What are the key economic and legal consequences for the US sports after the coronavirus outbreak?

After the World Health Organization (WHO) President Tedros Adhanom declared outbreak of the COVID-19 as a pandemic on the 11th of March, the world of sports came to a halt.[1] All of the professional leagues in the United States either suspended or cancelled their seasons, and the economic and legal consequences may be severe.[2] Current situation will lead to billions of dollars in lost revenue across all of the leagues, especially that the virus has not peaked yet in North America. The following article looks at the key economic and legal ramifications for the teams, as well as at the main contract clause that should be in place in the situation of a pandemic.

Background

After Rudy Gobert and Donovan Mitchell of the Utah Jazz have been tested positive for COVID-19 on the 12th of March, the National Basketball Association (NBA) decided to postpone their outing against the Oklahoma City Thunder and shortly after suspended the rest of the season indefinitely. League owners want NBA Commissioner Adam Silver to reevaluate the situation after 30 days and there is a possibility of finishing the season even in August. College basketball followed the footsteps of the NBA and cancelled the 2020 Division I men’s and women’s basketball tournaments along with all other winter season championship events. The situation is no different in the Major League Baseball (MLB), as it has cancelled the remainder of the spring training and is pushing back the start of the regular season at least two weeks. Lastly, the National League Hockey (NHL) has also paused the season and Commissioner Gary Bettman hopes to resume the games as soon as it is appropriate.[3]

Duties of the leagues

The reasoning behind all of the aforementioned suspensions is logical from legal and health point of view. Because Gobert and Mitchell were tested positive the leagues had to stop playing, as the internal health system has been compromised and they were in contact with a lot of other members of the association. It is league’s ethical obligation to follow all of the possible steps to stop the spread of pandemic.

Moreover, the legal duty of the leagues is to refrain from actions that may be deemed negligent. The courts do not usually want to impose liability for spectator injuries at sporting events because there are some inherent risks that should be assumed by the spectators, once they are watching the games.[4] For example, the spectator who buys the tickets for a baseball game should assume the risk of being hit by baseball ball in the event of a home run, if he is not cautious enough. However, the risk of contracting coronavirus is a completely different story. No fan in the world would buy the tickets with a foreseeable risk of contracting deadly virus. Moreover, the virus as such has nothing to do with the sports world. A team might obviously try to defend themselves behind the broadly worded disclaimer language included on the tickets, but the court judge may differ and lost argument can be costly during litigation.

Effects on the employees and businesses surrounding the leagues

What needs to be understood is the amount of people that fall under the umbrella of each organization. People who help with the production of the games, such as security officers, janitors, box office staff, cooks or concession stand workers are often classified as part-time or seasonal workers, and are not protected by the Fair Labor Standards Act, hence they will potentially lose their wages. Even the unemployment benefits may be hard to claim, but it will ultimately depend on the state law where the employees carry out their services. Same goes to the dance teams, mascots and contest providers during game stoppages because they are employed on the same basis.[5] Some of the teams in the NBA have already acted to set up relief funds or donate money to help such workers. Mark Cuban, the owner of the Dallas Mavericks pledged to support those affected by the coronavirus, alongside Zion Williamson of the New Orleans Pelicans, Kevin Love of the Cleveland Cavaliers and many others.[6]  

Apart from the casual workers there are restaurants, bars, food providers, sport manufacturers, reporters, fans, athletes and broadcasters and corporate sponsors, that will be largely affected by the current situation. The last group is particularly important as the possibility of legal consequences may be severe. The sponsors will lose significant amounts of money because the advertisements will not be shown, and broadcasts and commercials will not be aired. Therefore, the relationships between the league and the sponsors and broadcasters will be tested, and the contracts will be revisited. Most of them probably have relevant consequences of suspended games included in the contracts but it is not clear is whether they also include the case of pandemic.

“Force majeure”

If the parties are not able to come to an agreement in such situation, there is a clause that should be included in any sports-related contract called “force majeure”, which refers to the so-called “acts of God”, for instance a natural disaster, act of terrorism or epidemic.[7] It specifically relieves the parties included in the contract from continuing to make the payment or fulfilling obligations, which should make the leagues owners less worried about the financial consequences of suspending the leagues. This clause will also be used if the leagues decide to stop paying the players, even though it is unlikely to happen thanks to the positive relationships between the teams and players’ unions, and because most of the teams are going to order the players to continue training and simply be a part of the organization.

Salary caps and future salaries

The crisis will also have a negative impact on the revenues, which will consequently impact sports related income and salary caps. In every major US league, there is a Collective Bargaining Agreement (CBA) between the league and the players in place, which outlines the terms and conditions of employees at work. The CBA includes the split of income related to the particular sport. It refers, for example to the revenue generated by regular season gate receipts and the sale and licensing of broadcast rights and intellectual property. The leagues and the players want to generate as much revenue as possible because it allows the teams to have higher salary caps and produce more lucrative contracts for the players. The loss of business due to COVID-19 will adversely impact sport related income, which means major shifts in the leagues from a financial standpoint.

Effect on the NCAA

The situation is especially difficult for the collegiate athletics and its main revenue driver: men’s and women’s basketball tournament called March Madness. The tournament brings in around $1 billion per year and $800 million come from CBS and Turner TV deal alone.[8] However, the NCAA needs to pay salaries of hundreds of people and the overwhelming majority of what is left is used to subsidize other 89 NCAA tournaments; distributed to schools to fund scholarships; and also to allocate it to programs such as scholarships awarded to some of the most promising former athletes that are bound for graduate schools.

The NCAA has also used a lot of money from their reserves after costly settlements in the recent years. In 2017 it had to create a $208 million fund for the athletes that related to the full cost of attendance and in 2019 another $70 million needed to be allocated for the medical monitoring of the former athletes, who brought a class-action suit relating to concussions in football.[9] Finally, there is name, image and likenesses lawsuit currently in the courts, that has already proved to be financially exhausting and it can have further negative impact on the NCAA finances.[10]

There are smaller schools in question too. Some of the universities have world-renowned athletic departments generating millions of dollars annually but schools like this year’s Dayton, which is one of the top-ranked teams in the country counted on deep March Madness run, which would subsequently help them with enrollment and donations as they are not a major school with huge athletic revenue.  

Conclusion

All of the leagues face the same problem: nobody knows when the epidemic will end and when it will be safe to return to business as usual. Whether it will be weeks or months, the leagues and the businesses around them will need to come up with a detailed plan of action to address the financial losses. It will be a complex situation in terms of logistics because many venues are booked for concerts, shows and events months in advance. It may be impossible to reschedule some of the games or maybe some of them will be played at alternative grounds. We also do not know the insurance of the particular parties in the event of cancelling the season completely but it is inevitable to dive into it in this situation. Only time will show what will happen next.


[1] WHO, ‘WHO Director-General’s Opening Remarks At The Media Briefing On COVID-19 – 11 March 2020’ (Who.int, 2020) <https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19—11-march-2020&gt; accessed 15 March 2020.

[2] Gabriel Fernandez, ‘Coronavirus Live Updates: NBA, MLB, PGA And Other Sports Around The World Stop Play Amid COVID-19 Outbreak’ (CBSSports.com, 2020) <https://www.cbssports.com/general/news/coronavirus-live-updates-2020-masters-postponed-champions-league-premier-league-suspend-games/live/&gt; accessed 15 March 2020.

[3] Id.

[4] Michael McCann, ‘Six Possible Fallouts From The Suspended NBA Season’ (Si.com, 2020) <https://www.si.com/nba/2020/03/12/nba-season-suspended-coronavirus-impact&gt; accessed 15 March 2020.

[5] Michael McCann, ‘Six Possible Fallouts From The Suspended NBA Season’ (Si.com, 2020) <https://www.si.com/nba/2020/03/12/nba-season-suspended-coronavirus-impact&gt; accessed 15 March 2020.

[6] Amir Vera, ‘NBA Players Are Donating Money To Cover Salaries Of Hourly Workers Amid Suspended Season’ (CNN, 2020) <https://edition.cnn.com/2020/03/13/us/nba-player-donations-coronavirus-trnd/index.html&gt; accessed 15 March 2020.

[7] Peter A Carfagna, Representing The Professional Athlete (3rd edn, West Academic Publishing 2018).

[8] Andrew Marchand, ‘CBS, Turner Will Feel Fallout From March Madness’ Coronavirus Cancellation’ (Nypost.com, 2020) <https://nypost.com/2020/03/12/cbs-turner-will-feel-fallout-from-march-madness-coronavirus-cancellation/&gt; accessed 15 March 2020.

[9] ‘In Re: National Collegiate Athletic Association Athletic Grant-In-Aid Cap Antitrust Litigation’ (Courtlistener.com, 2019) <https://www.courtlistener.com/recap/gov.uscourts.cand.278299/gov.uscourts.cand.278299.1162.0.pdf&gt; accessed 15 March 2020.

[10] Brian Burnsed, ‘The Loss Of The Tournament Affects More Than March Madness’ (Sports Illustrated, 2020) <https://www.si.com/college/2020/03/13/ncaa-cancels-march-madness-money-revenue&gt; accessed 15 March 2020.

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