Sponsorship, matchday revenue and broadcasting rights are the three core sources of revenue for every club. Player sales is a supplementary source of revenue which can be tapped by clubs in times of financial distress. However, the COVID-19 pandemic could have more devastating economic effects than the Great Depression. Needless to say, football clubs will not be immune to this. The COVID-19 pandemic will leave a long lasting impact on the financials of every football club.
Economic effects of COVID-19
According to the UN Department of Economic and Social Affairs, the global economy is expected to contract by 1 percent in 2020. Airline, hospitality and automobile sectors are expected to be the worst hit. Most flights across the globe have been completely grounded since late March. Take the case of Emirates Airlines, the company which runs the world’s highest number of long haul flights. It is the shirt sponsor for 6 major football clubs which include AC Milan, Arsenal, Hamburger SV, Olympiacos, Real Madrid, and SL Benfica. Besides this, it is also the title sponsor of the English FA Cup and holds naming rights to Arsenal’s Ashburton Grove stadium.
In a recent statement, Emirates chairman Sheikh Ahmed bin Saeed said that the COVID-19 pandemic will have a huge impact on the company’s financial performance in 2020-21. The airlines company will not pay a dividend to its shareholders and estimated that it will need 18 months to recover from this crisis. Although Sheikh Mohammed bin Rashid al-Maktoum assured that additional funds will be injected in the airlines company if need be.
Gulf countries have relied on oil for their economic prosperity. This economic muscle helped them to sponsor football clubs as they set out to grow their airline brands. From Spain to England and Italy to France, state airline companies became sponsors of the biggest European clubs. However, crude prices are at an historic low and this could affect the planned expenditure of most Gulf countries dependent on oil as income. What will they prioritize in the near future? Spending millions in sponsorship or salvaging their business?
In simple terms, force majeure refers to unforeseeable circumstances which prevents parties from fulfilling terms of the contract. Do we have any precedent of force majeure being invoked? Does the COVID-19 pandemic classify as a force majeure?
There is precedent of force majeure being used in a lawsuit between two football clubs at CAS before. However that lawsuit would not completely justify the complexity of the current situation. In 2015, the Moroccan Football Federation was fined for failing to host the 2015 AFCON. In its defense, the football association stated that the Ebola virus outbreak in West Africa presented a major threat to everyone and hence it had a right to invoke force majeure. The CAS squashed the motion and concluded that the Ebola crisis made it difficult to organise the tournament but not impossible. Hence, force majeure could not be invoked here.
Certain laws also include a government shutdown as a valid criteria for invoking force majeure. The Coronavirus pandemic forced governments across the globe to issue stay at home orders. This could present a valid argument for invoking force majeure.
No football means no money
It is simple to understand that completion of the season is one of the criteria in every sponsorship contract. Why would a sponsor pay if all games aren’t played? This explains the rationale why few football associations want the season to be completed. Football associations and clubs stand to lose a significant revenue from broadcasting rights if the season isn’t completed. This will have ripple effects on every club’s balance sheet. In a worse case scenario, clubs could face losing 10-30 percent of their revenue as compared to last year.
If sponsors can invoke force majeure on football clubs, can football clubs invoke force majeure on the contracts of their players? Player wages make a chunk of the expenditure at football clubs and this possibility cannot be ruled out. Two clubs in the Indian I-League have activated the force majeure clause in their player contracts. The clubs are no longer liable to pay wages to any player.
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