Contracts Sports Law

Coca-Cola Sued For Using COVID-19 To Terminate $34 Million NHRA Sponsorship

It was just a matter of time before companies would start looking to get out of major compensation obligations in their sponsorship agreements that had gone sour, using the novel coronavirus as a foundation for termination.

The biggest sports sponsorship in question is probably Under Armour’s 15-year, $280 million Athletic Product and Sponsorship Agreement that the apparel brand is seeking to get out of mainly on the basis that a Force Majeure Event, as defined in the agreement, occurred, relieving Under Armour from any further obligations to UCLA.

The newest COVID-19 sports sponsorship dispute was initiated on September 21 in a California federal court. The National Hot Rod Association (NHRA) is suing Coca-Cola for sending a letter in August seeking to terminate its $34,320,000 sponsorship agreement under cover of the coronavirus global tragedy. At issue is a 6-year agreement with a term that was supposed to run through 2023 and a $2.86 million payment that was due from Coca-Cola to the NHRA in May, but was not paid to the auto racing organization.

Coca-Cola stopped paying the NHRA under the agreement and blamed the NHRA for not consulting with Coca-Cola prior to canceling any events. The NHRA postponed an event in March and canceled three events in April as well as one event in early May, but some events have been held since the coronavirus first struck the United States. However, the NHRA says that coronavirus is just a convenient excuse for Coca-Cola to get out of obligations that it wanted to remove itself from in 2019, prior to the coronavirus becoming a known global pandemic.

“In September, 2019, long before the pandemic arrived, Coca-Cola announced that it wanted to end the agreement as soon as possible, but recognized that it had no basis to do so,” states the Complaint. “Incredibly, Coca-Cola now offers the pandemic as a pretext to achieve its desired business result and avoid its existing and future payment obligations.”

Importantly, the NHRA recognizes that Coca-Cola may have suffered a temporary loss of some sponsorship benefits due to race cancelations, but that an inability to host a full slate of races is not a violation of their agreement. Instead, says the NHRA, Coca-Cola is entitled to relief in the form of a pro-rata refund at the end of the year to account for any races that were not held, but the company does not have a right to simply terminate the sponsorship agreement altogether.

The NHRA not only wants damages based on Coca-Cola’s alleged breach of the sponsorship agreement but also a declaratory judgment from the court, ruling that the sponsorship contract is valid, as well as the receipt of a permanent injunction preventing Coca-Cola from taking any further action in support of its claimed termination.