This article has been written by Sonali, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.com.
Sports sponsorships and media deals are becoming increasingly common. Sponsorship agreements provide the parties involved in the deal, substantial benefits. It brings new avenues to sponsors for promoting their brands and mammoth of investment to the player or team concerned. This increasing attractiveness has also increased the scope of the negotiation process amongst the parties involved and what they can derive out of it as the final product. There are several dynamics involved while entering into such deals such as the performance of the team, the expected brand value it can bring to the sponsor, the amount to be invested, or the time period of the agreement. These parameters let parties arrive at their own customised deals. Therefore, we can say that there is no “one size fits all” or standardised sponsorship and media deals. But this increasing complexity and uncertainty often lead these contented relationships to disputes. To avoid criticising their endorsers publicly these agreements include a confidential arbitration agreement to keep their disputes and settlement agreement out of the public eye. The mega sportswear brand – Nike Inc. also went through this due to disagreement with their endorsers at some events. To understand what happened, take a look at their journey.
The Juventus-Nike deal
One of the most decorated European football teams and Turin based Serie, A champions – “Juventus”, in 2003, under the ownership of Agnelli’s family had entered into a major kit deal with US Sportswear giant Nike Inc. for 12 years which was expected to net it around 13 million euros a season. Although a 2006 event that stripped Juventus of two of their Italian League titles, compelled the latter to renegotiate the deal to the detriment of the former.
In 2006, a spokesperson of Nike said that “We sponsor and we will continue to sponsor Juventus” and refused to comment whether they will renegotiate the deal or not. But Alas! What seemed like a happy ending was actually ramping up for a new turmoil between the two. Here we will understand how the two times Champions League winner ended up in arbitration with the sportswear giant Nike Inc.
The “Calciopoli” match-fixing scandal
In the year 2004, Juventus was rounded with two rumors of doping and illegal betting. When the Italian police investigated the matter, these rumors were proved ungrounded. But eventually under the garb of this investigation, in 2006 a scandal was brought into the light but its chapters are yet to be unfolded. After approaching Italy’s football authorities they realised that the governing bodies were themselves involved or benefitted from this scandal. Hence, leaving no option for the magistrates other than to turn to the media.
It was alleged that the then Juventus sporting director Luciano Moggi communicated with referee designators of Serie A over a call and tried to pick up referees more favourable to them to influence the results. It was further alleged that top players of rival teams when they were about to face the Italian team, were issued calculated numbers of yellow cards to suspend them. The evidence though was held inconclusive but Juventus was relegated to Italy’s second division Serie B and was stripped of their Serie A titles won in the last two years. The Supreme Court held that Moggi’s activities damaged Italian football in the sporting sense as well as in economic terms.
The debut of Adidas in the “Story”
Following the relegation of Juventus things soured between Nike Inc. and the Italian club. Their star players including striker Zlatan Ibrahimovic and defender Fabio Cannavaro left the club. As prior stated Nike wanted to terminate the agreement but renegotiated it at 11 million Euros, half of the price of the original agreement as per press reports. Situations worsened in 2012 when the sportswear company refused to produce Juventus shirts with three stars to mark their 30 title win following their victory in 28th scudetto. Their argument was that the Italian Football Federation did not recognise their 2 titles.
The feud between the two passively continued when Juventus refused to wear Nike clothes at public events and mention Nike during Kit launch. They compromised by releasing a shirt with the wording “30 Sul Campo – 30 on the Pitch” but simultaneously without the assent of Nike, Juventus also released unofficial merchandise with three stars which enraged the former. Thereafter, in 2013 Juventus pre-emptively announced “Adidas” as their new sponsors effective from the 2015/16 football season. The agreement was for an estimated 33 million Euros plus bonus which is almost double the agreement of Nike and Juventus. This unforeseen sudden strategy clearly pushed the former sponsor of Juventus aback in its competition with its rival Adidas. It also deprived them of the future profits which it might have made if they could just negotiate the renewal of the agreement successfully.
Claim for damages by Nike in ICC International Court of Arbitration
The reliefs in this English arbitration were based on a failure of Juventus to fulfill its contractual obligations to appropriately endorse the brand. Nike sought a declaration that Juventus had committed a number of breaches of the sponsorship agreement which includes violating confidentiality provisions by disclosing technical features of the new kit before it was launched, allowing third parties to sell their product on their website, and failing to make its player wear Nike jerseys at public events including its title celebration in 2013. Nike prayed for a “base compensation” of 40 million Euros and a further 26-39 million Euros for “loss of brand of exposure.”
The tribunal in an award dated 1 July 2016 held that Juventus had breached its obligation of confidentiality and good faith by its 2011 onwards conduct. But the breach occurred in only the last two years of the agreement and by then Nike had already received value expected in terms of brand exposure. Therefore, the tribunal allowed only a sum of 1.5 million Euros to Nike equivalent to five percent of base compensation over a period of two years. Also, the cost of arbitration and legal fees amounting to 550,000 Euros were awarded to Nike against Juventus.
Statement by Juventus
Later when this arbitration dispute news was reported, Juventus clarified and issued a terse statement that because the news was published unlawfully in breach of the confidentiality expected from arbitration governed by the UNCITRAL Rules, the Club will have to pay an amount far below the 2 million Euros. They reinstated that the award has nothing to do with their 2013 campaign of releasing merchandise of three stars unofficially. They also said that Juventus reserves every right and action, including the appeal of the arbitration decision.
Although the matter is not openly published in the public domain (only reported), this award of 2 million Euros is genuine and can be authenticated from the Annual Financial Report of 2016 of Juventus where they have made a provision of 2,316 thousand Euros in risks and charges section in the name of 2016 arbitration award. Also, it is unknown whether the amount has been paid by Juventus or they went ahead with an appeal.
Juventus is moving forward with its partnership with Adidas. In 2008, they renewed their partnership deal which was worth 408 million Euros that will run until June 2027. This major success can be partly attributed to Cristiano Ronaldo, the Portuguese forward who was added from Real Madrid. But with him, the Italian Club also invited a trivial association with their former sponsorship partners Nike Inc. The Portuguese forward has a lifetime partnership with Nike. Therefore, even after wearing the Adidas uniform, he wears the cleats from Nike.
This clears up that anything which is there amongst the parties is only a contractual obligation that may take any form and shape. Ultimately, it is the commercial intent of an agreement that decides the fate of a relationship between them. The Serie A Italian Club is not directly associated with Nike but now shares a commercial space. It is impossible for big brands and top sports clubs to avoid each other in this huge arena of competition.
The arbitrators in the ICC arbitration called the deal a “foul play” because evidently, Juventus breached its obligations under the agreement after the 2006 scandal and further in 2012 when Nike refused to produce Juventus shirts with three stars to mark their 30 title win. But we cannot call it a generalised situation or a dispute which may arise every now and then. The scandal was one of the biggest reasons for Nike to devalue their agreement value and to refuse them their “unofficial recognition” of 30 titles and the “Calciopoli” was itself a once-in-a-lifetime situation for the Italian club.
Therefore, this case can be a learning lesson for new age sponsorship agreements and media deals that why maintaining good faith and complying with contractual obligations is necessary for every situation (excepting where moral considerations are involved). The sponsorship contract dictates the relationship between the parties and can be considered “the king” for prescribing the obligations. The only job here is to bind by these obligations and adhere to them otherwise either of the parties doing a foul play may end up paying huge compensation as discussed in the case here.
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