24 hours after Cristiano Ronaldo signed for Juventus this summer, over half a million jerseys with his name on were sold. The sales generated a staggering £48m for the club– almost half of what it paid for the Portuguese star.
Over 1,000 miles away in Glasgow, Rangers Football Club had also made a significant signings. It’d hired Steven Gerrard as its new first team manager and agreed for Hummel to produce their kit. With pre-season looming, merchandising income was a fundamental part of the club’s business: putting a new replica kit on the market was key. But, Rangers’ recent dispute with Sports Direct stopped it from doing exactly that.
In June 2017, Rangers granted Sports Direct a license to distribute its replica kit in circa 900 stores.
The agreement contained a provision, allowing Rangers to switch distributors provided that it first gave Sports Direct notice of the third-party offer and an opportunity to match it. The Agreement set out precisely what information Rangers had to supply to Sports Direct in the event it received a third party offer, including the overall value of the deal, the revenue share it would receive, and the duration of the agreement. If the third party offer related to all (or any combination of) the rights granted to Sports Direct, Rangers had to ensure that this was detailed separately.
Rangers subsequently wrote to Sports Direct, advising it that it had received a third party offer for all of the rights. Sports Direct argued that the notice wasn’t compliant as it didn’t give sufficient detail on the offer. Rangers ignored the complaint and advised that it would be entering into an agreement with the third party.
Sports Direct applied to the High Court for an urgent interim injunction. It claimed that Rangers was about to breach the agreement as it hadn’t provided the requisite notice. Rangers argued that, because the third party made an offer for all of the rights, no breakdown was required.
Mr Justice Bryan considered the arguments on both sides and decided to grant an injunction on the basis that damages were not an adequate remedy for Sports Direct for a number of reasons: 1) it was difficult to quantify them as merchandise sales were closely linked with the club’s performance and renewals. In contrast, Mr Bryan believed that Rangers could be adequately compensated by damages. Being unable to put a replica kit on the market may temporarily harm Rangers’ revenue, but the third party was still willing, and there was no suggestion that it intended to walk away if an interim injunction was imposed.
Mr Bryan also believed that in order for Sports Direct to identify whether it wanted to match the third-party offer, it would, arguably, need a breakdown.
In a surprising turn of events, when they got to the High Court, Sports Direct and Rangers stated that they’d settled their dispute and renewed their license agreement. The Court still ordered Rangers to pay Sports Direct’s costs, along with its own costs – a staggering £500,000.
Mr Justice Phillips – the High Court judge who authorised the settlement – remarked that Mike Ashley, the former Rangers shareholder and owner of Sports Direct, should “try and make peace” with Rangers moving forward.
It’s not unusual for large sportswear or clothing retailers like Sports Direct to insert a matching right provision into distribution agreements. After all, the professional football market is estimated as being worth over £21bn – and retailers are keen to take a slice of the profits.
This dispute highlights the importance of complying with licensing and retail distribution agreements at all times, no matter the personal feelings involved.
The dispute between Rangers and Sports Direct has been a drawn-out process, stemming from anger from the fanbase – who, on learning that the club received about 7p for every £1 spent on a product – staged a widespread merchandise boycott. Mr Justice Phillips criticised this when approving the settlement terms.
By attempting to terminate the agreement without following due process, Rangers has arguably missed out on an opportunity to capitalise on the pre-season excitement within its fanbase. It’s been hit with an eye-watering legal bill to boot, which is sure to deter any other sports clubs from breaking license agreements with large retailers in the future.