Force Majeure: The Lasting Fight In The Wake Of Coronavirus

Regardless of whether you subscribe to a specific faith or belief system, the phrase “Act of God” is one that most people understand as being an event or occurrence that is beyond the control of humans. Typical examples usually include natural disasters like floods, hurricanes, and earthquakes. However, as we have seen from all levels of society, a pandemic of the scale we are currently experiencing was not contemplated by the “powers that be” whose job is to contemplate such things let alone the lawyers who put together contracts and collective bargaining agreements for different sports industry stakeholders.

Force Majeure, which is known by lawyers and non-lawyers alike as the “Act of God” clause is a French term that literally translates to “superior force.” Believe it or not, force majeure clauses are fairly standard in many legal contracts across industries (not just sports) but unless you’re in an industry that is prone to be disrupted by natural disasters or other “acts of god,” it normally gets thrown into the bucket of standard “boiler plate” terms that don’t really get much scrutiny during the course of negotiating an agreement or a transaction. As a general matter, any kind of contract negotiation is an exercise in predicting the future but very few lawyers or drafters had the foresight to predict something like this.

When the sports world came to a screeching halt almost two weeks ago, the attention as it relates to the invocation of force majeure was squarely focused on the leagues that had suspended their respective seasons, the NHL and the NBA. Both leagues have force majeure language in their collective bargaining agreements that would allow owners to withhold a percentage of player’s paychecks upon the occurrence of a “force majeure event.” The language of the NHL’s CBA would have allowed owners to renegotiate reduced salaries for players but the NHL has already assured players that they will be receiving their final remaining paychecks in full.

The NBA on the other hand has a force majeure clause in their CBA that explicitly references “epidemics” as a force majeure event and has even broader language that would likely define the Coronavirus pandemic as a force majeure event even if there was no explicit reference to epidemics. According to the CBA, the NBA has the ability to reduce the amount of money owed to players by 1/92.6th, which comes out to slightly more than one percent. Another overlooked aspect of the NBA’s force majeure provision(s) is that it also enables the NBA to cancel the CBA upon the occurrence of a force majeure event. Of course, it would make no sense to disrupt a period of prosperity and labor peace simply because an obscure carve-out in the CBA allows them to but it is something that will likely be looked at by the NBPA if and when life and sports begin to resume again.

The reason the NBA’s force majeure clause is drawing such significant attention is because the league has only publicly committed to paying player salaries in full through April 1st and because certain players opt to be paid over the course of the calendar year beginning on November 15th, there is a lot of money that is potentially on the table to be fought over. Assuming for one second that the vast majority of the league chooses to have their salaries paid over 12 installments during the course of the season, 90% of their salaries will be paid by April 1st. The remaining 10% would be roughly $318,798, 784, of which the league could then withhold about $3.3 Million, which if you divide by 30 teams comes out to about $110,000 saved per team. Though there would be a cost savings, my guess is that the proverbial “juice” wouldn’t be worth the squeeze to save what amount to pennies.

That said, not every league and stakeholder in sports and beyond have such broadly-worded force majeure clauses, which leaves many companies with a crucial choice as to whether they should inevitably invoke those clauses to relieve them from having to live up to their end up the bargain under the contract. Digiday is already reporting that many companies who advertise in sports are using force majeure as a way to claw back any money that was originally to be spent on ads during sporting events. Rest assured that disputes over force majeure are going to happen across all levels of the economy from vendors to insurance companies to landlords and everyone in between. Eventually life will get back to normal, sports will be on TV, people who are infected will recover but the disputes and legal battles over what constitutes “an act of god” are sure to last for years.



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