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TRACING THE IMPACT OF COVID-19 ON IPL CONTRACTS

Updated: Jul 29

[Authored by Charvi Devprakash, 1st year B.B.A LL.B (Hons.) student at Faculty of Law, PES University, Bengaluru.]

Introduction


With the sudden and unprecedented outbreak of the coronavirus, several nations and continents are at the brink of an economic crisis or declaring a public health emergency. Economies are crashing; stock markets have hit an all-time low; schools, malls, and offices have shut down; there have been massive layoffs; travel bans; some of the biggest events across the world have been postponed or canceled, including sports events like the Olympics, Wimbledon, and EURO 2020. With so much happening globally, one needs to question the role, position and validity of national and international contracts that were signed in the pre-COVID times, that were due to be performed now, which has now, unfortunately, indefinitely postponed or even permanently canceled. It is crucial to investigate the rights and liabilities of the contracting parties and their obligations due.


To talk in specific, since many of the sporting events like the Olympics 2020, IPL 2020, motorsport events like Formula One have been disrupted due to the pandemic, many of the stakeholders including the athletes are significantly affected. Stakeholders like broadcasters, sponsors, event organizers, etc. are on the verge of facing heavy losses. As aforementioned, the Indian Premier League 2020 has also become a victim of this pandemic. The Indian Premier League, this year was called off considering the social distancing and lockdown rules imposed by the Government of India. This meant huge losses for BCCI (Board of Control for Cricket in India) and its stakeholders, mainly the broadcasters and the players. With bleak possibilities of conducting the 13th edition of the league in the near future BCCI was put in a conflict, if or not to activate the force majeure clause in their contract with the broadcasters. This precarious situation led BCCI to invoke the force majeure clause with their broadcaster, Star India, with regards to the IPL Media rights.[1]


What is a Force Majeure Clause?


The term Force Majeure is one that everyone needs to know during this pandemic. The term Force Majeure has been defined in the Black’s Law Dictionary as follows: ‘an event or effect that can be neither anticipated nor controlled. It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.’ [2]


Though this concept hasn’t been directly dealt with in the Indian statutes like the Indian Contract Act, 1872 (hereinafter referred to as the Act), Sec 56 of the Act deals with the ‘Doctrine of Frustration’. Sec 56 of the Indian Contract Act, 1872, states, “Agreement to do impossible act. – An agreement to do an act impossible in itself is void.”[3] The ‘Doctrine of Frustration’ is very similar or can also be synonymously used to refer to Force Majeure. From a legal perspective, this clause is generally used in contracts to temporarily remit the performance of the contract when to perform such an obligation becomes impossible given the unforeseen circumstances.


As such, for a situation to be qualified under ‘force majeure’, its occurrence should be beyond the control of man, here the contracting parties. The parties will also have to show the impossibility to demonstrate the said obligation due to the given circumstance. If the said situation falls under the ambit of ‘force majeure’ then the contracting parties shall be discharged from all liabilities to perform the contract during the period that such an event continues. In some scenarios, if a force majeure event continues to persist, then the parties are given the freedom to terminate the contract by coming to consensus ad idem.


The COVID-19 pandemic is also one such unforeseen circumstance, where the performance of any contract that requires a large gathering and flouting the social distancing rules imposed by the Government, as is the case in hosting IPL, is impossible. Therefore, the ‘Doctrine of Frustration’ or the ‘Force Majeure’ clause if any in the IPL contracts, can be invoked in an unprecedented circumstance such as this.


Impact of COVID- 19 on the BCCI-Star Deal


The implementation of the force majeure clause is not as easy as it seems due to the other provisions of the contract between BCCI and Star India. Star India, in 2017 entered into a contract with BCCI to become the official broadcast partners of IPL for the next five years, which is 2017-2022. Star India has committed to a payment installation of 16,347.50 crores that spans over five years.[4] As part of their contractual obligation of this year (2020), Star India has already paid approximately 1500 crores [5] (half of this year’s installment) to BCCI towards the broadcasting of this year’s 13 th edition of the Indian Premier League as an advance. Upon the cancellation of this year’s season and on the enforcement of the force majeure clause, BCCI will be bound to repay the advance paid by the broadcaster. On the other hand, invoking this clause would also mean increasing the number of years given to Star from five to six, thereby considering 2020 as a ‘zero year’ [6] and increasing the duration from 2022 to 2023. Since IPL will not be conducted this year, the contractual obligations will remain inoperative for a year, hence making 2020 a ‘zero year’.


There are some nuances to this contract as well. The wordings of the contract are crucial to consider. If the contract is ‘time-based’ then the two parties have an opportunity to negotiate and add a year in the end to mitigate the losses. If it is ‘season-based’ then the contract holds validity until the said number of seasons is played. Once again, the viability of the application of force majeure is under question. Therefore, considering the best-case scenario, Star India will manage to bag an extra year pushing the deal to 2023. However, if in case things don’t go right for Star India, then they will have to pay the amount due this year and broadcast the 13th season, which might happen during October and at the same time prepare for the 14th edition which is likely to happen during the month of April 2021, all in a truncated period of 6 months.


However, this also might not be a viable situation for Star. Under normal circumstances, the Indian Premier League takes place over a period of two months, that is April and May. However, a truncated IPL means that the season will only last for 20 days. Thus, sponsors like Vivo will also invest a lesser amount and the TRP for Star India will reduce drastically as the new 20 days have replaced the old 2 months. A truncated IPL will also result in a lesser gap between the 13th season and the 14th season of IPL. The audience would be less interested, the then prevalent economic conditions might not permit the conduction of an event as large scale like that. Due to the current COVID 19 pandemic, many big businesses are facing a financial crunch. In a scenario such as this, it would be extremely difficult for Star India to get big sponsors and ad campaigns for a successful IPL 2021.


Impact of COVID- 19 on Franchise-Player contracts


While drafting such contracts, certain clauses like the force majeure are included under boilerplate clauses. Boilerplate clauses are those that are included at the end of the document as general clauses to have a standardized structure to these contracts. These provisions address a range of things such as what happens if a document is declared unenforceable, how disputes will be resolved, which laws govern the contract and more.[7] Therefore, it would be safe to assume that a force majeure clause in such events would have been included notwithstanding the conditions prevalent. Given a scenario such as this, if such a clause is invoked, then that would discharge the franchise from paying the due remuneration as the players are unable to fulfill their obligations thereby putting their source of income at stake.


A truncated IPL will have a detrimental effect on the finances of all IPL franchises. The franchise is likely to lose out on a lot of revenue as people might be hesitant to watch a match in a stadium due to the risk of COVID-19. Further, the sponsors might not be too keen on spending money on IPL franchises as COVID-19 might have adversely affected their finances. Thus, it might be viable for franchises to renegotiate contracts with their players. Negotiating contracts might actually be a good idea as franchises were paying the players a certain amount of money for playing at least 14 matches. However, if a truncated IPL takes place, all franchises might not play more than 7 matches. Therefore, the player might not deserve such a massive amount. Recently, Real Madrid’s footballers recently took a voluntary pay cut in light of the current pandemic’s effect on club revenues and non-playing staff salaries. [8] It will not come as a surprise if players agree to take pay-cuts voluntarily, as it will result in a win-win situation for both the parties.


Applying a Force Majeure clause is rather simple. However, it can have a tremendous impact on players as well as franchises. Players like Harbhajan Singh and Shane Watson who are in the twilight of their career were chosen by CSK as the franchise thought that this would be their last season. Similarly, many cricketers had been bought because of their current form. For instance, Kings XI bought Sheldon Cottrell for a whopping 8.5 crores because of his red- hot form in the ICC World Cup. However, he might not have the same value in the next season. Further, force majeure will severely impact young guns like Shubman Gill who wanted to make a mark in this season. These are some of the realistic concerns surrounding the Force Majeure clause.


Conclusion


Large-scale events such as the IPL 2020, though unfortunate, is likely to remain canceled in the near future. All the stakeholders in this industry and the associated industries have taken and will take a hit even in the foreseeable future. Currently, it is important to safeguard the interests of those who have already entered into these contracts with almost no way out, thereby suffering huge losses. In cases where terms like “Doctrine of Frustration”, “Force Majeure” are used, careful examination of the contract and negotiation with the opposite parties to arrive at a mutually beneficial solution is imperative.


Though ‘force majeure’ theoretically may sound as a tool to mitigate losses, it also comes with a variety of interpretations and a lot of nuances as aforementioned. The viability of this is subjected to interpretations and the objective behind the contracts. If the contracting parties decide to act bona fide (in good faith) then force majeure will surely be a viable tool for all the stakeholders. However, if there is malice in fact, in either of the party’s intentions then this clause might not seem very viable to the other party. Therefore, it is best for the parties to put these contracts under scrutiny and find a mid-way between the two poles, in order to derive the best out of a situation such as this. In this case especially where there is a lot of stake and big names involved, it would again be safe to assume that the parties act bona fide and come to mutually beneficial solutions.

[1] Jatin Malu, IPL 2020: BCCI Reportedly Activates 'Force Majeure' Clause With Official Broadcasters, Republic World, (7th April, 2020, 2.41 pm), https://www.republicworld.com/sports-news/cricket-news/ipl-2020-bcci-activates-force-majeure-clause-official-broadcasters.html

[2] Force Majeure Definition, Black’s Law Dictionary (11th ed. 2019), available at Westlaw.

[3] Sec 56, Indian Contract Act, 1872

[4] Mihir Vasavda, IPL 2020: How suspension of obligations through force majeure can mitigate losses, The Indian Express, (May 1, 2020 8:06 am),

https://indianexpress.com/article/sports/ipl/how-suspension-of-obligations-through-force-majeure-can-mitigate-losses-6385420/

[5] Ibid.

[6] Mihir Vasavda, IPL 2020: Counting the zeroes in ‘zero year’, The Indian Express, (April 30, 2020 7:56 am),

https://indianexpress.com/article/sports/ipl/ipl-bcci-star-contract-coronavirus-impact-on-revenue-6385394/

[7] Kristy DeSmit, Boilerplate Clause in a Legal document, Law Depot Blog (May 1, 2018),

https://www.lawdepot.com/blog/boilerplate-clauses-in-a-legal-document/

[8] Shan Kohli, Lokesh Kaza and Abhinav Shrivastava, Force Majeure Impact on Sports Events, LawNK (Apr 15, 2020), https://www.lexology.com/library/detail.aspx?g=bf67fbeb-b810-479f-83a7-2b6a6072eb13



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