In the case of New Balance (NB) v Liverpool FC (LFC), the High Court ruled that NB fatally failed to match the terms of a rival offer from Nike for the sponsorship of LFC’s kit.
The case is an important reminder of the significance of making clear offers and understanding the meaning of contractual clauses to which parties find themselves bound.
Since 2012, NB have held the rights to produce Liverpool FC’s kit – a lucrative deal for both parties, especially given the recent on-field, Champions League-winning success of the team.
As part of the rights, NB had the option to renew the contract for the 2020/21 season onwards so long as they provided an agreement with “material, measurable and matchable terms” to any third-party offer and acted in “good faith” whilst doing so.
Following initial unsuccessful renewal discussions with NB, LFC looked for alternative suiters which resulted in a competing offer from sportswear giant Nike.
In accordance with the contract, NB informed Liverpool that they were prepared to match Nike’s offer. You can see the differences between the two offers in the image at the top of the page (our emphasis added). We apologise but if you are viewing this page on a mobile phone, you won't be able to see the image in question. We're very sorry for any inconvenience this may cause you.
On receipt of NB’s offer, LFC told NB that its offer did not match Nike’s and, as such, it was permitted to contract with Nike instead. Cue expedited High Court proceedings.
The key points
LFC argued two key points to determine that NB had not matched Nike’s offer:
1. Store Count/Distribution
NB’s distribution of LFC’s merchandise, or lack thereof, during the initial contract period to date had been a point of annoyance for LFC.
So, when Nike threw down the gauntlet of distribution to 6,000 stores, the LFC management team were in disbelief that NB had offered to match that figure. Indeed, LFC’s legal team put great emphasis on disproving the accuracy of NB’s intent within its ‘matching’ offer.
LFC claimed NB could not genuinely match the distribution term and therefore its overall offer did not match Nike’s.
However, after judicial analysis of NB’s due diligence on store number-crunching (which involved engaging every NB regional area manager around the globe), Mr Justice Teare found that NB had acted in good faith and the 6,000+ store offer was bona fide.LFC argued that NB stretched the meaning of ‘Licensed Product’ to only include footwear in relation to some of those 6,000+ stores. But, as Mr Justice Teare pointed out, if Nike had meant otherwise in its offer (referring to the money-making sales of replica kit) then they should have expressly stated so. They did not.
Consequently, on this point, NB’s offer (submitted in good faith) matched Nike’s offer.
2. Celebrity Endorsements
In another term of NB’s ‘matching’ offer to LFC, there was a stark omission of named celebrities, in contrast to Nike’s express reference to Lebron James, Serena Williams and Drake.
LFC claimed that because of this, NB failed to match Nike’s offer. NB argued that the phrasing of its offer, with the omission of the express references, was no less favourable to LFC than Nike’s offer.
But, importantly, Mr Justice Teare found that as it was omitted, it must have omitted for a reason. Otherwise, why would NB not just include the reference?
Interestingly, Mr Justice Teare also ruled that ‘calibre’ was measurable and, as such, its omission was of further significance.
Therefore, on the celebrity endorsement points, the judge found in LFC’s favour and ruled NB’s offer to be less favourable than Nike’s.
As a result, LFC were not obliged to enter into a new agreement with NB.
If you mean to be bound by a term in contractual negotiations, include it in the offer.
Both major sportswear brands were caught out in the following ways:
- Nike, by omitting direct reference to replica kit in the distribution element of its offer; and
- NB, by omitting the express names/calibre of ‘global superstars and influencers’ it could (or perhaps more accurately and poignantly, it could not) use to endorse LFC’s merchandise,
Ultimately, however, it only needed the one term of NB’s ‘matching’ offer to fall short to allow LFC to contract with Nike instead.
The new Nike contract sees the sportswear giant pay LFC £30million a year but Nike can expect to receive millions by way of profit in return. With the High Court finding in LFC’s favour on the ambassadorial strength of Drake and co, it seems NB have made a very costly 10-word omission.
Indeed, looking further back, NB may have avoided such a battle altogether had it negotiated the formation of the contract (back in the early 2010s) to limit the matching clause to only include a financial sum (eg to match £Xm a year).
Although NB have formally appealed the decision, no doubt hard lessons have already been learnt.
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