Legal briefing | Commercial Law, Commercial & Technology, Supply of goods and/or services | 07 Nov 2019

Lebron, Serena and Drake make the difference in Liverpool FC matching rights dispute

Overview

Liverpool FC has recently emerged victorious from a battle with sportswear maker New Balance over a right for New Balance to match the terms offered by a competing kit supplier – but it was a close-run thing.  As we pointed out in our briefing on a similar case involving Rangers FC and Sports Direct, such rights often appear attractive – but both cases also demonstrate how easily they can lead to disputes.

What is a matching right?

As explained in our briefing on the Sports Direct v Rangers case, matching rights typically allow an incumbent supplier to match an offer that a customer has obtained from an alternative supplier of similar goods or services. As the Rangers case showed, depending on how they are drafted and subject to any competition law objections, such rights can confer de facto exclusivity on a supplier, provided they are able to match any third party terms. 

What happened in the Liverpool FC case?

In 2011, Liverpool FC awarded New Balance a contract to manufacture and sell replica Liverpool FC shirts until 2020. The agreement included a right for New Balance to match the “material, measurable and matchable terms” of any third party offer to manufacture and sell Liverpool FC shirts beyond that date. 

 

The Nike Agreement

In July 2019, Liverpool FC signed a replacement kit supply and sponsorship agreement with Nike, worth a reported £70m per year, which was expressed to be legally binding subject to the exercise by New Balance of its matching right. The agreement contained a “Marketing and Distribution” clause, including a commitment from Nike to:

(i)  sell the licensed products in 6000 stores worldwide (including 500 stores owned or controlled by Nike); and

(ii)  promote the licensed products via "marketing initiatives featuring…global superstar athletes and influencers of the calibre of Lebron James, Serena Williams, Drake, etc".

New Balance’s counter-offer

Liverpool FC sent a copy of the signed agreement to New Balance, who responded with an identical commitment to sell Liverpool FC shirts in 6,000 stores (including 500 owned or controlled by New Balance). New Balance also echoed Nike's promise to run marketing initiatives featuring "global superstar athletes and influencers", but made no reference to any specific personalities.

Liverpool FC responded that New Balance's offer on distribution was not "bona fide" and that, in any event, New Balance could not match Nike in terms of marketing. In the absence of a matching offer, Liverpool FC asserted its right to award the new contract to Nike; New Balance brought a claim to stop Liverpool FC from doing so and to preserve its position as kit supplier.

Why was it a close-run thing?

Liverpool FC's case relied firstly on an argument that New Balance's offer on distribution was not made in good faith. New Balance, it was argued, could not really have believed it was possible to get the licensed products into 6,000 stores, let alone 500 that they owned or controlled. The judge considered this in some detail and concluded that, while New Balance's estimates of its distribution capability were "aggressive", New Balance had not been reckless in assessing whether it could meet the proposed commitment. As a result, it could not be said to have acted in bad faith.

New Balance's case foundered instead on a failure to match Nike's star-studded celebrity roster. Ultimately, New Balance's generic promise to use "global superstars" to market Liverpool FC could not match up to Nike's specific commitment to deploy names of the calibre of Lebron, Serena and Drake in support of the Liverpool FC brand. The judge found that the "calibre" of these superstars is capable of being measured (for example, by reference to the number of their followers on social media) and, therefore, matched. New Balance had failed to do so, meaning that Liverpool FC was free to enter into a new agreement with Nike instead. New Balance has since been refused permission to appeal.

Suppliers need to look carefully at what counts as “matching”:  failure to to do so may make it too easy for the customer to justify switching to a new supplier.

What are the key takeaways from this case?

  1. Customers should consider whether it is really worth accepting a right for the supplier to match a subsequent offer – because it potentially ties you in to a supplier you no longer want to use. Although Liverpool FC avoided that in this instance and was able to switch, Rangers FC was prevented from doing so. It may be preferable to just re-tender without the additional legal constraint of an offer-matching clause.

  2. Suppliers should consider carefully what counts as “matching”. In this case, New Balance’s offer was found to have matched Nike’s offer on distribution. If the clause had referred only to price or distribution network, for example (effectively excluding consideration of Nike’s broader marketing offer), New Balance might have succeeded in retaining Liverpool FC’s business.

  3. Finally, the judge in this case did not need to consider whether to exercise his discretion to order specific performance by Liverpool FC, i.e. to force it to extend the agreement with New Balance. However, suppliers should not assume that a successful claim will result in preservation of the commercial relationship – an award of damages and a clean break may be a more realistic outcome if the parties' differences have become irreconcilable.

Is there anything else to consider?

Finally, as pointed out in our briefing on the Rangers case, rights to review and match third party offers can sometimes raise competition law and confidentiality issues – which may be another reason to be cautious about their use.

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