UK Court's Soccer Sponsorship Ruling Offers Contract Tips

This article originally appeared in Law360 on January 2, 2020

Sports business lawyers should take note of the judgement rendered on Oct. 25, 2019, by the High Court of Justice in the dispute between New Balance Athletics Inc. and the Liverpool Football Club.1 Not only lawyers, of course: CEOs and marketing directors alike should be aware of old and new ways to work their way around so-called matching right clauses, whether to strengthen them or take advantage of loopholes.

In essence, a matching right clause in a sponsorship agreement is crafted to allow the current sponsor to retain its sponsoring and commercial partnership with its key sports property, be it an individual, club, governing body, event or facility. Long-term partnerships are usually not only to building a robust and enduring return from the investment made in the sports property, mostly in terms of brand equity, but may also be needed to adequately execute a long-term commercial and marketing strategy. On the other side, while a club must reckon with such business reality, it must also ensure that the sponsorship contract reflects the actual market value of its shirt at the time it is up for renewal.

So what happened between Liverpool FC and New Balance, after some eight years of happy marriage, which broadly coincided with the athletic shoe brand's global rise in soccer? Typically, Nike Inc. put its eyes on Liverpool FC, a legendary club now back to past glories under Jürgen Klopp's stewardship. Most probably, New Balance's attempts to convince the club it would still be the best partner going forward fell short of Liverpool's expectations (and Nike's offer), which meant that the Boston sports manufacturer's only option left to hold on to its property would be that of triggering its matching right.

In a typical kit supply and sponsorship deal, the residing sponsor's castle is usually protected by a double defense system: the right of first negotiation (the moat) and the right of first refusal or matching right (the curtain wall). In this case, Nike's battering rams and missiles put the strength of this ultimate bastion to severe and fatal test.

According to the decision rendered by Justice Nigel Teare, the New Balance sponsorship agreement included a right of first negotiation, a period during which the parties were required to negotiate in good faith the renewal of the agreement and also throughout which the club was prevented from commencing negotiations with third...