Will Formula 1 need to refund sponsors for cancelled Middle East races?
Anna Sowerby dissects what happens with sponsorship agreements when events, such as Formula 1 Grands Prix, are cancelled
As we enjoy yet another blockbuster summer of sport, the current global landscape is a stark reminder of just how quickly situations can change and put events at risk of being cancelled. The obvious example being the conflict currently taking place in the Middle East, which has proved to be an issue for many industries – particularly Formula 1.
Formula 1 races in the Middle East (notably, Bahrain and Saudi Arabia) have either been suspended or moved due to conflict in the area, with alternative dates and venues being finalised. The World Endurance Championship also planned to open their season in Qatar earlier in the year, but managed to re-organise the calendar, so that their opener took place at Imola, with the Qatar race currently rescheduled for October 2026.
Disruption to the racing calendar causes headaches not just for race organisers, but it also hits hard on the sponsors who have paid large sums to have their branding appear at the race events. Sponsors caught by this sudden change in circumstance immediately jump to ask one question: “Does our sponsorship agreement adequately cover us in this situation?” This is a key question, but how are they dealt with in practice?
Since the Covid-19 pandemic, “change of circumstance” have become a key provision in many contracts, particularly in sponsorship agreements and are no longer just a ‘nice-to-have’. In the context of a sponsorship agreement, these clauses are designed to include a mechanism to ensure that the sponsor has an appropriate remedy in place, in the event of a change of circumstance that prevents sponsorship rights being exercised. Sounds simple, but there are a number of key parts to these clauses.
The real queston
Firstly, the ‘triggering’ event needs to be properly (and deliberately) scoped. For example, will the clause only bite if there is a force majeure event (i.e. an event outside of a party’s reasonable control), or will it stretch further to include a rights holder’s commercial decision to re-organise or re-structure the event or competition. Sponsors of the Formula 1 Bahrain Grand Prix may well be looking at their contracts now that the race will move to Malaysia, to see if their contracts cover such a change in circumstance. There are some difficulties when scoping these clauses, as there could be situations where a government authority leans on event organisers to cancel but not officially rule that the event cannot go ahead. Naturally, it is more beneficial to the sponsor to have this as broad as possible, to allow for more opportunity to be remedied.
Then there comes the important consideration as to what the sponsor’s remedy is going to be. Is the rights holder under an obligation to reschedule the event, so that the sponsor has another opportunity, albeit at a different time, to exercise the rights? Or if rescheduling is not possible, what pro-rated refund or alternative rights will the sponsor be offered? If the remedy is a pro-rated refund or alternative rights, it is important for sponsors to have some form of approval over such remedy, so that they are not stuck with a consolation prize that falls short of what they bargained for.
Formula 1 test case
For example, would sponsors who had paid to sponsor a race in the Middle East lose out if the races are re-arranged to take place in Europe and they do not have a big presence in the jurisdiction? Whilst sponsorship agreements are entered into in the spirit of partnership and working together, it is not always possible for the parties to agree the remedy between them. To avoid being in a stalemate, the parties can appoint an independent expert to ensure that the refund or replacement rights are of equal value to the original rights that have not been exercised.
Sponsors should also consider other legal tools that may be open to them, for example: inclusion of a termination right if the rescheduled event doesn’t work for their existing commitments, obtaining and maintaining insurance to offset any financial implications, and possibly control over public statements around the cancellation (particularly if their brand is closely associated with the event, e.g. a title sponsor).
Naturally, the hope for any sponsor (and any lawyer drafting such a clause) is that it will never need to be used, but it is wiser to expect the unexpected, rather than to remain silent and be exposed to all sorts of risk. Sponsors involved in motorsport are likely to be coming to this realisation now that it is mid-season and there is still disruption in the racing calendar.
Anna Sowerby is an Associate in the Commercial team at international law firm Charles Russell Speechlys.