THREE FREEZE THEIR SPONSORSHIP – ARE CHELSEA SPONSORS GETTING COLD FEET?

21 March 2022

Following on from one of our recent blogs, Abramovich still faces allegations and his assets are frozen from the sanctions imposed by the UK government, and it is not just the players being affected by his assets being frozen. The club’s sponsors are reconsidering their business relationships with many suspending their contracts. In this blog we will be discussing the suspension of contracts and how businesses can have certainty in their contracts.
Roman Abramovich has been sanctioned by the UK Government and with Chelsea FC being his biggest asset, many more than just Abramovich are being affected. Can Chelsea FC’s sponsors face the cold?

As Abramovich faces allegations and his assets still frozen from the sanctions imposed by the UK government, Chelsea FC’s sponsors are suspending their sponsorships. Three is believed to have a £40m a year deal with Chelsea and the sponsorship was set from 2020. The agreement was set to run until the summer of 2023. Nevertheless, an official Three spokesperson said: “In light of the government’s recently announced sanctions, we have requested Chelsea Football Club temporarily suspend our sponsorship of the club, including the removal of our brand from shirts and around the stadium until further notice.” From Saturday’s game (against Middlesbrough) we can see that Chelsea are still playing with the Three logo branded across their shirts, although in a new statement, the British mobile phone network say they club have had difficulty ordering logo-less shirts. Furthermore, Hyundai, the car manufacturer, have also suspended their agreement with Chelsea, with their logo remaining on Chelsea’s shirts. Hyundai have been Chelsea FC’s official global automotive partner since 2018.

So, how are Three and Hyundai are allowed to suspend their sponsorship?
A contract is an agreement between two or more parties where each party agrees to an obligation in return for the other party fulfilling their obligation, for example, Chelsea FC will provide a service (sponsorship and publicity) and Three will pay for this service (payment). For a contract to be suspended, there either needs to be a contractual or a statutory right to suspend. For a statutory right, the contract has to become impossible to perform.

Chelsea provide a service of publicity to Three and Three will pay for this service, they are both under obligations in the contract. If Three were to stop sponsoring, they would be in breach of their contract. Therefore, it could be in their best interests to suspend the contract with Chelsea. This is beneficial as the contract can carry on forwards and the party is no longer committed to its obligations once the contract is suspended, Three will no longer sponsor Chelsea. In the current situation Chelsea are in the process of being sold to a new owner; the benefit of Three suspending the contract is that they can continue the arrangement once the allegations and issues connected with Abramovich have subsided.

Most contracts will include a contractual right, to suspend a contract, to ensure that there is an express term for the avoidance of doubt, rather than relying on statutory provisions that are not specific to the contract. As well as certainty, the express suspension clause in a contract is a less drastic step than termination. It leaves open the possibility of resuming the services; this allows for commercial flexibility and is therefore useful to both parties to have within the contract. As demonstrated above in reference to Three continuing their sponsorship after a sale of the club.

It is important to have flexibility within business contracts as suspension of contracts can be beneficial for each party. As well, in the current circumstance, Three want to distance themselves while Abramovich has accusations against him, which have then further caused sanctions. The suspension allows them to temporarily stop the contract until necessary. If you only have termination clauses then you cannot go back to the original contract, it allows flexibility for both. Having the express clause also creates availability to use the suspension clause, ensuring that you can do this when need be to ensure you do not breach the contract.

The clause also creates certainty if you are not getting paid. For example, if Three did not suspend their sponsorship with Chelsea, but Chelsea stopped the sponsoring anyway (due to different sanctions – for example), Chelsea would be in breach of contract. However, with the suspension clause, the contract can be suspended until the obligations are able to be fulfilled. A more relatable scenario to consider is if your client has stopped paying then you would expect to stop providing the service, however without an express suspension clause if you simply stopped providing the service there is a risk that you would be the party breaching the agreement.

Are you providing a service and not being paid, do you feel like you are stuck in a contract? You should get in touch to ensure you understand what your legal position is, the correct method and time to treat a contract as breached and to take the correct and most beneficial action.
If you are in need of a review of your contract to protect your business, or are looking to create an updated set of terms and conditions, then you should get in touch with Ben Rose by telephone (01274 447 065), by email ([email protected]) or simply click here to fill out an enquiry form.

This blog was written and created by Gabi Devlin.

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