Sports & Antitrust - Spotlight on “matching” clauses as UK High Court paves the way for Liverpool FC’s lucrative Nike sponsorship

Few fans of Liverpool FC would have dreamt of a better start to their team’s season, but even fewer would have imagined that their winning run would spill over from the pitch to the courtroom. That’s exactly what happened on 23 October 2019, when the High Court held that Liverpool FC was entitled to reject New Balance’s efforts to match a sponsorship proposal from Nike.

The judgment paves the way for Liverpool FC to agree to Nike’s proposal, worth more than £30 million per year, although it places the spotlight once more on the complexities and dangers of so-called “matching” clauses in sponsorship agreements.

The Sponsorship Agreement

New Balance and Liverpool FC agreed a sponsorship agreement in 2011, granting New Balance the right to sponsor Liverpool FC and manufacture and sell replica shirts until 2020 (the “Sponsorship Agreement”). Under the terms of the contract, where agreement could not be reached on a renewal, Liverpool FC was able to enter into negotiations with a third-party competitor of New Balance.

The Sponsorship Agreement was, however, subject to a “matching” clause. This provided that if an acceptable offer from a third-party competitor was found, Liverpool FC must submit the terms of that offer to New Balance. New Balance would then have a period of 30 business days to notify Liverpool FC if it intended to match that offer. If New Balance made an offer that was no less favourable to Liverpool FC than the “material, measurable and matchable terms” of the third-party offer, Liverpool FC would be obliged to enter into a new agreement on those terms.

Nike’s offer

In July 2019, Liverpool FC shared Nike’s offer with New Balance, who sought to match it. Liverpool FC challenged the matching. Crucially, it alleged that New Balance had failed to match Nike’s marketing offering and the offer was therefore less favourable to Liverpool FC. New Balance had offered to match Nike’s proposal to feature not less than three “non-football superstar athletes and influencers” but had omitted Nike’s reference to superstar athletes and influencers “of the calibre of Lebron James, Serena Williams, Drake, etc.”.

New Balance issued proceedings, seeking confirmation that it had matched Nike’s offer and that its proposed terms were no less favourable to Liverpool FC. It sought specific performance of the Sponsorship Agreement.

High Court Judgment

Mr Justice Teare found in favour of Liverpool FC. He held that in omitting the words “of the calibre of Lebron James, Serena Williams, Drake, etc.”, New Balance had failed to match the “material, measurable and matchable terms” of Nike’s offer and it was less favourable to Liverpool FC. The “calibre” of a superstar was a “measurable” term and Nike and Liverpool FC had agreed that language for a reason.

New Balance’s bid to appeal the judgment has since been refused by the Court of Appeal.

Whilst the judgment focused on whether the “calibre” of superstar athletes and influencers is “measurable”, it paid little attention to whether the term was “matchable”. Each of Lebron James, Serena Williams and Drake are superstars on Nike’s roster. Whether a term to market using icons of that pedigree could be sensibly offered by other competitors in a limited market is a matter of debate. Had New Balance “copied and pasted” the language from Nike’s offering, it may have only added fuel to the fire of Liverpool FC’s other (unsuccessful) allegations that New Balance was making an offer that it could not perform.

The case is not the first of its kind. It comes at a time when Rangers FC remains in a protracted and costly dispute with Sports Direct in relation to a similar agreement. In that case, the High Court (again before Mr Justice Teare) found that Rangers FC had breached its contract with Sports Direct by entering into an agreement with the Elite Group and failing to offer Sports Direct the opportunity to exercise its matching rights.

In some instances, matching rights may restrict a party’s freedom to conduct its business to its choosing and can therefore be considered restraints on trade. As noted above, there is debate as to whether any sponsor could have matched Nike’s roster of sports and entertainment celebrities in a counterfactual scenario and, if not, whether matching rights granted Nike too much of a competitive advantage that could lead to an abuse of a dominant position. Nike was granted the right to enforce its own matching right clause in a previous dispute with world indoor middle distance runner Boris Berian.

The Rangers case had already raised some questions on the compatibility of price matching clauses with competition law. Such clauses, by granting de facto exclusivity to one supplier, could lead to competition law infringements where a supplier that services a large segment of the customer base and holds substantial market power is able to exclude other suppliers from bidding for such contracts.

In one sense, “matching” clauses serve a logical commercial purpose. They allow the parties in a lucrative and highly competitive market to pull away the curtain and see the value ascribed to a particular sponsorship before taking an informed view of how to act. However, the judgment is a stark reminder to parties, alongside the ongoing Rangers FC/Sports Direct saga, of the need to take great care to define the exact scope of what needs to be matched and each party’s obligations towards the end of the contract. Uncertainty in such a creative market risks litigation and significant costs, as well as reputational harm.