One of the main topics of conversation in licensing, almost since the pandemic began, has been whether and how contracts could be renegotiated to better share risk between licensors and licensees. The sports industry is one sector in which a number of contracts are currently being questioned, reconfigured, or discontinued in the wake of the financial troubles brought on by the coronavirus. These hard conversations center around not only licensing deals but also other types of partnership. For example:
- Under Armour said it planned to end its $280 million apparel deal with UCLA and University of California-Berkeley (Cal). The deal with UCLA began in 2016, was intended for a term of 15 years, and was billed as the largest collegiate sportswear deal ever at the time. Under Armour has also been reworking athletes’ endorsement contracts, as well as asking for extended payment terms from its endorsers, some of which include the NBA’s Stephen Curry, NFL’s Tom Brady, and MLB’s Bryce Harper.
- Learfield IMG College reportedly told the same two universities, UCLA and UC-Berkeley, along with seven other schools, that it wanted to renegotiate or end its sponsorship deals. The initial offers put on the table are said to eliminate minimum guaranteed rights fees to the schools and replace them with a revenue-sharing structure. Learfield IMG’s contracts with UCLA and Cal are estimated at a value of $130 million together. In both this case and the Under Armour situation above, many of the colleges have been resistant to the proposed changes.
- Nike’s contract with the Board of Control for Cricket in India (BCCI), signed in 2016, ends in September, and Nike is reportedly uninterested in renewing under the same terms. It is estimated that the new deal, with Nike or another partner, will be valued at a level 31% lower than the current contract. The company reportedly pays $117,000 per match now, as well as a 15% royalty and a base fee of $804,000. The new structure may involve two partners, with one providing the kit and replicas and the other selling fan merchandise.
- Emirates airline renewed its shirt sponsorship deal with football club AC Milan, which has been ongoing since the 2010/2011 season, with the new deal running through 2022/23. The current contract is worth €10 million ($11.75 million) per year, compared to €14 million ($16.45 million) a year for the previous pact. The women’s club and training kit rights, formerly part of the agreement, will now be sold separately.
- Pro and collegiate headwear licensee New Era wants to get out of its stadium naming rights and sponsorship deal with the NFL’s Buffalo Bills. The team announced it was in the process of starting to look for a new naming rights partner. New Era was set to pay $35 million over seven years for the New Era Field name, which debuted in 2016.
- Telecommunications company Dialog Axiata extended its sponsorship deal with Sri Lanka Cricket, the national governing body for the sport in that country, in what is described as a reduced-value contract.
These are all big-money contracts whose details are public, at least in part. But similar negotiations are ongoing throughout the licensing business. Licensors and licensees are reconfiguring their contracts, or discussing doing so, in a number of ways, from reducing or eliminating minimum guarantees, to extending current contract periods to allow licensees more time to meet minimum sales or royalty requirements, to incorporating additional non-financial commitments from the licensee in lieu of some monetary payments. Creativity, flexibility, and an understanding of each other’s needs are all essential, as successfully renegotiating existing agreements may be the only path forward in the current environment.