Irwin Kishner, Co-Chair of the Sports Law Group with Herrick, Feinstein LLP, breaks down what could be at stake for broadcast companies if the Olympics are canceled.
SEANA SMITH: Now, speaking of the Olympics, the games are set to get underway next month. But there are a number of questions of whether or not the games should be held, given the current case count and the trends that we’re seeing when it comes to COVID out of Japan. So we want to talk about the potential financial implications of that with Irwin Kushner. He is the co-chair of the Sports Law Group at Herrick, Feinstein.
And Irwin, it’s great to have you here on Yahoo Finance. And I’m just looking at– we just got the details on NBC’S Olympic coverage coming out. They plan 7,000 hours of coverage, two broadcast networks, six cable networks. When it comes to the Olympics and the potential. now that we could see the games canceled, what’s on the line in terms of the financial impact that this could have on advertisers and also the broadcast networks?
IRWIN KUSHNER: Well, it’s a multifaceted effect. I mean, there are billions of dollars and years of planning that go into sponsoring and holding the Olympics. Obviously, most of the costs relative to infrastructure has already been incurred by the government, mostly by the government, whether regional or local or national in the case of Japan. And that’s billions of dollars. That said, there are many other revenue streams that we need to consider. A cancellation would affect a tremendous amount of those.
Obviously, you have the TV revenues. You have ticket revenues. You have insurance claims that will undoubtedly be made for event cancellation, just to name some of those. So there’s billions of dollars at stake, should there be a cancellation, though I must say, based on everything that I understand and see right now, I would find that hard to believe or would even be a remote possibility at this moment.
ADAM SHAPIRO: What we’re witnessing with the Olympics this time around, is the kind of thing that could forever change the business model going forward? I mean, the cities that host rarely make money. They use it as infrastructure building. So are the TV networks are going to have the cash? Or is it going to be the streamers who do it? And are they going to say it’s not really worth it?
IRWIN KUSHNER: Well, we’re in the midst of something of a revolution vis a vis coverage of sports, live sports, and how people consume that, whether it be streaming through traditional appointment TV or the like. That said, with respect to that, that’s obviously going to have an effect on how the Olympics are going to be broadcast in the future. That said, the most valuable programming of all is sports programming. Sports programming is the most valuable. It’s live action. It garners the most interest. And the Olympics are at the top of that proverbial pyramid.
And so, yes, while we’re seeing a revolution, and, yes, there will be differences in how people consume and, yes, you know, Olympics, you can argue that most of them haven’t produced a net economic benefit, I could take the other side of that argument easily by demonstrating and saying to you, as a result of– and I’m just using this as an example– the Australian Olympics, there was a significant uptick in tourism. As a result of the Australian Olympics, there was a significant recognition of the country as a destination. It brings honor to the local populace. There are many, many intangible benefits that are produced by Olympic games. And that will continue.
SEANA SMITH: Irwin, when you take a look at the interest that you’re expecting to generate from this year’s Olympics, do you think it’s going to match prior Olympics? And I’m not just talking about on TV, the more traditional route, but also including the streaming and the other options in terms of viewing this year.
IRWIN KUSHNER: I think, you know, there’s a couple of things at play. One, we are still in the midst of a pandemic. People are very [AUDIO OUT] for live [AUDIO OUT], live sports [AUDIO OUT]. I definitely feel that you will have a pick-up as time goes on [AUDIO OUT]. Even if there’s lack of attendance, even if they are not getting as much ticket revenue as maybe that was anticipated, I do believe these games are going to go off well. I do believe they’re going to go off COVID safe or friendly, as much as you can do that. And I ultimately predict a successful 2021 Olympic games.
ADAM SHAPIRO: Finally, as we go forward with the Olympics and you negotiate these contracts, what protections, whether it’s a TV network or a future streaming network, what protections do they have when these kinds of things throw a wrench? Is it Lloyd’s of London kind of insurance or something else?
IRWIN KUSHNER: Yeah, well, there’s several. Well, first off, you know, you typically will conclude a force majeure or an act of God type clause in your media contracts or most of your standard performance contracts. The question then comes, what effect does that clause have on how revenues are shared, on how losses are shared, on how liabilities are shared? And then on top of that, you will often have backstopping insurance coverage, event cancellation insurance coverage.
And so, you know, while you may draft for these things in a general way, very few contracts, if any, very, very few have a pandemic clause built in. I’m not saying that that was unique and that didn’t happen. But forecasting and predicting a one in 100 plus year event for your contracts was somewhat unique prior to the pandemic. Obviously, now, that is way more prevalent, way more– it’s much more of a standard clause that you’re putting into your media contracts, your sponsorship contracts, your naming rights contracts, your advertising contracts, and so forth. And then the question is, what is the contractual balance of power? And where does the liability reside?
SEANA SMITH: Irwin Kushner, great to get your perspective, co-chair of the Sports Law Group with Herrick, Feinstein. Thanks so much for taking the time to join us.
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