The supply of Premier League football kit can be a lucrative venture. It is a coveted right that exclusive suppliers are naturally keen to protect.
Major sports manufacturer New Balance has a contract to supply Liverpool FC ("LFC")'s kit until March 2020. Following the success of LFC in 2019, namely its triumph in winning the UEFA Champions League, it is unsurprising that New Balance was keen to retain its £40m-a-year shirt deal.
This decision, about the renewal of the deal at the end of the current contract term, is a useful reminder that:
a) new contracting parties should be in no doubt as to the meaning and effect of contractual terms; and
b) an obligation to offer terms which match, or are no less favourable than, those of a third party means matching up in every respect, including those which require elements of subjectivity.
The contract between New Balance and LFC provided that the parties must negotiate the renewal of the existing deal in "good faith." If an agreement could not be reached, the contract then permitted LFC to negotiate with third parties. If LFC received a third party offer, the terms of that offer must then be submitted to New Balance. This was so that New Balance, as the incumbent supplier, could try to match the third party offer and retain its existing supply deal.
In such circumstances, the contract provided that, in order to renew the contract, New Balance would need to offer terms that were:
a) "no less favourable to the Club [LFC]" than an offer made by a third party, and
b) "material, measurable and matchable" to the third party offer.
In other words, if New Balance matched any competitive third party offer, LFC would be obliged to enter into a new contract with New Balance.
If New Balance failed to match the third party offer, it would lose its right to renew the existing supply agreement, with LFC entitled to enter into a new supply agreement with the third party.
During the initial period of negotiation, New Balance agreed that LFC could seek other offers. LFC did this, and subsequently received an offer from Nike. Essentially, Nike's offer contained the following key components:
a) an offer to pay LFC £30 million per season plus 20% of net sales of all licenced footwear;
b) to market LFC and/or Licensed Products through marketing initiatives featuring not less than three non-football global superstar athletes and influencers of the calibre of LeBron James, Serena Williams, and Drake; and
c) to sell Licenced Products in not less than 6,000 stores worldwide, 500 of which shall be NIKE owned or controlled.
Pursuant to the supply contract, LFC showed Nike's offer to New Balance. New Balance responded by saying it would make a counter-offer with terms that were no less favourable than the "material, measurable and matchable terms of the Nike offer." In August 2019, New Balance submitted a supposedly matching offer to LFC.
However, whilst the New Balance offer matched the distribution term, there was a dispute over whether the marketing term had been matched.
In its offer, New Balance committed to market LFC products through "marketing initiatives" (with no clarity on what these were) and crucially made no reference to its ability to market LFC products using "non-football global superstar athletes and influencers of the calibre of Lebron James, Serena Williams, and Drake" (the "Marketing Element"). New Balance also purportedly matched Nike's offer to sell LFC products in not less than 6,000 stores worldwide, 500 of which would be New Balance owned or controlled (the "Distribution Element").
The dispute arose as to whether:
a) New Balance had the ability to comply with the Distribution Element, and accordingly whether it had acted in bad faith by purportedly matching Nike's offer in this respect; and
b) the omission of named non-football superstar athletes from the Marketing Element meant that New Balance had failed to "match" Nike's offer,
and thereby whether, on either one of both of these grounds, LFC could elect not to renew the existing supply agreement with New Balance.
LFC's case was that (a) New Balance had acted in bad faith due to its inability to comply with the Distribution Element (amounting to a bad faith offer which was not genuine) and (b) the omission in the Marketing Element of New Balance's offer rendered the offer less favourable to LFC than Nike's offer.
New Balance's case was that (a) it had conducted a month-long commercial due diligence exercise to assess the commercial viability of matching the Marketing Element of Nike's offer and that it intended to meet the Distribution Element in good faith and (b) the Marketing Element of Nike's offer as a whole was not measurable (and so couldn't be "matched"), because it was too vague.
Mr. Justice Teare decided that:
a) New Balance held an honest belief that it would comply with the Distribution Element, based on its conducting a prudent due diligence exercise, and so was acting in good faith (irrespective of any purported errors in the exercise – none of which, if established, would have amounted to dishonest or unreasonable/ un-commercial conduct).
b) However, the Marketing Element of Nike's offer was indeed measurable, because it was capable of being measured, notwithstanding the fact that there were only subjective means of doing so. LeBron James is the world's most famous basketball player, Serena Williams is among the most famous tennis players and athletes in the world, and Drake was the world's top-selling recording artist of 2016 and 2018. Nike's superior ability to call on such a roster of high-calibre international celebrities meant that its marketing reach could not be matched by New Balance.
The judge therefore determined that "the New Balance offer on marketing was less favourable to Liverpool FC" as New Balance had not offered the marketing power of "global superstars".
On this basis, New Balance's claim was dismissed. LFC was not obliged to enter into a new kit supply agreement with New Balance, and was free to do so with Nike instead.
Anouj Patel and Ilona Bateson