Decisions by the NBA and other U.S. sports leagues to suspend play amid the coronavirus outbreak has brought renewed scrutiny this month to “force majeure” contract clauses, which can have wide-ranging financial implications on everything from player compensation to media rights deals.
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A common contract provision, a force majeure or “superior force” clause relates to uncontrollable events that prevent a party from meeting its obligations. The NBA’s collective bargaining agreement includes a force majeure clause that allows the league to garnish player wages or even cancel the labor deal entirely if an event such as an epidemic or act of war forces a long-term suspension of play.
So far, NBA players are expected to continue to receive their pay even as league officials prepare for a stoppage of play of 30 days or more in length. The National Basketball Players Association recently issued a memo alerting players to the provision and its potential impact on wages.
"The revenue consequences are significant,” NBPA Executive Director Michele Roberts told USA Today. “Sure, there is language that allows the league to enforce what they perceive to be a ‘force majeure’ and that would have an impact on compensation for players going forward. But if it happens, there would be a recognition the league is prepared to lose tens of millions of dollars."
“If we can’t play games or we can’t have our playoffs, we’re going to have an economic hit,” Roberts added.
The NBA isn’t the only league with legal language governing the financial impact of unforeseen events. Under Major League Baseball’s collective bargaining agreement Commissioner Robert Manfred has the authority to suspend player contracts, including pay, in the event of a national emergency.
But player compensation is just one element of the legal saga caused by coronavirus. Without live sporting events, media rights deals between the sports leagues and networks such as ESPN and WarnerMedia’s TNT are effectively at a standstill.
Sports networks have expressed universal support for decisions to suspend seasons over coronavirus. However, a prolonged absence could trigger similar legal language in their broadcast rights agreements. Corporate sponsors with a presence in NBA arenas could also raise a challenge.
“Here, a corporate sponsor might argue that the absence of fans in the arena substantially downgrades the value of a sponsorship,” sports attorney Michael McCann wrote in a post for Sports Illustrated. “Likewise, the sponsor might contend that it shouldn’t have to pay the price for an act of God that is extraordinary, unforeseeable and beyond anyone’s control.”
Since sports leagues often have long-term and mutually lucrative relationships with players, media partners and sponsors, both sides have an incentive to avoid a legal battle. However, the “force majeure” clause and similar provisions will be a key factor as leagues navigate the post-coronavirus landscape.