The recent case of New Balance Athletics ("New Balance") and Liverpool Football Club ("Liverpool FC") has brought matching rights into the spotlight, with last week's judgment concluding that New Balance failed to match the terms of Nike's offer to Liverpool FC. With an off-pitch victory for Liverpool in last week's case, we look into what matching rights mean in a sporting context, some case law on the topic, and the potential impact of the New Balance case.
What are matching rights?
Matching rights are a contractual benefit frequently sought by the sponsors of sports events, teams or individuals (“Rights Holders“). A matching right will typically: (i) require the Rights Holder to notify the sponsor of any offer it receives from a third party (to acquire the rights granted to the sponsor upon expiry of the current agreement); and (ii) allow the sponsor to match the terms of the third party offer. If the sponsor chooses to exercise their matching right, the Rights Holder will be prohibited from entering into an agreement with the third party, and must instead enter into a new agreement with the existing sponsor (on the matched terms).
Whilst matching right provisions allow sponsors to protect their investment and the brand association created during the life of a sponsorship, they are generally disliked by Rights Holders as they can dissuade potential new sponsors from making offers, and create uncertainty, delay and additional expense in the sales process.
What was the previous position on matching rights?
Matching rights are not a new concept in the sporting sphere – a high profile dispute arose between FIFA and Mastercard in 2007 regarding Mastercard’s right to renew its sponsorship agreement following the 2006 World Cup, and in 2013, Rory McIlory settled a legal dispute with former sponsor Oakley, who claimed that McIlroy failed to honour its contractual right to match an offer he had received from Nike. More recently, a case between Rangers Football Club Ltd (“Rangers“) and SDI Retail Services Ltd (“Sports Direct“) was brought before the courts, and established that a matching rights clause can provide a sponsor with a recurring right to match – even in circumstances where the sponsor has already matched an offer once, and the third party has presented revised terms.
Pursuant to a retail agreement entered into in June 2017, Rangers granted Sports Direct a non-exclusive right to manufacture, sell and distribute Rangers kits and other branded merchandise (the “Offered Rights“). Whilst Rangers were permitted to approach alternative suppliers in the six months preceding expiry of the agreement, Sports Direct had a right to match any offer that Rangers obtained in relation to the Offered Rights, providing that such offer was received within two years of expiry of the initial term (on 31 July 2018).
In June 2018, Rangers notified Sports Direct of an offer received from the Elite Group (“Elite“), a third party supplier and kit manufacturer, and granted Sports Direct the opportunity to match the terms. However, arguing that the notice of offer contained insufficient information to allow it to exercise its matching right, Sports Direct obtained an injunction from the High Court preventing Rangers from accepting Elite’s offer.
In July 2018, Rangers served a new notice of offer upon Sports Direct, which on this occasion elected to exercise its matching right and subsequently discontinued pursuit of its injunction. However, the parties failed to reach agreement over the matched offer, with both claiming that the other was unreasonable during negotiations.
In September 2018, Rangers notified Sports Direct that they had entered into a non-exclusive agreement with Elite based on the terms of a revised offer. Having received no notification of the new offer, Sports Direct once again sought to enforce its matching right in Court, but Rangers argued that:
- it was only intended that Sports Direct would have one opportunity to match a third party offer; and
- the ability to exercise the matching right (and prevent Rangers from contracting with third parties) would effectively grant Sports Direct quasi exclusivity over a right which was intended to be non-exclusive.
The High Court held that the matching clause was capable of being applied more than once, and concluded that it would not be uncommercial for Sports Direct to exercise the matching right on multiple occasions. Further, whilst the non-exclusive nature of Sports Direct’s right would suggest that other parties could be granted a right to the same effect, the Court held that the matching rights clause clearly restricted Rangers’ ability to do so. An ‘undoing’ injunction was therefore granted against Rangers, preventing them from performing the agreement with Elite.
New Balance Athletics v Liverpool Football Club
The issue of matching rights was brought before the courts again last week in relation to a sponsorship agreement entered into between New Balance and Liverpool FC in 2011 (the “Agreement“), pursuant to which New Balance was appointed as a sponsor of Liverpool FC and granted the right to design, manufacture and distribute Liverpool FC licensed products. The Agreement also contained a provision entitling New Balance to renew the Agreement if it matched the “material, measurable and matchable” terms (“MMM terms“) of a third party offer (the “Renewal Option“).
On 11 July 2019, Liverpool FC notified New Balance of an offer it had received from Nike (the “Nike Offer“), containing two key commitments that were the focus of the dispute:
- Distribution: The commitment to sell Liverpool FC Licensed Products “in not less than 6,000 stores worldwide, of which 500 shall be Nike owned”.
- Marketing: The commitment to market Liverpool FC (i) “in a manner that is consistent with Nike’s other top tier UK football clubs, e.g. Tottenham, Chelsea“; and (ii) through marketing initiatives featuring “not less than three non-football global superstar athletes and influencers of the calibre of LeBron James, Serena Williams, Drake etc“.
When New Balance notified Liverpool FC of the exercise of its Renewal Option on 16 August 2019, Liverpool FC rejected New Balance’s offer, arguing that it was not a genuine offer to match.
New Balance consequently issued court proceedings against Liverpool FC, and the resulting case focused on the following points: (i) whether New Balance’s offer to match distribution had been made in good faith; (ii) whether the marketing commitment was an MMM term, and if so, (iii) whether New Balance had validly matched the marketing term.
The relevance of good faith
Whilst not mentioned in the Agreement, it was common ground that there was an implied obligation of good faith between the parties, although there was a dispute as to what this actually meant in practice. Whilst Liverpool FC argued that New Balance would be in breach of the implied obligation if it did not reasonably believe that it could perform the terms of its offer, New Balance submitted that the implied term would only be breached if it did not intend to meet, or knew that it could not meet, the terms of the offer made.
The judge held that if New Balance honestly believed that it could meet the distribution obligation (even if its grounds for doing so were unreasonable), it would not be acting in breach of the implied duty of good faith, as its conduct would be innocent (albeit careless or unwise). On the facts, the judge therefore concluded that New Balance had matched Nike’s distribution term in good faith – although noted that whether they would actually succeed in meeting the commitment was an entirely different matter.
‘Material, measurable and matchable’
Whilst it was common ground that the distribution commitment was an MMM term (and therefore had to be matched), New Balance claimed that the marketing commitment was not an MMM term as it was too vague to be capable of objective measurement.
However, the Court dismissed New Balance’s claim, holding that the marketing commitment was an MMM term as the “calibre of the named athletes or influencers can be measured“. Whilst it was noted that there may be many forms of marketing initiatives, the Court held that there was “no doubt as to the meaning of the phrase“. Although New Balance had offered to feature “not less than three non-football global superstar athletes and influencers”, it had failed to name any relevant individuals in its offer, and as such, Liverpool FC could not require New Balance to use individuals of the “calibre of LeBron James, Serena Williams, Drake etc“. Therefore, the Court held that New Balance’s offer was less favourable to Liverpool FC, and concluded that the Nike Offer had not been matched.
With the majority of the three day hearing focusing on New Balance’s ability to meet the distribution obligation it had committed to match, the fact that the case turned on New Balance’s failure to match the marketing term was somewhat surprising. Further, the judge’s decision to render a commitment to carry out unspecified ‘marketing initiatives’ material, especially in the context of a multi-million pound sponsorship deal, was also surprising.
The judge also considered the impact of a subsequent long form agreement. As the Nike Offer was only documented through a legally binding short form agreement; Nike subsequently submitted a long form agreement to Liverpool FC (the “Nike Long Form“). Although New Balance claimed that the Nike Long Form presented materially different terms to the Nike Offer and argued that they had not been given the opportunity to match it, the judge held that Liverpool FC were under no obligation to submit the terms of an offer that was “no more than a draft“. Whilst not obliged on these facts, the judgment implies that if Liverpool FC were to agree substantially different terms in a long form agreement, such terms would need to be submitted to New Balance.
Future Protection of Rights
Although the recent judgment found in favour of Liverpool FC, it is undeniable that the insertion of a matching right into an agreement can afford huge protection to sponsors, limiting the ability of Rights Holders to contract with third parties. It is therefore crucial that the terms of the matching right are drafted carefully, to avoid costly disputes and potential loss of sponsorship revenue. An effective matching rights clause should detail:
- The scope of the right – when the matching right applies, whether it can be exercised multiple times, and the circumstances in which the matching right can be lost.
- The terms that must be ‘matched’ – are these restricted to purely financial terms, or should they also include other ‘material, measurable and matchable’ terms? If the latter, outline or provide guidance as to what is/is not to be considered an MMM term in the context of the contract, and consider including a contractual mechanism for resolving any dispute.
- The notification obligation – at what point the Rights Holder is obliged to notify the sponsor of a third party offer, and what information must be provided.
- The matching offer – the timeframe for exercising the right, an indication as to what counts as ‘matching’, and a contractual mechanism for resolving any dispute as to whether the offer has been ‘matched’.
- The consequences of a third party offer being matched, outlining when and how the new sponsorship agreement will be concluded.