Strategies for Football Clubs

Dr. Philipp Wehler and Andreas Hecker with "Strategies for Football Clubs" for FOOTBALL BUSINESS INSIDE Magazine

 

Chapter 5 Legal Aspects

 

Like virtually all football leagues worldwide, the German Bundesliga (DFL) has suspended the ongoing season until mid-May. In a video conference the relevant authorities on a federal and state level have given permission for conducting “ghost games” without spectators from mid-May. From the 16th of May the first and second German Bundesliga will continue the ongoing season under strict hygiene measures. For example, the DFL stipulates that each club must conduct a training camp under quarantine before continuing the season. Furthermore, the DFL is said to have reached an agreement with the broadcaster (such as Sky and DAZN) about receiving media right payments ahead of schedule. It said that a little less money will be payed than agreed, but nevertheless these measures help some clubs and could save them from insolvency. Other leagues are still in discussion or looking for the right date to return to the pitch. Some have even already ended the 2019/2020 season by breaking off.

 

The crisis has left parties on the backfoot, questioning how to deal with the situation. Football clubs are confronted with the legal and economic consequences of cancelled events, where missing even a single home game can have a devastating impact. This is especially true for smaller clubs, and in the lower divisions, where a greater proportion of total revenue comes from ticket sales. In addition to the lack of income the clubs still have running expenses such as salaries and rent. Many clubs now fear for their very existence; according to a self-assessment form, 13 of 36 Bundesliga clubs are reportedly facing solvency problems, including 4 in the first division. To try to mitigate this, the representatives of the German Football League have taken several measures, including softening the consequences of insolvency and proposing changes to the league licensing regulations.

 

Considering this nightmare scenario, this article addresses several legal questions about sports events. It also gives a few practical tips on what the Football Clubs can or should be doing in these circumstances.

 

Specifically, it looks at:

 

• How should a Football Club behave towards its fans if matches must be cancelled or played behind closed doors?
• What impact do cancellations have on sponsorship agreements?
• What is the relationship between a football club and other service providers?
• What consequences does the Corona Crisis have on the relationship between club and player?
• What are the consequences with regard to (necessary) decisions of members, supervisory bodies or shareholders?

 

The Football Club and its fans

 

Countless sports fans have purchased tickets for a football game that has now been cancelled or reorganized to be played as a ghost game. The ticket purchase is a legally binding contract: The ticket holder is owed entry to a football match involving specific teams and a seat or safe standing area whilst the sporting activity takes place.

When a game is prohibited by public authorities, the football club is not able to perform its owed duty. According to Section 275 (1) of the German Civil Code (BGB), the entitlement to the other party’s service is excluded to the extent to which it is impossible for the club to perform the service. The football club is there-fore freed from his obligation to organize the football match with spectators. In return, the spectator’s obligation, the payment of the ticket fee, is void. This is a consequence provided for in Section 326 (1) BGB. In principle, this has the consequence that the football club is obliged to reimburse already paid ticket fees if the holder of an individual ticket so requests. Any exclusion of liability in general terms and conditions cannot change this result at law, at least not in relation to the ticket purchasers who are consumers in the sense of German civil law. Section 307 (1) and (2) BGB provides that any provision in general terms and conditions which deviates from the general underlying principles of a statutory provision (in this case, the distribution of risks laid out in Section 275 (1), 326 (1) BGB) is void.

Reimbursing prices for tens of thousands of tickets that have already been paid means a considerable outflow of liquidity for the football clubs. Without substantial income and roughly the same expenses to bear, many football clubs are already facing a situation that threatens their existence. In order to prevent insolvencies of organizers and operators, the German Federal Government has endorsed a law to mitigate the consequences of the Covid-19-Pandemic in event law. The author expects this to be passed by parliament soon. Once in force, according to Art. 240 Sec. 5 (1) Introductory Law of the German Civil Code (EGBGB), football clubs, inter alia, will be entitled to give a voucher to holders of tickets who could claim reimbursement of the ticket price in accordance with the above. This can be redeemed for either a rearranged match or an alternative game. However, the law also provides the possibility that the holder of the voucher can demand payment of the voucher value due to his personal circumstances or if the voucher is not redeemed by 31 December 2021. Football clubs must know the value of the voucher has to cover the full ticket price including any advance booking fees and that no costs will be charged for the issuing and sending of the voucher. In addition, the voucher must show that it was issued because of the Covid- 19-Pandemic and that the holder of the voucher can demand payment under the conditions specified in the law. Football clubs may only use this voucher solution for tickets purchased before the 8th of March.

The situation is similar as regards season tickets. In any event, the football club will be obliged to reimburse the ticket holder in respect of the share or proportion of the total price attributable to the games that are cancelled. However, here too, the football clubs will have the option of issuing a voucher to the season ticket holder instead of a pro-rated refund of the price paid for the season ticket, once the aforementioned law is in force.

If a spectator has decided not to attend a football match for personal reasons, e.g. due to fear of being exposed to the virus, the football club is not obliged to refund the ticket price (provided the event is not prohibited by the authorities and is carried out by the organizer).

In any event, all parties are well advised to seek amicable solutions, wherever possible. Football clubs should provide information to fans on their websites about how to reverse the ticket purchase. It is up to the football club whether they make use of the voucher solution, once available, and to what extent they offer it. It is possible to offer a voucher as an option and to leave it up to the fan to decide whether he wants to support the club by this solution. On the other hand, the football club is also entitled to primarily issue vouchers and to make a payment only in the cases regulated by law.

In some cases, such as Borussia Mönchengladbach or VfB Stuttgart, the fans have already waived a refund of the ticket price on their own initiative in order to support their club. Football clubs can show their fans this option and in return, for example, offer vouchers for the fan shop for a small value or special fan accessories. Others offer their fans to danate the corresponding amount to the youth department or charity projects.
Furthermore, there is the possibility to organize virtual home games like RW Essen from the regional league does. Fans can buy tickets, beer and sausages to support their club. A variety of clubs have issued „solidarity tickets“ to generate some income.

 

How to deal with business or box seats?

 

Many football clubs also offer the possibility of purchasing a business seat or a box. As part of an agreement between a business customer and football club, business customers will receive, for example, an individually assigned business seat in the stadium or a box, as well as access to the VIP area including the consumption of food and beverages offered there.

Assuming that despite the additional benefits of the contract, the deal is still primarily for viewing the sports competition, the legal consequences that apply to single ticket holders and season ticket holders shall apply in the same way to ticket holders of business or box seats.

However, some legal scholars argue that the main obligation in this case is the renting of seats or rooms, and so the rights are instead governed by the sections of the German Civil Code that apply to rentals. In this respect, a rent reduction would be possible for the benefit of the customer. If the game is cancelled, the contractually agreed use is no longer possible. As a result, there is a rental shortage that makes a rent reduction possible. This is laid out in Section 536 BGB. Any exclusion of liability in the general terms and conditions relating to this will likely be void as this would impose an unreasonable disadvantage on the business customer (Section 307 (1) BGB). Like in the case of season tickets covered above, the amount of the rent reduction would have to be calculated in proportion to the contractually agreed payment for the games not played. However, it appears that currently there is a strong sense of solidarity between clubs, sponsors, and those that have purchased business or box seats.

A football club is well advised to approach the owners of the business or box seat and discuss with them options for amending existing agreements to ensure that football clubs can get through this crisis and continue to offer their products and services to business and box seat owners in the future, once the situation improves. The new law passed by the Federal Government is not applicable if the focus of the contractual relationship is the rental of sears or of the room. Nevertheless, football clubs should consider offering a similar solution to the business and box seat owners. It would be possible to create a kind of credit account for the next season.

 

What happens if the football match is caught up?

 

Unlike concert events or shows, sports events can only be postponed to a limited extent given the continuous nature of competition scheduling. With the present uncertainty surrounding the duration of the Corona crisis, it is not possible at this moment to determine whether it will be safe to resume sport this calendar year.

If a football match is not cancelled but is rather postponed to another date, spectators are not automatically entitled to a refund of the ticket price. Instead, in most cases, the tickets remain valid and the organizer can perform his duties, just on another day. In return for the provision of its services the organizer retains the right to the full ticket fee. Contrary to the view of the Federal Government, in our opinion football matches do not represent absolute but only relative fixed transactions. The football club is in principle able to provide the duty owed.

That said, the football club can still offer to refund the ticket price or issue a voucher in this situation. It is certainly possible that the ticket holder is prevented from attending the new date. If, in such case, a football club is offering at least a voucher for an alternative match in its own initiative, they would certainly do justice to the interests of the fan.

Reimbursement of additional expenses

 

The football club, in principle, does not have to bear additional expenses incurred by ticket buyers which are now frustrated costs due to the cancellation or postponement of the football match, for example for train tickets or hotel reservation. The football club may rely on the fact that, in the event of claims for damages from ticket buyers, that they are not responsible for the postponement due to force majeure. A claim for frustrated expenses is only possible if a football match is cancelled as a preventative measure even though there is no increased risk according to a risk assessment and no official prohibition has been issued.

 

What happens to sponsors?

 

In addition to ticket sales, many clubs rely hea-vily on commercial sponsorship partners. The purpose of the underlying contracts is to grant a sponsorship package in return for financial support. Depending on the sponsorship agree-ment, the sponsor will have rights such as pre-senting themselves as official sponsors, being able to conduct advertising on screens in the arena etc. From the standpoint of the football club, the question arises whether there is still an entitlement to the urgently needed financial benefit. The answer will depend heavily on the individual facts each case and the actual, con-crete obligations that are affected.

 

Which of the organizers services does the spon-sorship agreement relate to? Are some services still possible despite the loss of the game? For example, even though games are cancelled and advertising exposure to spectators in the stadi-um and on television cannot be realized, there is still some value in being able to call oneself the “official sponsor” of a certain club or league. In addition, online and social media presence in a sponsoring environment is still possible.

 

Often overlooked, force majeure clauses in con-tracts, may now come in handy. Is there an ex-clusion of liability for circumstances outside the responsibility of the organizer? Is there a right to adapt the agreement to the new circumstan-ces that neither party could have reasonably foreseen? In cases like these, it will – broad-ly speaking – usually not be reasonable for a sponsor to withhold all payment to a club and shift all risk to the club.

 

Clubs are advised to first have a look at the sponsoring agreement and to work out which obligations they have in context of sponsoring and which of these obligations they can still ful-fill in the current situation. Depending on the complexity of the contract it is advisable to con-sult a lawyer. Furthermore, it will make sense to sit down with the sponsor and discuss which services are still being provided and whether impossible services can be replaced by alterna-tives so that the clubs continue to receive finan-cial contribution from the sponsor. In any event, all involved parties should realize that these are extraordinary times which call for amicable so-lutions instead of legal battles. For example, some football clubs report that their sponsors are waiving refunds and thus supporting the club in this crisis. In return, the clubs examine possibilities of compensating this support with adequate services. For example, many clubs participate in the “Bundesliga Home Challen-ge”, which was organized by the DFL and have dueled in the football simulation FIFA. These virtual games have been shown by Sky in a live stream, so that clubs were able to place adver-tisements of their sponsors in this context.

 

It is the authors’ personal impression from dis-cussions with stakeholders that there is a com-mon understanding that the current situation calls for amicable solutions rather than legal action. Some sponsors have even premature-ly extended their sponsoring agreement with a club, such as telecoms company Congstar recently did regarding FC St. Pauli. „For Cong-star, the cooperation is more than a traditional sponsorship arrangement, it is a genuine part-nership. This is demonstrated by the decision to extend the agreement despite the exceptio-nal circumstances surrounding the coronavirus – something that is anything but self-evident,“ said Bernd von Geldern, Director of Sales at FC St. Pauli.Another challenge for the clubs in this context is the conclusion of new contracts for future seasons. If and how should the Covid-19 pan-demic and the associated risks be correctly re-flected in the contracts. In this respect, it is not only a matter of contractually processing the present but also of shaping the future of spon-soring agreements.

 

What are the effects on other service providers?

 

The contractual relationship between the football club and other key service provi-ders must also be taken into consideration. In the context of a football game, the foot-ball club not only concludes contracts with future guests, but also with service providers and suppliers, such as a stadium operator, caterers and security services providers. If the service provider or supplier has already provided his service, the organizer must in principle also pay for it. If on the other hand the service has not yet been performed, the football club may rely on a case of force ma-jeure or any other case for which he is not responsible, provided that a corresponding condition is found in the contract or the ge-neral terms and conditions.

 

The same applies to the contractual relation-ship between the football club and the owner/operator of the sports facility (if they are dif-ferent entities). The club will be exempt from paying the rent if the football match must be cancelled due to an official ban. If no „force majeure“ clause can be found in the respecti-ve contracts, there may be room for an adjust-ment to the contract. It may also be possible in individual cases to terminate the contract via the doctrine of frustration. The details of the respective contractual relationships will need to be considered. In the author’s experi-ence, however, even large operators of several arenas in Germany have not included a cor-responding contractual arrangement in their contracts. Parties are advised to consult their respective contracts.

 

They should examine whether there is a force majeure clause that can be invoked. If such a clause has not been agreed upon it should be urgently considered to consult a lawyer to check whether the doctrine of frust-ration of contract applies. For the future, care should be taken to ensure that a force majeure clause is agreed upon in all contracts. A claim by the football club or other service providers for lost profits due to the cancellation of the event is not given in default of responsi-bility. In many cases, there will also be no claim against an insurance company, as damage due to epidemics are usually contractually excluded. Parties are advised to check their insurance contracts to see whether cancellations due to epidemics are also covered – which is usually not the case. Accordingly, parties should con-sider seeking extended insurance cover, where it is offered.

 

The club and its football players

 

Furthermore, the question arises for football clubs as to how the Corona Crisis will affect their relationship with the players. Some clubs have been training in small group since the beginning of April in order to comply with the strict hygiene measures, but still remain fit for a possible continuation of the season. Some play-ers, on the other hand, have been limited to the confines of their own homes. If a player is inst-ructed to keep fit at home during this time and he complies with this request, the football club cannot unilaterally reduce the player‘s salary due to the loss of team training. In principle, the club is therefore obliged to continue to pay its players‘ salaries. This reinforces the negative economic consequences of the Corona Crisis for the clubs. From a club perspective, the possibi-lity of short-time work, a tool provided by Ger-man law, could be considered. Football players are employees, so that the club can individually agree with its players to work reduced hours. It should be noted, however, that short-time work is only possible for the entire team, not just individual players. Short-time work is more likely to be an option only for lower leagues, as the short-time work allowance is limited to 4623 Euro per month and cannot keep up with the high wages paid to professionals. As an alternative to agreeing to short-time work, the football club should consider the option of amicable contract adjustments in order to re-duce salary costs. For example, it can be agreed that salary payments are deferred and become due later. It is also possible that the football player waives part of his salary. In the German Bundesliga, entire teams have already declared that they will forego parts of their salary. This example was also followed by some officials of the clubs. As the ultima ratio for mitigating the economic consequences, compulsory redun-dancies can be made. This will probably be an option for smaller clubs.

 

Some players criticize the lack of a say in the continuation of the season with regard to the protection of their own health. If a player refu-ses to participate in team training or a football match because of the risk of infection, the club must consider how to deal with this. In prin-ciple, the player is obliged to perform his work as an employee, unless quarantine is ordered. Only in exceptional cases is it possible for the employee to refuse certain activities based on an objective risk situation.

 

It is planned that the season will run until the 28th of June. But it is possible that the current schedule will be shifted due to infections within the club. If the leagues are continued after the 30th of June 2020, it should be noted that some players contracts expire by the 30th of June 2020. FIFA has published a recommendation paper on this subject. In this respect, they en-courage clubs to extend expiring contracts until the end of the season and to carry out trans-fers already completed only after the end of the season. They also authorise the member as-sociations to adjust the transfer windows. The idea of FIFA is, to open a third transfer window besides the usual change windows at the end (1 July to 31 August) and in the middle (2 Ja-nuary to 1 February) of the season. However, the total time of 16 weeks must not be excee-ded, emphasises James Kitching, FIFA Director of Football Regulatory. In a video, he also says that these are only recommendations, as the length and form of the contracts are ultimately subject to national labour law and are a matter of negotiation between the club and the player. If the football club wishes to release the play-er whose contract expires on the 30th of June 2020, they should negotiate with him about a temporary extension of his employment con-tract until the end of the season. However, this situation also offers the club the opportunity to save on salary costs and let the contract expire as planned, so that it is possible that a player may become unemployed in the first place.

 

The clubs and their members, supervisory bodies and shareholders

Clubs are required to hold regular meetings of their supervisory boards, members and/or inves-tors, for example the annual members ́ or gene-ral meetings. As with other commercial compa-nies, additional meetings may be required in the course of the Covid-19 pandemic, e.g. to take rescue measures, to adopt resolutions on capital increases or – with regard to supervisory bodies – to legitimize extraordinary business.

Such large gatherings – especially with a view to general meetings – are currently opposed to the considerable restrictions on personal contacts and events. Regardless of the actual size of the event, there are also considerable challenges when individual regions are sealed off or e.g. Su-pervisory Board members or partners live abroad.

The German legislator has reacted to these spe-cial challenges and created opportunities that, regardless of the statutes of the club, also enable resolutions to be passed in virtual assemblies or in circulation. This means that the meetings can currently often be held in digital form. In additi-on, deadline regulations have been expanded to give more scope for holding annual general mee-tings and resolve on the annual accounts. This time scope has also been expanded with a view to implementing conversion measures (e.g. Out-sourcing/Spin-off), which can also be relevant for clubs, particularly in connection with the financial challenges of the Covid-19 pandemic.

Other jurisdictions, e.g. Austria, have responded to these challenges and expanded the scope for virtual meetings or extended deadlines, too.

Furthermore, additional flexibility has been crea-ted in some countries in the area of insolvency law to facilitate the continuation of clubs and companies.
These legislative measures are designed to help clubs, as well as businesses, get through these dif-ficult times from a corporate and insolvency law perspective.

Conclusion

 

The sports industry, like most other industries, is being hit very hard during this ongoing cri-sis. The current situation brings with it a lot of uncertainty. Can the season end as planned? Above all, the question arises as to whether it will actually be possible to complete the season before the 30th of June. Thus, some legal issues could be avoided, especially with regard to the transfer of players. From an economic point of view, there are questions about the actual economic damage. And will partnerships with sponsors and service providers survive the cur-rent crisis?

In the author’s experience, all parties involved should try to achieve amicable solutions, whe-rever possible, and abide by the principles of solidarity instead of escalating matters and ta-king legal action where other measures would be more appropriate. It is gratifying that appa-rently many of those involved are already fol-lowing this path and supporting their football club during the crisis. In addition, use should be made of state aids and governmental measu-res, wherever possible.