“Brands within sport and entertainment have heightened litigation vulnerabilities”

Stephen Townley, Special Counsel, Sports & Entertainment, Stobbs IAM, International Neutral JAMS London and New York enlists the emerging litigation risks sport and entertainment brands face.

Risk 1: Environmental, social and governance risks (ESG)

ESG, according to the Corporate Finance Institute, helps stakeholders understand how an organisation is managing risks and opportunities related to environmental, social and governance. This description covers a range of topics in both sport and entertainment, including reputation.

My favourite quote of all time on reputation is that of Abraham Lincoln, who said: “Character is like a tree, and reputation is like a shadow. The shadow is what you think of it; the tree is the real thing.”

Brands within sport and entertainment have heightened litigation vulnerabilities, particularly from reputational issues. They drive curiosity, debate and public opinion. Reputations underpin brand value. With success, sport and entertainment personalities become influencers. Which brand a successful sportsman or entertainer wears, uses or endorses, either in or out of competition or performance, will influence the behaviour of others. This includes purchasing decisions. High-level influencers can then monetise this role.

Taking Abraham Lincoln’s idea of a reputation being akin to a shadow, the size of the shadow can change between sunrise and sunset and occasionally may disappear when the sun goes behind a cloud.

“Character is like a tree, and reputation is like a shadow. The shadow is what you think of it; the tree is the real thing.”

A very recent event illustrates how brand values can be impacted in the blink of an eye, or in this case by a kiss on the lips. This kiss overshadowed the victory of Spain’s Women’s World Cup team against England in the final in Australia in August 2023. The incident no doubt damaged some reputations, yet might have improved others who responded promptly. The event happened when the president of the Spanish Football Federation, Luis Rubiales, is alleged to have kissed one of Spain’s leading players Jenni Hermoso on the lips without consent during the award presentation.

Public perception of gender reputational issues highlighted by the ‘Me Too’ movement has evolved quite rapidly. Its origin can be traced to Myspace in 2006. However, when Harvey Weinstein was arrested in New York on charges of rape in 2018, the phrase became global news. The allegations against Mr Rubiales hardly warrants fair comparison with Mr Weinstein’s convictions. However, a shadow has been cast because of public attitude towards what is acceptable behaviour of a senior football official. In the entertainment sector, recent days have seen serious allegations against Russell Brand. The response from YouTube has been to take down the feed (and, therefore, the monetisation model) relied upon by Mr Brand, who is reported to have 6 million followers.

Risk 2: Likely increasing challenges to the ownership and exploitation of intangible assets as a result of the evolution of technology including generative AI

Monetisation of sport and entertainment brands has largely relied upon on an exclusivity of access model. Performing a song and streaming  a record are both examples of the creation of an intangible asset.

Such intangible assets may be recognised as intellectual property (IP) and in some circumstances exist as a combination of IP and contracts sometimes known as contract IP. IP can exist, for example, in names, images, likenesses, designs, works, performances, etc. In the sport industry, access might be through a sponsorship or endorsement agreement. Blockchain technology offers innovative new ways to monetise intangible assets through a tradeable instrument known as an NFT or smart contract. In the music industry, securitisation of a back catalogue – innovated, I believe, originally by David Bowie – has remained popular.

The lawyer’s approach to is first to identify property or analogous rights in the point of their origination and then consider their further application at the point of output. This includes  copyright, trademarks, patents, personality rights, unfair competition and goodwill.  Identifying the proprietary basis of the asset is only part of the story. A paintert may own copyright in a painting. If Hockney was the artist, the painting would have an entirely different value. Brand values reflect the value of the reputational shadow. The extent of the shadow will follow from a series of interactions with, for example, media, fans, followers, volunteers, influencers, participants, users, customers, partners, suppliers, staff, investors or shareholders and regulators.

Monetisation of sport and entertainment brands has largely relied upon on an exclusivity of access model.

When casting one’s mind back to original copyright ownership, it seemed straightforward to determine  origination at input and output and establish provenance. For example, in 1953, the Supreme Court of the United States decided that in 1937 Walt Disney broke an agreement when an unauthorised copy of 32 copyrighted images was made. In 2023, the global artist Ed Sheeran was cleared by of a claim that he had breached copyright in Marvin Gay’s song ‘Let’s Get It On’.

AI increases opportunities to conceal and confuse origination and provenance of recognised proprietorship concepts. This is apart from huge practical difficulties in enforcement with jurisdiction shopping and non-alignment of national laws. Most civil law and some common law systems require human input for artists’ copyright to exist. AI technology has transformed the ability to generate  content e scraped from the web and social media, which may involve copyrighted works  to store it in a data-lake and then decide itself without human input how to repurpose the output.

In a recent speech from Lord Justice Birss reported in the Law Society Gazette, he admitted using ChatGPT in writing a paragraph of a judgement. He was clear, however, that he had already made his decision and he was simply using a large language-based system to help put his judgement into words.

Can copyright subsist at the point of input or output of AI-generated content? Possibly. More likely at the point of input! If it does exist, who will own it and do defences such as fair use or data mining exceptions apply? AI has already generated a short film and a rock band. It was apparently used to show Harrison Ford as a young man in the latest Indiana Jones film. Sir Paul McCartney has said recently that it might generate a new Beatles album. Interesting times lie ahead.

The majority of the value in sport events rests in a live performance. This is not the same monetisation model as parts of  the entertainment or creative industries. One current manifestation of the challenges posed by the use of AI is the Hollywood dispute with the Writers Guild of America. The US has a system of registration of copyright, so a lot of early cases are arising in this jurisdiction.

Risk 3: The ‘prune juice effect’ following maturity of business structures and likely future changes in the content ownership model of intangible assets

As money inflows increase, there is a recognised phenomenon in sporting parlance called the ‘prune juice effect’. It was first observed in relation to US pro league athletes. Over time, a greater proportion of the wealth generated from monetising a sports performance and related rights as intangible assets would end up in the hands of the athlete. The magic percentage at the point of maturity in the cycle is 67% of income should flow to the athlete.

The majority of the value in sport events rests in a live performance.

This so-called prune juice phenomenon is an example of athlete power within the sport industry that seeks an increasing share of values generated. This places pressures on organisers of sports events to improve efficiencies in order to maintain margins when the cake gets sliced up. Similar initiatives have arisen in the entertainment sector as performers’ brands have become more valuable than the record labels.

This issue is now moving on as technology applied to the distribution and connectivity of content has provided new opportunities for sports and entertainment personalities to gather communities around themselves and seek to monetise these directly.

I see these changes as challenging parts of the traditional commercial models in sport, particularly with the growth of the brands of individuals through social media. Sanctioning models in sport provides an opportunity to make rules and regulations. Asserting ownership of rights by selecting hosts and agreeing terms for participation is the leverage needed.

Get in touch with Stephen Townley here.