The current global situation is a stark reminder of just how quickly situations can change and put events at risk of being cancelled, as seen with the conflict in the Middle East affecting Formula 1 races.
Formula 1 races in the Middle East, notably Bahrain and Saudi Arabia, have been suspended or moved due to conflict in the area, with alternative dates and venues being finalized.
Impact on Sponsors
Disruption to the racing calendar causes headaches not just for race organizers, but also for sponsors who have paid large sums to have their branding appear at the race events.
Sponsors immediately ask if their sponsorship agreement adequately covers them in this situation.
Since the Covid-19 pandemic, contracts have included mechanisms to address changes in circumstances, particularly in sponsorship agreements, to ensure sponsors have a remedy in place.
Change of Circumstance Clauses
These mechanisms are designed to provide a remedy for sponsors in the event of a change of circumstance that prevents sponsorship rights being exercised.
Related: Al Khelaifi backs Fifa boss Infantino
The event that triggers this mechanism needs to be properly defined, for example, will it only apply if there is a force majeure event or will it include a rights holder’s commercial decision to re-organise or re-structure the event or competition.
Sponsors of the Formula 1 Bahrain Grand Prix may well be reviewing their contracts now that the race will move to Malaysia, to see if their contracts cover such a change in circumstance.
Remedy for Sponsors
There are important considerations as to what the sponsor’s remedy is going to be, such as whether the rights holder is under an obligation to reschedule the event or offer a pro-rated refund or alternative rights.
Sponsors should have some form of approval over such remedy, so that they are not stuck with a consolation prize that falls short of what they bargained for.
For instance, would sponsors who had paid to sponsor a race in the Middle East lose out if the races are re-arranged to take place in Europe and they do not have a big presence in the jurisdiction.
As the World Endurance Championship has shown, by re-organizing their calendar to open their season in Imola instead of Qatar, governing bodies can mitigate the impact of cancellations on sponsors.