Article April 9, 2020

Coronavirus cancellations cause huge problems for licensees

For licensees and businesses involved in merchandising, the financial impact of event cancellation could be catastrophic.

The coronavirus outbreak has now halted a long line of global events, from international competitions such as the Tokyo Olympics, Formula 1 and Wimbledon, to world-famous festivals like Coachella and Glastonbury.

These events are far from alone. Other headline-hitting postponements include the Cannes Film Festival and the 74th Annual Tony Awards, as well as the Eurovision Song Contest, which has been cancelled for the first time in its long history.

Every cancellation or rescheduling announcement will of course have disappointed all those who planned to attend, but there is another, far more costly side to the decisions organisers have been forced to take. For promotional partners, licensees and businesses involved in merchandising, the financial impact of these decisions could be catastrophic.

Demand for merchandise linked to the Olympics and other international sports events would ordinarily be huge. Merchandise sales for Rio 2016 surpassed $15.5 million, and with over half of the Tokyo 2020 product lines selling out on the day that the new logo was revealed, sales forecasts would have been significant.

The UEFA Euro 2016 tournament generated $530 million of revenue in sponsorship and licensing deals alone, and Wimbledon too is a huge event for licensees. The Championships of 2019 inspired the sales of no less than 58,271 branded hats, as well as drinks bottles, clothing, tennis balls, towels and plenty more official merchandise.

By the time the coronavirus outbreak began to take hold, many licensees were already ramping up production in anticipation of the coming surge in demand. With many rescheduling decisions and cancellations coming quite late in the day, licensees have now been left with no option but to hold onto merchandise until events resume. Doing so will likely come at a huge cost to these companies.

It’s not just sports events and festivals that have faced cancellations as a result of Covid-19, either. The entertainment industry has also been hugely affected, with production halted on numerous TV series, and film release dates being pushed back as a result of cinema closures. Behind every postponed film release is a considerable number of licensees, who are now faced with difficult decisions over what to do with merchandise inventories.

This is an unprecedented situation, and it's one that has shocked businesses, sports committees, events organisers and merchandisers all over the world. For licensees, particular difficulties will arise from the wording of contracts, and the fact that very few will have planned for or addressed a response to a global pandemic. This oversight could cost companies dearly, and its long-term effect on licensee relationships remains to be seen.

Some measures have been taken to limit the impact of merchandise losses. For instance, the Tokyo Olympics which takes place in 2021 will still be referred to as the 2020 Olympics, ensuring merchandise remains relevant. This should provide some comfort to licensees, and sustain demand for their products when Olympic fever grips the world once again.

Covid-19 is enormously challenging for businesses, and its effects will undoubtedly be far-reaching. The plight of licensees impacted by the outbreak’s impact on the sports, events and entertainment industries is just one example of the domino effect of the ongoing global pandemic.

To find out more about license agreement liability insurance contact CFC’s Media & entertainment team, or read our product brochure.