had the following article, “Ambush marketing: FIFA’s rights protection programme” recently published in the World Sports Law Reports (WSLR).
“Amidst the buzzing of the Vuvuzela’s and the occasional officiating error, the 2010 FIFA World Cup South Africa will also be remembered for the expulsion of 36 orange mini-skirt wearing women from a match and
the subsequent prosecution (and then dropping) of charges against the two alleged ‘ringleaders’ behind the incident. Whilst titillating, this is not just a story about beautiful women being used to market a product. The real story is about the lengths to which companies will go to exploit loop-holes in the existing law and what implications these campaigns have for tackling counter-insurgency actions at future events. The article will conclude by examining how FIFA and Anheuser-Busch (the official beer sponsor) were so comprehensively ambushed that Bavaria rocketed from unmeasurable before the ambush to the fifth most visited beer website in the UK, while Nike’s unofficial ‘Write the Future’ campaign was widely viewed as the most successful marketing campaign of the World Cup……”
The Editors have kindly allowed us permission to make the full article available on the blog as a pdf download: WSLRaug10lines[1]
Reuters recently reported that the Tiger Woods sex scandal may have cost shareholders of companies endorsed by him between $5-12 billion USD in losses. The article referenced a study written by University of California, Davis Associate Professor of Economics Christopher R. Knittel and Assistant Professor of Management Victor Stango sublimely entitled Shareholder Value Destruction following the Tiger Woods Scandal.
The professors followed the stock market returns for the 13 trading days after November 27 when Woods’ SUV struck a fire hydrant and ignited the scandal. The companies examined included Accenture, AT&T, Tiger Woods PGA Tour Golf (Electronic Arts), Gillette, Nike, Gatorade, TLC Laser Eye Centres and Golf Digest. They measured these company’s losses relative to both the stock market as a whole and a control group of competitor firms which are not endorsed by Tiger Woods (i.e. Reebok rather than Nike). Knittel and Stango also tracked the returns from 1 January 2005 to 17 December 2009 to estimate how each sponsor’s returns normally co-vary with market and competitor firms. The study was limited by the difficulty in calculating losses to a sponsor which is a subsidiary of a parent company (i.e. Gillette is part of Proctor and Gamble which has a market value approaching $150 billion USD) which gave rise to a statistical margin of error that was particularly large.
The bottom line is that there was a drop of 2.3% or a loss of approximately $12 billion USD in shareholder value for the full group of sponsors. The authors break down the losses further by sub-groups. For example, the ‘Big Five’ companies (Accenture, EA, Gatorade, Gillette and Nike) which comprise Tiger Woods’ largest endorsement deals lost 2.4% or $8.11 billion USD in market value while just EA, Gatorade and Nike dropped 4.3% or $5.71 billion USD. They describe the results as statistically significant and that the overall pattern of losses was unlikely to stem from ordinary day-to-day variations in their stock prices.
The story isn’t just about Accenture and AT&T dumping Tiger Woods and the extent to which it will dent his nearly $100 million in annual earnings. Nor is it about those companies who continue to maintain a relationship with him as epitomized by the curious ‘Tag Heuer stands by Tiger Woods’ website banner.
It is about the value sponsorship of a sports superstar can bring to or take away from a company’s bottom line. Tiger Woods is a one-of-a-kind sports marketing juggernaut who made the markets move. Given that this study showed the shareholder value of a positive association with a premium sports brand and also the risks it brings when things go south, it will be interesting to see how sponsorship contracts are negotiated in the future.
So what’s going on with sports sponsorship? It seems, given the current economic climate, that a number of companies are withdrawing their support for sports teams or leagues. Below are some of the main movers and shakers:
BMW-Sauber’s partnership with the Swiss Bank, Credit Suisse, has also ended (although it has now been replaced by leading currency exchange broker, FxPro). http://www.f1network.net/main/s491/st141065.htm
Anheuser-Busch (the world’s biggest brewer and supplier of Budweiser) will discontinue its sponsorship of the National Hot Rod Association, and its 30-year sponsorship of the Kenny Bernstein Racing team. According to IEG research, in 2007, the brewer spent an estimated $360-365 million on sponsorship! http://www.reuters.com/article/sportsNews/idUSTRE52G3V720090317
General Motors (the US carmaker) is launching a major cut back of its support of NASCAR, in particular, the Associated press reports that teams in the top-tier Sprint Cup series, the second-tier Nationwide Series, and the Nationwide and third-tier Camping World Truck Series will all lose funding. http://www.sportbusiness.com/news/169684/nascar-braces-cut-gm-support
The US PGA Tour had to reduce its prize money for the St.Jude Classic Golf tournament in Memphis from $6.1m to $5.6m after Stanford Financial Group cancelled its title sponsorship of the event following the arrest of its founder, Allen Stanford. http://www.sportbusiness.com/news/169605/pga-tightens-purse-after-sponsor-pullout
Garnier (part of the L’Oreal Group) has discontinued its sponsorship of the Australian Open Tennis in Melbourne. The event has also lost deals with GE Money and Mastercard, although its headline sponsor, KIA Motors is committed until at least 2013. http://www.sports-city.org/news_details.php?news_id=8120&idCategory=31
Although Virgin were announced as sponsors of Brawn GP, it may be that this sponsorship deal will not be renewed next year. The Virgin owner, Richard Branson, suggested recently on Radio Five Live that this was because the value of Brawn when they agreed this year’s deal was next to nothing, and now Brawn’s value has shot upwards of £50m, Virgin would not be able to afford a new deal with the team. http://www.guardian.co.uk/sport/2009/jun/21/virgin-brawn-sponsorship-formula-one
It is not all doom and gloom though for sports teams as:
McDonald’s has recently confirmed that it does not plan to cut its 2009 global sponsorship budget. Johan Jervoe (corporate VP for Global Marketing) explained that while the company was not looking to cut any existing deals, they would adopt a more strategic and focused approach in future to supporting teams or events. In 2007 though, the firm was reported to have spent $125-130m on sponsorship! http://uk.reuters.com/article/idUKN0945981520090309?feedType=RSS&feedName=motorSportsNews&sp=true
Although AIG gave notice of their intention toend their £56.5m sponsorship of Manchester United earlier this year (following the company’s $85m bailout from the US government), the Premier League Champions have now agreed a four-year shirt sponsorship contract, starting from the 2010 season with Aon Corporation (another American financial giant). The contract is worth £80m and represents the biggest shirt sponsorship deal in football history.Ironic, given the fuss that has been made following Ronaldo’s ‘excessive’ transfer to Real Madrid. http://www.sports-city.org/news_details.php?news_id=8290&idCategory=31
Japanese car firm, Mitsubishi Motors have announced that they are the latest car company to withdraw from motor racing because of the global economic crisis. Mitsubishi have won the Dakar rally 12 times (including 7 consecutive victories between 2001-07).
They join:
Honda, who pulled out of Formula 1 last year
Subaru and Suzuki who have withdrawn from the World Rally Championship
and Kawasaki who are suspending its MotoGP activities.
A new report out (based on 20,000 respondents and 21 countries) from consultancy firm SPORT+MARKT suggests that the way to beat the credit crunch is to tap into the female fanbase. In particular, it suggests that as 38% of football fans worldwide are female, and this group have a much stronger interest in fashion and clothing than men, this represents an untapped market for merchandising and advertising.
What next Manchester United branded Mascara – because you’re worth it?
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About Kris
Kris is a Senior Lecturer, and Co-Director of the Centre for International Sports Law (CISL) at Staffordshire University, UK. He originally trained and competed as an elite gymnast until a shoulder injury at university forced him to retire as an active competitor. He now spends his spare time coaching Trampolining, Gymnastics, DMT, Cheerleading, Parkour and anything that involves throwing yourself through the air with various degrees of twist and rotation!
Jon is an Associate Professor, and Co-Director of the Centre for International Sports Law (CISL) at Thompson Rivers University, British Columbia. Jon worked as a climbing guide, trained and coordinated search and rescue, managed risk and sales in the United States with a European-based manufacturer of outdoor equipment and advised recreation programmes on their exposure to legal risk. His extra-curricular background is just as diverse and includes stints playing semi-pro volleyball in Brazil, researching wolves in the Canadian Rockies, climbing and leading expeditions from Alaska to Argentina, Tajikistan to the Tetons, and many points in between. He has been married to Wendy for 15 years and together they have 2 wonderful kids – Tegan (10) and Brock (8) – whom he continues to emotionally scar as their football coach!
Kris is a Senior Lecturer, and Co-Director of the Centre for International Sports Law (CISL) at Staffordshire University, UK. He originally trained and competed as an elite gymnast until a shoulder injury at university forced him to retire as an active competitor. He now spends his spare time coaching Trampolining, Gymnastics, DMT, Cheerleading, Parkour and anything that involves throwing yourself through the air with various degrees of twist and rotation!
Jon is an Associate Professor, and Co-Director of the Centre for International Sports Law (CISL) at Thompson Rivers University, British Columbia. Jon worked as a climbing guide, trained and coordinated search and rescue, managed risk and sales in the United States with a European-based manufacturer of outdoor equipment and advised recreation programmes on their exposure to legal risk. His extra-curricular background is just as diverse and includes stints playing semi-pro volleyball in Brazil, researching wolves in the Canadian Rockies, climbing and leading expeditions from Alaska to Argentina, Tajikistan to the Tetons, and many points in between. He has been married to Wendy for 15 years and together they have 2 wonderful kids – Tegan (10) and Brock (8) – whom he continues to emotionally scar as their football coach!
October 24, 2011
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