Sports Q&A - Winlink Marketing Limited v The Liverpool Football Club: what are the lessons for sports' right holders and commercial agents?
24 November 2020
Disputes over entitlement to commission are common. As we’ll explain below, this case was a clear win for Liverpool FC and will give rights holders encouragement where sponsorship/commercial agents argue for commission on deals that they do little to bring about. However, when you dig into the facts, the case exposes details that provide a harsh lesson for all lawyers, sponsorship experts, and agents working on deals of this nature.
What was the background to the case?Winlink Marketing Limited (“Winlink”), is an agency which specialises in introducing rights holders to potential commercial sponsors. In 2013, Winlink and Liverpool FC entered into an introduction agreement in which Winlink agreed to introduce the club to potential sponsors in return for commission in the event that a sponsorship agreement was entered into with any company that was introduced by Winlink.
Following that introduction agreement being entered into in 2013, Winlink introduced Liverpool to betting company, BetVictor, who discussed a potential three-year sponsorship deal. At that time, Liverpool and BetVictor did not end up concluding a sponsorship agreement, but things changed in 2016 when the parties entered into a three-year agreement worth £15 million for BetVictor to sponsor Liverpool’s training kit.
Winlink claimed that it was owed commission by Liverpool under the terms of the introduction agreement as it introduced BetVictor to Liverpool in 2013 and it issued proceedings in the High Court for breach of contract claiming commission of £1.125 million.
Liverpool’s position was that whilst the introduction agreement provided for commission to be payable to Winlink in the event that a sponsorship agreement was entered into by Liverpool following an introduction made by Winlink, the introduction agreement was subject to an implied term that required Winlink to not just make the introduction, but also be an effective cause of Liverpool entering into the sponsorship agreement. Liverpool argued that for a variety of reasons, Winlink’s introduction in 2013 was not an effective cause of the sponsorship agreement with BetVictor.
What did the court decide?The court agreed with Liverpool and held that the introduction agreement should contain an implied term which required Winlink to be an effective cause of the sponsorship agreement with BetVictor in order for Winlink to be entitled to commission.
A key factor in persuading the court to reach this conclusion was the fact that Winlink’s appointment was non-exclusive which meant there was a possibility of Liverpool paying two commissions if there was not an effective cause provision. The Court concluded that it was “highly improbable” that this was the parties’ intention and that it would not make commercial sense for Liverpool to pay a commission for an introduction which was not an effective cause of the sponsorship agreement. The court, therefore, implied an effective cause provision to the introduction agreement "to give effect to what is so obvious that it goes without saying and so prevent it from taking effect in the entirely unreasonable and uncommercial outcome that would otherwise result".
After deciding on this issue, His Honour Judge Pelling QC concluded that Winlink was not an effective cause of the sponsorship agreement between Liverpool and BetVictor and, therefore, it was not entitled to commission. On the facts, the court found that Winlink had no involvement in the negotiations and the deal concluded was radically different to what was offered by BetVictor previously in 2013.
When Winlink introduced BetVictor to Liverpool in 2013, BetVictor offered £800,000 to £900,000 per year to be Liverpool's betting partner and a further offer was made by BetVictor in 2015 to advertise on Liverpool's LED hoardings, which was rejected by Liverpool. In contrast, the Sponsorship Agreement concluded between Liverpool and BetVictor in 2016 involved BetVictor being appointed as a principal partner where it would sponsor Liverpool's training kit with a number of other associated advertising opportunities at a cost of £5 million per year. Also, the court held that the effective cause of the deal was actually a long-standing and close relationship between Liverpool’s marketing executive, Ms Raffaella Valentino, and BetVictor's CEO at the time and not as a result of Winlink’s actions.
What are the key takeaways for rights holders and agents?The decision is of significant importance to all sports rights holders who use introducers or agents in commercial deals and to agents themselves. The judgment makes it clear that unless there is an express term in an introduction agreement which clearly sets out the basis upon which any commission will be paid to an agent or introducer, the court may imply an “Effective Cause” term into the contract thus meaning the agent must have direct involvement in the deal in order to be entitled to any commission.
As a result, the case is a useful reminder of the importance of expressly including clear terms in commercial agreements in order to avoid any ambiguity, disputes and the risk of a court implying a term into the contract which may not truly reflect the parties’ intentions.
Rights holders will therefore want to ensure the requirement for the agent to be the “effective cause” is clear. (Although in this case the conclusion was that Winlink was not the effective cause, there was little elaboration as to what would need to be shown to demonstrate that the agent is an/the “effective cause”). Rights holders will also want to define a tight framework within which the agent can operate – limiting the term of their engagement (and clarifying whether commission will be payable if the sponsorship agreement is concluded after the term); specifying who they can approach; and crucially, identifying what steps they must take to trigger payment of the commission.
On the other hand, given how important relationships are in this industry, how competitive the agency world is, and that it is a community in which ‘everyone knows everyone’, agents will want to ensure that their efforts don’t go unrewarded just because there were other people involved in bringing a deal to fruition. Agents need to be alert to the fact that whether they are an “effective cause” will not always be clear cut. A clause which triggers commission based on specific, objective obligations being fulfilled will be far preferable to a loose “effective cause” provision (whether express or implied).
A cautionary taleAside from the facts mentioned above, the other details of this case provide a cautionary tale for all working in this business. There is heavy criticism of the drafting of the contract, it’s clear that confidential information was wrongly exposed, and a witnesses’ credibility is questioned on the basis that they were in breach of gardening leave imposed when they left their previous club.
Sponsorship is a cut and thrust business. People want to move quickly to get deals done, and as a result, introduction agreements are often entered into without too much thought. This neglect is evident in this case, and the fallout serves as a painful lesson on the consequences.