Video: Setting Up Dates with Death? The Law and Economics of Extreme Sports Sponsoring in a Comparative Perspective

Extreme sports and extreme sports sponsoring have become key features of the modern entertainment and sports industry. Decades ago, individuals practicing extremely hazardous (fringe) sports were usually considered to be somewhat awkward or even weird borderline characters by the few who knew them. Today, many extreme sports athletes are media heroes and enjoy a celebrity status similar to that of pop music stars. Extreme sports are exciting and enriching for the athletes, demonstrate to all of us what humans can do, and they help make ‘normal’ sports safer.

However, this is only one side of the story. The majority of sponsored athletes struggle to make a living from the meagre pay they get from sponsors. Many young athletes take extreme risks to catch sponsors’ attention and, hopefully, a sponsoring contract. Many die or severely injure themselves while practicing their favorite sport.

So, are extreme sports sponsors ‘setting up dates with death’? In order to answer this (provocative) question, I investigate fundamental issues of the law and economics of extreme sports sponsoring from a comparative perspective in a recent article. Extreme sports as defined in this article involve high risks: death of athletes occurs with a nontrivial probability so that athletes normally and consciously contemplate the possibility of death when practicing their (extreme) sport.

The extreme sports sponsoring market is secretive. To better understand what is going on, a set of 40 interviews were conducted with sponsored athletes between June and September 2018. These interviews provide an up-to-date and, to the best of my knowledge, unique account of contract practice regarding extreme sports sponsoring worldwide.

The main findings of the article can be summarized as follows: First, extreme sports sponsoring contracts are currently clearly unbalanced. Risks and rewards are unbundled—while the athletes bear almost all the risks, the sponsor firms reap almost all of the rewards. This does not necessarily imply that the current contracting practice is inefficient. Unequal bargaining power and strong non-monetary incentives of athletes may account for an uneven distribution of the monetary cooperative surplus. But the available evidence suggests that the current practice incentivizes athletes to take inefficient risks, and, based on athletes’ preferences, there are ways to significantly increase the cooperative surplus compared to the status quo. In particular, firms could arrange for comprehensive health, disability and life insurance for the benefit of athletes and their families—at little costs to firms and with a significant positive effect on athletes’ welfare. Firms could establish systematic counselling, coaching and training programs for athletes, and they could move away from bonus-based compensation schemes.

Second, sponsor firms face higher duties of care vis-à-vis young and/or inexperienced athletes. These athletes, in particular, are prone to ‘inefficient risk-taking’. Depending on the factual circumstances of the individual case, these duties may include enhanced counselling, coaching and safety training, as already mentioned. They may also require firms to refrain from subjecting young or inexperienced athletes to extremely high-powered financial incentives (bonus schemes) that encourage inappropriate risk-taking.

Third, sponsors also face higher duties of care if they are involved in or influence the organization of extreme sports events or control the premises/facilities on which such events take place.

Fourth, currently, sponsored athletes are treated by sponsors as independent contractors. Depending on the facts of each individual case and the applicable legal standard to delineate independent contractors from employees, this may or may not be correct. This article suggests that courts should give more weight to economic (in)dependency as a relevant standard in addition to control exercised by sponsor firms when assessing whether a sponsored athlete is an employee. Further, even if an athlete cannot be characterized as an employee of a particular sponsor, the level of control exercised by that sponsor and the athlete’s economic dependency on him or her are factors that should weigh in on the sponsor’s duties of care under contract and/or tort law, creating a more finely tuned regulatory system than the dichotomy of independent contractor and employee suggests.

As already mentioned, extreme sports as defined in this article involve high risks: death of athletes occurs with a nontrivial probability. Based on this definition, sports like football, soccer, ‘regular’ mountaineering or running would not count as extreme sports. However, the endorsement contracts with individual athletes have a similar structure to the one discussed in this article for extreme sports, and athletes’ and sponsors’ interests are also similar. Hence, even though the stakes (risks) are lower, one might be able to identify comparable ways to improve the current contracting practice as those discussed in this article.

Finally, the discussion on the dark side of extreme sports sponsoring contracts have only just begun. It would facilitate an informed debate on the merits of the current contracting practice and potential improvements if sponsors were less secretive about this practice. Certain reforms are desirable and, indeed, necessary—for the benefit of athletes, sponsors, and society at large. Sponsors should take a proactive attitude towards such reforms and lead the debate as opposed to concealing important facts and figures. Developing a culture of professional risk assessment and risk management requires transparency as a first important step.

Horst Eidenmüller is the Freshfields Professor of Commercial Law at the University of Oxford.