Thought Leadership

Practical guide to matching rights

Lessons from New Balance v Liverpool FC

Summary

A matching right, at a basic level, is a promise by A to B that if A receives an offer from another party (C) it will tell B and, if B is willing to make the same offer as C, A will contract with B, not C.

In the New Balance v Liverpool FC case, Nike (C in the above scenario) offered to provide Liverpool FC (A in the above scenario) “marketing initiatives featuring not less than three (3) non-football global superstar athletes and influencers of the caliber [sic] of Lebron James, Serena Williams, Drake etc.”

New Balance (B in the above scenario) was willing to provide such marketing initiatives but did not commit to superstars of the calibre of Nike’s named superstars.

This did not amount to an effective match by New Balance, as explained in the judgment released in late October (an appeal by New Balance against the judgment was recently refused by the Court of Appeal). Liverpool FC is therefore free to pursue its contract with Nike. The case serves to emphasise that the key to protecting a sponsor’s commercial interests is the drafting of the matching rights clause.


Introduction

It used to be the case that disputes involving matching rights very rarely reached the courts.  Not anymore.  The last twelve months have seen five English High Court judgments arising from the dispute between UK retailer Sports Direct and Rangers Football Club relating to matching rights, and recently we’ve seen a further dispute relating to matching rights reach the English High Court: this time involving sportswear giant New Balance and Champions League winners Liverpool FC.

This article is intended to be an informative and practical guide on both the drafting and exercising of matching rights.  Specifically, we will cover:

  • What we mean by ‘matching rights’.
  • Lessons from the recent New Balance v Liverpool FC.
  • Key considerations for those drafting and negotiating matching rights clauses – and for those involved in the exercise of those rights (in light of the relevant legal principles and recent cases).

What are matching rights?

What are ‘matching rights’ and why would parties in the sports industry in particular want to include such rights in a contract?

What is a right of first refusal / matching right?

The terms ‘rights of first refusal’ and ‘matching rights’ are often confused. There is no strict definition and provisions will vary dependent on the context.

In its simplest form, a right of first refusal is one party promising to the other: “I will not grant any rights to another person without first asking you whether you would like those rights.” Layers of complexity may then be added relating to the time period for exercising the right, what particular rights it relates to, and the level of discussions required before going elsewhere.

Matching rights typically exist alongside rights of first refusal and usually bite after a right of refusal period has passed. A matching right is a promise that: “If any other person makes me an offer for my rights, I will come to you and, if you are willing to make me the same offer, I will sell you those rights.”

Such rights restrict a party’s liberty to carry on business in the manner of its choice and, as such, are prima facie restraints of trade. If the restraint of trade is unreasonable in the circumstances (taking into account, for example, the relative bargaining power of the parties), it will not be enforceable under common law rules (and potentially under competition rules as well).


 

It is easy to understand why a sponsor of a player or team would want to have the benefit of such rights: sponsor brands invest (sometimes heavily) in high-profile sports teams and players to boost profile, harness positive public perceptions and acquire a brand ambassador. Goodwill built up in this way is easily shattered if the team or player can jump ship to a rival brand with ease.

But goodwill can be just as easily shattered if a sponsor publicly sues the player or team in the courts for breach of such a clause. That is, in the main, why until last year cases involving matching rights were so rare.


Lessons from New Balance v Liverpool Football Club

For sponsors seeking to rely on matching rights, the key lessons from the case are as follows:

  • Be specific about what is to be matched (matching rights clause): The matching rights clause in the sponsorship agreement between New Balance and Liverpool FC was relatively widely and vaguely drafted: New Balance had to match all the “material, measurable and matchable terms” in any third-party offer. If New Balance had been more specific in the sponsorship agreement as to the terms it was required to match in any third-party offer, it may have been easier for it to have matched (or at least there would have been greater certainty for the parties in assessing whether or not there was a valid match).  Instead, even though New Balance was able to match everything else Nike was offering (including duration, payments, royalties etc.), it fell down on not matching the offer of three “non-football global superstar athletes and influencers” of a particular calibre.
  • Notification of intention to match: The terms of the sponsorship agreement provided that New Balance only had to notify Liverpool FC in writing “if it will enter into a new agreement … on terms no less favourable to [Liverpool FC] than … the material, measurable and matchable terms of [a] third-party offer“. Instead of providing a short notification to that effect, New Balance chose to accompany its notification with detailed terms it said fulfilled the requirements of the sponsorship agreement.  The judge decided they did not fulfil those requirements.  If New Balance had only sent a notification (without any detailed terms), it would have been open to them to argue that they could provide marketing initiatives involving global superstar athletes and influencers of the calibre of LeBron James, Serena Williams, Drake etc.  Whether New Balance could provide that is another question, but in sending the detailed terms they committed themselves to a position they couldn’t back out of (and lost the case because of it).

What about the key lesson for those seeking to work with a new sponsor but their sponsorship agreement with an existing sponsor contains matching rights?

  • Be specific about what is to be matched (third-party terms): A decisive factor in Liverpool FC’s win was its decision to work closely with Nike (its desired new sponsor) to include reference to specific requirements they believed New Balance – on a practical level – wouldn’t be able to match. Whilst it seems Liverpool FC had thought that the distribution terms would be ‘unmatchable’ for New Balance (for example, a requirement to sell licensed products in not less than 6,000 stores worldwide), it was the specific reference to a calibre of superstar athletes and influencers that New Balance did not match.  If Liverpool FC had only focussed on the distribution terms (and not included the specific marketing terms relating to non-football influencers that it did), New Balance would have won.

For a full summary of the recent dispute between New Balance and Liverpool FC relating to the drafting and exercise of matching rights, please read our case summary.


Drafting, negotiating and exercising matching rights clauses: key considerations

Where does that leave sponsors, clubs, players and other organisations in the drafting negotiation and exercise of matching rights clauses?

We have drawn together the key lessons, principles, tips and guidance (including from the New Balance v Liverpool FC case) into a practical reference guide on matching rights which you can view below and download:


Concluding thoughts

In only a short space of time, we’ve seen two high-profile disputes reach the English courts regarding the enforceability of matching rights in a sporting context: first Sports Direct v Rangers FC and now New Balance v Liverpool FC

It is plain from the different outcomes in these two cases (with Sports Direct enforcing its matching rights and New Balance failing to do so) that the key to protecting a sponsor’s commercial interests is the drafting of the matching rights clause.  Given that the sponsor will typically prepare the first draft of a clause containing such rights, it is important to ensure clarity and consider the reasonableness of the provisions in the context of the deal in question.


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