As the Premier League giants head to court over a new kit deal, Michael Lister and Mike Jones of ESA member Harbottle & Lewis discuss the case and the key to finding the balance when negotiating matching rights in club partner agreements.
Liverpool made a perfect start to the 2019/20 season, winning their first seven Premier League fixtures, and building on the back of Champions League success in May. Off the field, there also appeared to be cause for celebration after it was widely reported that the club would soon be announcing a UK£70 million (US$87 million) a year deal for Nike to become its new technical kit partner.
However, the seemingly serene atmosphere at the club and positive start to the season was abruptly disturbed by the news that New Balance was taking them to the High Court, alleging breach of contract over a failure to comply with the matching right set out in the technical partner agreement that they had entered into some years earlier.
A three-day trial to settle the dispute between Liverpool and New Balance has been listed from 18th October
What is a matching right?
In short, a “matching right” allows an incumbent technical partner, or other sponsor or supplier, the opportunity to receive notice of and match any offer which is made by one of their competitors, thereby allowing them to extend the term of its existing agreement with the club.
Such provisions are, on the face of it, clearly favourable to the technical partner as they provide them with a degree of comfort that they will have the opportunity to renew a successful partnership once the term expires, assuming they have deep enough pockets to match any offers that are forthcoming.
They also provide the kit supplier with an element of control over the club in its commercial dealings as any negotiation that the club embarks on with a competitor requires a caveat that any and all offers made by the competitor will need to be relayed to the incumbent technical partner to see if they can match it. This can be frustrating for both club and the interested competitor, not least because they may both waste time and resources piecing together a deal that will never happen due to the existing matching right.
High profile cases
A number of recent disputes between rights holders and their sponsors, kit suppliers or partners have served to ensure that clubs, and their advisors, are generally wary about including matching rights and other renewal mechanisms in their commercial agreements.
When it came to renewing Mastercard’s sponsorship agreement with FIFA after the 2006 FIFA World Cup, Mastercard had a right of first refusal which provided that Mastercard would be entitled to an exclusive negotiating period with FIFA in relation to an extension, with competitors locked out during this period. As it transpired, FIFA had entered into negotiations with Mastercard’s rival, VISA, and this failure to comply with the terms of the express renewal mechanism led to a breach of contract claim and a multi-million dollar out of court settlement.
Even more recently, in 2018, Rangers FC ended up being subject to a high court interim injunction after acting contrary to the terms of a matching right in its agreement with Mike Ashley’s SDI Retail. Unable to agree terms with SDI Retail, and perhaps conscious of delays and keen to market and promote the club’s new kit ahead of the season, Rangers sought to move ahead with a competitor only for legal proceedings to swiftly stop the club in its tracks. Connected proceedings remain ongoing.
Scottish top-flight club Rangers are another team involved in a legal dispute over their kit
Current practice and potential pitfalls
Notwithstanding these high-profile legal disputes, it is apparent from the case involving Liverpool that some soccer clubs are still willing to agree to matching rights in their most significant and lucrative commercial contracts. Soccer clubs are, of course, ambitious and revenue driven and need to maximise commercial income from sponsorship and kit deals to support their transfer window activity.
Knowing this, technical partners and other sponsors are aware of the significant bargaining power they hold during the negotiation process when making such substantial long-term investments and may push for or insist upon matching rights to bolster their contractual position.
Matching rights and other similar contractual mechanisms upon termination or renewal also appear more prevalent in sports and sponsorship contracts in the US. Therefore, depending on who a rights holder is contracting with, or where the partner is based, negotiating the scope and nature of the matching right, rather than refusing it entirely, may at times be the only option, so as not to scupper a lucrative deal.
The drafting then becomes crucial and careful consideration needs to be given to what will constitute an offer from a competitor and, most importantly, what will constitute a match. Does the provision only require that the financial offer and term of the agreement are matched, or can other factors such as the global distribution network of the kit manufacturer be taken into account?
Whatever is agreed upon in principle, the parameters within the contract need to be clear. Leaving it open to interpretation has been shown to be dangerous and can lead to expensive and protracted disputes being aired in public and damaging delays, preventing the launch and promotion of next season’s new kit.
Conclusion
How the case between New Balance and Liverpool is ultimately resolved will depend heavily on the specific wording of the contractual provisions. However, there will also be a multitude of commercial considerations to weigh up while their respective legal teams do their work.
The need to minimise costs, avoid unwanted publicity and to quickly find sufficient certainty to move forward with plans for next season will likely take hold sooner rather than later.
Michael Lister is a Partner (Sport, Sponsorship & Advertising) at ESA member Harbottle & Lewis. Mike Jones is an Associate in Harbottle & Lewis’ Technology, Media and Entertainment practice.
This piece was first published in SportsPro. See the original HERE