IMPACT OF COVID-19 ON THE SPORTS ECOSYSTEM
The effects of COVID-19 are crippling numerous industries worldwide. The health sector, education, finance and commercial industries as well as the newest entrant to one of the most affected sectors for the long-term, the sports ecosystem is also getting largely affected.
Captive to social distancing norms, quarantined within the confines of a house, the only adrenaline rush one can seek is that of cheering on their favourite sporting team to victory and share personal commentaries over WhatsApp conversations with their friends. COVID-19 has taken away from people one of the only things that unites them on social media and in person – sports.
Gaming tournaments, including the world’s largest sports tournament – the Olympics, are now being pushed back by a year which has led to lowering of athlete morale, unemployment of coaches and support staff.
COVID-19 AS A STIMULUS TO ORGANISATIONAL PLANNING
Adhering to the numerous guidelines prescribed by the World Health Organisation (WHO) and country heads across the world, the sports industry is in an obvious conundrum. With the pandemic to linger for the next couple of years or so, there are a few factors that are posing potential long-term impact on the professional sports ecosystem, they are:
Workforce Planning: If the sports ecosystem is planning a digital sporting experience for the future, it needs to think of equipping the already employed workforce with technological know-how, leading the sports sector to make huge investments in digital and cyber services.
Operating models: The stagnancy caused, might push some organizations to adopt new operating models to adapt to the current situation.
Ecosystem relationships: The entire industry will have to contain and adapt to circumstances as well as maintain relationships with broadcasters and sponsors and bear the brunt of the financial difficulties of the abrupt halt on sporting tournaments.
Fan relationships: Since social distancing has now become the norm, the sports fraternity is not seeing fans occupying the stands for a considerable time now and social media has become one of the only means to keep fans engaged. This will have a huge impact on team morale, revenues, and sponsorships.
THE UNWELCOMED REVENUE RAMIFICATIONS
COVID-19 has very evidently toppled the sporting events’ yearly schedule for almost all the countries around the world. To understand how the sports ecosystem has been affected, we will first need to understand how the sports business model works. Although the sports industry can be monetised in multifarious ways, three core sources of income in this ecosystem are: 1) Match day revenue from hospitality and ticketing. 2) broadcasting revenue through sale of media rights and 3) commercial revenue from advertising partnerships and sponsorships.
The vacancy of viewing stands created for public spectatorship has cut off all revenue from ticket sales and hospitality. With regards to broadcasting, in India, Star Sports and Sony Pictures Sports Network hold stronghold over sports broadcasting, covering all major tournaments. It is these companies that bear the brunt of the pandemic since social distancing norms have normalised the cancellation of all public gatherings. When drawing a comparison between pre-corona and current viewership statistics, a 69% decline can be noticed due to the lack of live sports broadcasting.However, since advertising partnerships can still be monetised, reruns of iconic old matches for various sports are being televised to earn some revenue, although at a diminishing rate.
Based on the current uptick and exponential growth in coronavirus cases, it is highly unlikely that strict social distancing norms would be relaxed anytime soon. Dolefully for Indian fans, the pandemic has led to the cancellation of the Indian Premier League (IPL) that was to be held from March right up to May 2020. While the IPL broadcasting rights contractually belong to Star India for another 2 years, the Indian sports industry is rather technologically unequipped and cannot support a remote-production.
Owing to the obsolescence and use of antiquated monetization models, coupled with stringent social distancing norms, old-time broadcasting players have been forced to look towards adopting new technology that was once disregarded and deemed ahead of its time. Once such technology is adopted wholeheartedly, live feeds of games can be captured and transmitted across lands to remote locations where it can be distributed to various direct satellite broadcast service providers.
NEED FOR TECHNOLOGICAL ADVANCEMENT: A CULTURE SHOCK
In such times, remote production is a tool that can be used by players and their teams to produce entertaining content on video in the comfort of their own homes. The absence of a live audience will shift focus from bedazzling the event to ensuring superior production quality and a better viewing experience via trending digital platforms that can support additional engagement features like 360-degree video, live stream monetization, (e.g. live one time or pay per view payments for digital items, different camera angles, fan-based commentary and statistical analysis) and gambling etc. Virtual and augmented reality are just some avenues that Indian broadcasters are looking to explore, in order to create the best virtual experience for home viewers. While these are exciting technologies, their implementation is less likely to come to fruition since such technology is not easily accessible or understood by the populous. In a country where most towns and villages struggle to find stable internet connections, finding technology that is exciting yet accessible poses a major challenge.
The exponential surge in media consumption via over-the-top (OTT) platforms is likely to stimulate shift from traditional television (TV) to OTT services to distribute content. These services are more appealing now because they have no fixed schedule and have large libraries of content to keep people occupied.
For the sports industry, the more likely ripple effect is that sporting leagues will increasingly look to making more, smaller deals with established and fast rising OTT platforms instead of old-time TV broadcasters. Amazon Inc. for instance has seen an increase by 35% in its subscriber base to its Prime Video service in Q4 of 2019, coinciding with its first ever live streaming of Premier League games.
LEGAL IMPLICATIONS ON SPORTS IN THE COVID ERA
The unexpected hiatus that COVID-19 has brought about has impacted relationships and contractual obligations between advertisers, sponsors and broadcasters in the world of sports. These contracts, and their force majeure provisions will inter alia be scrutinised when a party to a contract is unable to fulfil obligations due to circumstances that are beyond their control. Most contracts include a force majeure clause for events such as Act of God, terrorism, war, natural disasters, etc. This clause in contracts is generally covered by the State law in civil jurisdiction, and different state jurisdictions interpret it differently.
While some jurisdictions such as New York interpret it strictly in the truest sense of the clause, the language of the clause is significant while interpretation. Although these clauses are standard across all contracts, but different consequences yield different results when invoking the clause to excuse the performance of contract. For example, COVID-19 prima facie does not qualify as a force majeure event in itself; events such as government imposed social distancing norms, stay-at-home orders, shutdowns and prohibitions on mass gatherings ultimately affect the performance. Some clauses may only apply when they affect performance in such a way that it becomes impossible; however, the parties need to be in agreement with the facts of the situation in order to prevent litigation. For instance, it is important to point out exactly when the situation rendered the performance impossible. Worldwide lockdowns have arguably made it impossible to hold sporting events.
As a preliminary measure, sporting events have been either cancelled or postponed, and whether this would qualify as an impossibility is still in question. Although the legal landscape still remains unclear due to the duration of the outbreak and its already unprecedented impact on sports. For events that have been cancelled, parties may negotiate alternative deals keeping in mind third-party relationships that are involved. However, it is clear that sponsoring and advertising a sports event will forever be changed because hereafter the contracts will have to be carefully drafted to cover specific situations and requisites. The potential domino effect that will be caused to third-party sponsors must also be considered in the event of cancellation and postponing.
Additionally, two prominent legal issues to be considered by teams, leagues, stadium owners and other operators involved in the live sports ecosystem are:
Mitigating Risk of Exposure for Players and Spectators: Teams must make and follow detailed protocol for sanitation and medical testing in order to avoid and mitigate the potential litigations that may arise from spread of an infection to any personnel involved in the game and its filming. Since the same cannot be ensured with spectators, it is unclear when spectators would be allowed to witness live matches. To tackle today’s litigious society, franchises are stepping up creative thinking by placing robots and signboards in stands to simulate cheering fans. Franchises are also monetizing the same by allowing loyal fans the opportunity to purchase life-sized cutouts of themselves to be placed in the stands. While this creates a lively ethos in the stands, it also avoids the potential flagrant spread of COVID-19.
Player and Coach Employment Agreements: The shortened game season due to the delayed resumption of sporting events has created uncertainty on whether player salaries would be paid on a pro-rata basis, whether support staff will retain their employment bearing in mind cash crunches, whether players and coaches will receive contract extensions considering the undetermined future of sports, etc. The National Basketball Association (NBA) and Major League Baseball (MLB) have quickly confronted these quandaries by reducing player compensations and adjusting coaching and supporting staff fees.
CONCLUSION: THE GAME MUST GO ON
The sports industry is transitioning from a complete curtailment on hosting events to hosting them with new and carefully planned protocol in place. NASCAR has resumed its “The Real Heroes 400” program on television and the Bundesliga football league has begun with multiple matches lined up across various empty venues, keeping in mind all safety protocols. Baseball leagues in South Korea have already resumed with players being placed inside bio-bubbles designed to be a private sanitized area accessible only to certain set of people, after having tested negatively for the virus. The NBA is likely to resume game season by opening venues to players while keeping them shut for spectatorship. Only players and staff testing negatively for the virus are allowed to travel across state borders to minimize the spread of virus internally within training camps and to the local populous as well. F1 racing has begun in full swing with the Austrian Grand Prix having begun from July 5, 2020. Similarly, tennis and cricket seasons have also been scheduled with players flying to foreign destinations in private jets after having tested negative for the virus. In fact, even in India, talks have ensued about changing the lucrative Indian Premier League’s (IPL) status from indefinitely postponed to being held within the year, if not in India, in a foreign nation with lesser active cases.
In these difficult times, it is the sports and media entertainment industries that can bring people together in spirit. These industries may be exploring unchartered territory, but with carefully planned strategies, they can emerge from the crisis stronger and more popular than ever. Components of the sporting ecosystem that are currently embroiled in financial paucities but have taken cognisance of the need for technological advancement and also legal safeguards available to them, protecting them from unfulfillable contractual obligations, will persevere through this storm of uncertainty and emerge stronger than ever.
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