Esports / 03.03.2020

CORONAVIRUS “FORCING MAJEURE” IMPLICATIONS IN ESPORTS

By Scott Norcross, Paige Rabatin & Kyle StroupEsports Arena - Coronavirus

As nations prepare to contain widespread consequences of the coronavirus, global industries are feeling the effects. Manufacturers, retailers and delivery services are closing as a precaution, knowing online operations will continue and citizens must accept delayed fulfillment. However, the event industry faces larger backlash as activities planned years in advance are postponed or cancelled.

During world pandemics such as coronavirus, esports’ global presence has encountered widespread cancelations and event modifications. The industry’s flexibility has mitigated damages based on the online dominance of the medium. The esports industry is able to cancel live events while still continuing online competitions. Chinese conglomerate Tencent capitalized on this strategy last week for several of its esports. Tencent Esports announced that its popular Honor of Kings competitions will be held online rather than in a studio, saying the decision was made to protect the health and safety of fans, players and staff by avoiding the gathering of massive crowds.

One of the most well-known and sophisticated esports leagues, the Overwatch League (“OWL”), recently canceled all matches in February and March that were slated to take place in China. The OWL was scheduled to make its Shanghai debut in mid-February, but was postponed. Meanwhile, two of China’s four OWL teams – the Guangzhou Charge and the Shanghai Dragons – have temporarily relocated to South Korea.

The esports industry may capitalize on its online presence to satisfy fans, but contracts with vendors and hosting parties may be more complicated. Cancellations and adjustments may ultimately lead to lost revenue and breached contracts. This leads parties to question, who’s left paying the bill?

Force majeure clauses are negotiated into contracts for these kinds of occasions. On January 30th, the World Health Organization said the coronavirus outbreak now meets the criteria for a Public Health Emergency of International Concern. Force Majeure is a clause placed in contracts to remove liability for extreme, natural and unavoidable catastrophes that seriously impact the contractual obligations of the parties. These events are typically given the phrase, “Acts of God.”

Force majeure clauses preferably cover every situation outside of the contracting parties that might cause an event host to cancel. However, a typical force majeure clause may not fully protect the planner from attrition penalties in the case of a health crisis. Well-contracted force majeure provisions cover health concerns like coronavirus, but many don’t contemplate a situation where attendees may not want to travel out of fear of catching an illness that is centered in another location, such as OWL matches in China. In addition, force majeure clauses rarely anticipate that some attendees may be banned from leaving their own countries.

The proper course of action is to read vendor contracts carefully to determine if there are provisions or nuances that permit relief for the event host. For example, if the force majeure clause excuses performance “based on an unforeseen occurrence,” the host may have a contractual right to cancel or reschedule the event without liability. At times such as this, we stress the importance of including a “catch-all” provision in the force majeure clause to cover anything that prohibits fulfillment of the contract. For example, the clause may not mention infectious disease, but it does say “any other cause beyond the party’s control.” As attorneys, we can never list all the specific things that can go wrong, but we can attempt to ensure they’re still covered.

Interpretation of a contract’s force majeure clause is usually on a case-by-case basis, but if a contract is interpreted such that it does not include an event, such as the coronavirus, common law doctrines may be available.

The common law doctrines of frustration of purpose and impossibility could apply if the parties did not have a formal, written agreement. Frustration of purpose occurs when an unforeseen event impedes, undermines and/or frustrates that party’s purpose for entering into the agreement and the other party knew of such purpose. This excuses the frustrated party’s performance. The doctrine of impossibility can also excuse performance. If a person contracts to provide services for another at a certain event and that event never occurs, the servicing party cannot perform because performance is not possible.

Another point to consider is what protection may be offered under the local laws in the meeting destination, a point addressed in the “choice of law” clause of contracts. As events continue to unfold due to cancelations and modifications of competitions, it will be interesting monitor the legal fallout the coronavirus has in the industry.

If you have any questions or would like to discuss further, please reach out to Scott Norcross at san@kjk.com or 216.736.7264, or contact any of our Esports, Media & Entertainment professionals.

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