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IPL 2020: How suspension of obligations through force majeure can mitigate losses

With most sporting events around the world getting cancelled or postponed, the chances of IPL taking place seem bleak. This, according to lawyer Anish Dayal, who specialises in IPL contracts, is “a clear situation of force majeure”.

Written by Mihir Vasavda | New Delhi |
Updated: May 1, 2020 8:06:00 am
force majeure, IPL 2020 force majeure, IPL force majeure, IPL 2020 revenue loss, BCCI, IPL coronavirus, coronavirus impact on IPL, cricket news RCB skipper Virat Kohli along with teammates acknowledging the crowd. (PTI Photo/Image used for representational purpose)

What is force majeure?

It’s an event beyond the control of a party; something that could not be foreseen at the time of entering into an agreement – in the present circumstances, the Covid-19 pandemic.

Is the pandemic a force majeure event?

To trigger the clause, the BCCI will have to prove that it wasn’t just inconvenient, but impossible, for them to hold the tournament because of events beyond their control. According to lawyer Anish Dayal, who specialises in sports law and has advised on IPL contracts, the present situation – the Covid-19 pandemic and the government imposed lockdown – “is clearly an event of force majeure”.

What happens if force majeure is invoked?

It will give IPL stakeholders – BCCI, broadcasters, franchises, players, and advertisers – temporary reprieve as they would no longer be tied down by their contractual obligations. This can possibly help the parties arrive at a negotiated settlement by coming to the table with a clean slate, not burdened by strict clauses.

“Force majeure allows the suspension of obligations and this will help both, the BCCI and franchises, to mutually discuss mitigation of the loss arising,” Dayal says.

Read | Counting the zeroes in ‘zero year’

What happens to the BCCI-Star deal?

The fate of this deal has worried all IPL stakeholders the most. As is the case with all sporting leagues, it is the media rights revenue that keeps cricket’s biggest brand running. In 2017, Star India bought the broadcasting rights of the tournament and promised to pay BCCI `16,347.50 crore over five years. Earlier this year, as part of the deal, the broadcasting behemoth already paid BCCI close to `1,500 crore – half of this season’s installment.

On the face of it, in case the “force majeure” clause comes into play and IPL gets cancelled, the BCCI will have to refund the advance payment to Star. However, it is open to interpretation. Chances are the BCCI might just return a part of the advance bringing in the image rights clause. Those in the know also say that there is also a possibility that the amount could be carried over to next year and considered as an advance for next season.

Will Star get an extra year in case this season is cancelled?

That’s the best-case scenario for Star in the present circumstances. Experts say that in case the tournament does not take place this year, Season 13 can be considered a ‘zero year’. An extra year would mean Star getting another season to recover its losses.

Will the franchises have to pay the players if the season is cancelled?

The franchise-player contract has two main payment conditions: the player needs to pass a fitness test and has to get a bonafide no-objection certificate from national boards. According to those in the know, the contract does not contemplate cancellation of a season.
In a normal season, a franchise has to pay 60 per cent of a player’s fee by April 30. So far, none of the players have been paid for the season. However, if the season is cancelled because of the pandemic, the franchises will probably not have to pay the players.

“The cancellation of the IPL by the BCCI is likely to be treated as force majeure in the context of player contracts. Unless the BCCI decides otherwise, payment obligations to players will stand suspended,” says noted lawyer Nandan Kamath.

What happens if the season is postponed and truncated?

According to Vidushpat Singhania, managing partner of Krida Legal, if the IPL is postponed “the player can still perform his duty, which means the franchises will have to pay the player his full fees”.

In case of a truncated season, it will depend on whether there is a clause relating to variable pay. However, it is likely that there will be a pay cut across the board – from player salaries to broadcast payments – in case the IPL season is shortened and/or held behind closed doors.

As per a paper produced by Kamath’s firm LawNK, broadcasters might also face re-negotiation and refund requests from their advertisers, who have already booked spots. This means that the advertisement sales for a specific period (for example, a mobile phone launch or summer-specific products) may no longer be relevant if the tournament is held in, say, October.

“In such scenarios, they may be forced to renegotiate on existing bookings, rates and packages,” Kamath says. Another predicament Star could face is the drop in advertising spending in the coming months. According to reports, before the crisis hit, the broadcaster was selling a 10-second advertisement slot for `13-14 lakhs. The slowdown could impact these estimates in case the tournament is held this year.

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