Caf-Lagardère dispute throws market into confusion, agency mulls legal options

Thulani Hlatshwayo and Lars Veldwijk of South Africa celebrate after the African Cup of Nations, Last 16 match between Egypt and South Africa at Cairo International Stadium on July 06, 2019 in Cairo, Egypt. (Ahmed Hasan/Gallo Images)

  • Pay-TV SuperSport blacks out Caf events as contract dispute escalates
  • Loss of rights will hit Lagardère Sports valuation of in-sale talks
  • 12-year deal, with eight-year option for Lagardère, required no upfront bank guarantees

Broadcasters and sponsors of Confederation of African Football properties have been thrown into confusion by the dispute between the governing body and its global sales agency Lagardère Sports.

The two parties are locked in a bitter dispute about the $1bn (€890m), 12-year minimum guarantee deal for Caf’s global media and marketing rights, which was signed in 2015 and covers the period 2017 to 2028. Caf has cancelled the contract following multiple regulatory rulings in Africa, but Lagardère is contesting the body’s right to terminate.

The confederation – the governing body for African football – is telling partners that all rights fees should be paid directly to its accounts. Lagardère is telling broadcasters and sponsors to continue to make payments directly to the agency, as has been the case throughout the lifetime of the contract.

One rights-holding broadcaster told SportBusiness Media this week: “We have Caf saying they’ve terminated the agreement with Lagardère and we must deal with them. Lagardère tell us that termination is not valid, and we must deal with them. We’re the ham in the sandwich. We’re in the crossfire. It really is chaos.”

The broadcasters most affected by the dispute are those that hold rights in Africa. Last week, pan-African pay-television operator SuperSport stopped all broadcasts of matches covered by the contract.

Joe Heshu, the group executive for corporate affairs for the broadcaster’s parent company MultiChoice, told local media that SuperSport could not broadcast Caf games as it no longer had a contract.

“We are in a difficult position where we cannot broadcast the Caf games when we don’t have a firm contractual arrangement in place. SuperSport previously acquired these broadcast rights from Lagardère,” Heshu said.

The blackout began during the weekend of November 9-10, with the U23 African Cup of Nations in Egypt. It has also hit the 2021 Afcon qualifiers which started on Wednesday. SAFA streamed Thursday’s match between Ghana and South Africa on its Facebook page.

SuperSport paid $130m for the rights in an eight-year contract with Lagardère, from 2017 to 2024. It also has a separate contract with the agency to act as host broadcaster for certain competitions.

Legal battle looms

Caf’s position is that it has no choice but to terminate the contract. It claims interventions by African regulators have effectively made the agreement null and void, despite the contract being governed by Swiss law.

These interventions include a ruling by the Egyptian Competition Authority (ECA) and an investigation – which is still awaiting a final decision – by regional trade body Comesa, the Common Market for Eastern and Southern Africa. Both object to the length of the deal, the inclusion of an option to renew, and the lack of a formal tender process.

One competition lawyer, who agrees with Caf’s position, explained why the governing body has a case: “Competition law is effects-based so it doesn’t matter whether the contract says that’s it subject to Swiss law. If the contract produces economic impact in Egypt or the wider African region, which it does, then it has to respect the applicable competition law regimes.

“There was no question of the court in Egypt not having jurisdiction or competence to examine the matter under local competition law, just as there is also no question that Comesa has competence to investigate the matter as well, and to consider the contract as null and void if it violates competition law rules.

“In fact, there might even be a question mark about this contract under EU competition law as well. It’s a very long deal, covers a huge amount of content, and it also has an impact on the EU economic space.”

However, the regulatory interventions only have validity for the markets in which the regulators have jurisdiction, which would amount to 19 African countries should Comesa also eventually rule the contract to be in breach of competition law. It excludes major markets like South Africa, most countries in the Middle East and North Africa region and the rest of the world.

Even if the regulatory rulings invalidate clauses of the contract in those markets, it is questionable that they can nullify the entire contract. The 70-page long-form contract between the two parties – which has been seen by SportBusiness Media – does not appear to allow for the kind of termination Caf has announced.

A clause in the deal says that if any part of the deal is ruled to be unenforceable for legal reasons, the remaining provisions will remain intact. The parties are required to seek to replace the offending provision with a “valid and enforceable” substitute provision.

Further, in any dispute, including a proposed termination, both parties are bound by the contract to seek binding arbitration at the International Chamber of Commerce in Geneva, Switzerland.

A Swiss contract lawyer told SportBusiness Media that if one of the two parties refused to do so, the court could still rule and impose fines or award compensation in its absence. Another possible outcome, he said, was that the ICC could rule that Caf must honour the contract.

The matter looks likely to be settled out of court in three-way discussions between Fifa, Caf and Lagardère. Informed sources say that neither side wants the matter to be aired in court because that could shine a light on aspects of the sales process which would not reflect well on either Caf or Lagardère.

The InsideWorldFootball website reported that a meeting took place in Milan on October 3 to discuss the terms of any termination. It said the meeting was attended by Caf’s secretary-general Mouad Hadji and director of marketing Abdel Bah; Fifa lawyer Mario Gallavotti; Idriss Akki, president of the Lagardère Sports Africa division and signatory to the contract; and Ugo Valensi, the agency’s chief executive.

Fifa is deeply involved in the process, as it is in the wider governance of African football as part of the protocol of agreement with Caf signed in July. The protocol was agreed after Caf president Ahmad Ahmad came under investigation from Fifa’s ethics committee and French police. Those close to the matter believe that Fifa is at least supportive of Caf’s position on the cancellation and may be even driving the strategy.

For some observers, the numbers which Arnaud Lagardère, the group’s general and managing partner, quoted in an analyst call on November 7 effectively set out the price Caf/Fifa would have to pay to buy the agency out of its contract and, by extension, the amount Lagadère would be looking for in damages at the ICC. This includes €90m of lost profits and the €160m to €170m that was wiped off the parent company’s stock market value in the days after Caf announced the cancellation on November 5.

The Swiss lawyer said that it would be difficult for Lagardère to claim damages for depreciation in the value of its stock because the parent company was not a signatory to the deal.

The contract is between Caf and “Lagardère Sports (formerly called Sportfive)” and was signed “in the presence of Lagardère Sports and Entertainment, (formerly called Lagardère Unlimited)”.

The contract says Lagardère Sports and Entertainment is participating “in order to guarantee Caf the satisfactory performance by Lagardère Sports of its obligations relating to the minimum guarantee”.

For both Lagardère Sports and Lagardère Sports and Entertainment the signatory is Idriss Akki, the president of Lagardère Sports’s African division, who is identified as “director general, attorney-in-fact”.

LSE, which is providing a ‘parent company guarantee’ for LS, is one of four business divisions which make up Lagardère. The group’s overall parent company is not a signatory to the deal.

“The damage to share value is more difficult to argue because it is indirect for the parent company,” the lawyer said. “Caf has no contractual relationship with the parent company. It is the holding company which has that damage – not the daughter company, the contractual party – so I think it would be difficult to argue that under Swiss law.”

Who will take over the rights?

There appear to be two broad options for Caf. The first is to put the contract back on the market in an open and transparent tender process. The second is to use an in-house team, either its own or that of Fifa, to sell the rights. Fifa has already taken over the sale of rights for all African qualifier matches for the World Cups of 2022 and 2026. World football’s governing body has the in-house resources and there would be a logic in selling both lots of rights in the same negotiations.

Theoretically, there is a third option, but it would be a highly controversial choice. Caf could simply sell the rights to an agency of its choice. But given Caf’s justification for pulling out of the deal – that regulators have attacked the lack of a formal tender process in the original sales process – this would arguably undermine Caf’s credibility. As one senior competition lawyer put it this week: “It would be unwise not to follow a path of transparency and fair competition at this moment in time.”

The Infront agency is widely considered to be interested in the rights if they come to market. It bid aggressively when they were up for sale last time before missing out to Lagardère. To date, however, there has been no contact between Infront and Caf on the matter, according to one well-placed insider.

The question for any interested agency is how much value is left in the deal and whether it would be paid the commissions that had been due to Lagardère for the deals the agency has already concluded. Virtually all media rights and sponsorship inventory through to 2024 has already been sold. Some rights have been sold through to 2028. The biggest single media rights deal done so far is with pay-television operator beIN Media Group for the rights in the Mena region. The 12-year deal, from 2017 to 2028, is worth a total of $400m.

Additionally, Caf has already stripped the free-to-air rights to the competitions out of the contract in a renegotiation with Lagardère which took place in April. It sold the rights for the period 2019 to 2022 to the African Union of Broadcasters consortium for minimum guarantee of $44m. Infront also bid for the rights, offering a minimum guarantee of $21m but projecting $50m in sales, with revenue split 71:29 in favour of Caf.

If broadcasters follow SuperSport’s lead in claiming the existing contract is now invalid, they would almost certainly be doing so in the hope of driving down the value of the rights in any new negotiation, local experts say. However, this is yet to happen. SuperSport is understood to believe its position is different to that of other broadcasters as its contract is with Lagardère, not with Caf.

Whether the rights are sold by an agency or by Fifa/Caf, the unsold inventory would have to bring in more than its pro-rata value in the current contract for Caf’s cancellation to make commercial sense. The seller would be faced with the challenge of securing higher fees than those Lagardère has been able to secure.

One local television executive told SportBusiness Media: “I read that Fifa was saying they could double what Caf are generating for their rights. I’d love to see that happen because who is going to pay that money? Most of the fees emanate from Africa. Are African broadcasters going to pay double? Can Fifa do far better [than Lagardère]? I don’t think they can.”

Good deal for Caf or for Lagardère?

Many local experts believe that the reason Caf wants to get out of the deal is because it is a poor one for African football. Caf and Fifa believe the rights are worth much more and that the value of the contract is low due to the lack of competition in the original sales process.

This is open to question. Even though Caf did not hold a formal process, it did receive rival bids to Lagardère’s. Infront’s strong interest in the rights pushed up the price. At one stage, Infront was heavily outbidding Lagardère, forcing the French company to up its bid considerably.

The Caf-Lagardère contract is a commission-based agency deal with a minimum income guarantee, as has been widely reported. However, the long-form contract contains information which has never been made public. Several aspects of the deal do appear to be favourable to the agency.

The deal contains an option for renewal for a further eight years, from 2029 to 2036, which is weighted in favour of the agency. It says that should Caf decide to appoint an agency for its rights after the current contract, Lagardère will benefit from “a first right of refusal, regardless of the form of allocation of the said rights which may be proposed by Caf”. The option is only valid if the agency has met all its existing contractual obligations. The option excludes any rights which are currently carved out and handled directly by Caf.

The governing body committed to confirming the contract conditions upon which the option would be based by December 31, 2026. If the two sides were unable to find an agreement on the terms of the extension within a year of negotiation – up to December 31, 2027 – Caf would be “entitled to offer the Caf proposal to any third party of its choice, provided that Caf shall not appoint said party on terms and conditions which are more favourable to such third party than those previously submitted to Lagardère Sports”.

The contract says that the agency “guarantees to Caf a minimum guarantee of revenues received equal to one billion US dollars”. But Lagardère did not have to pay an upfront fee underwritten by a bank or parent company guarantee.

It pays Caf for revenues collected from licensees according to a schedule that differs for each competition. For the Afcon, for example, rights-holders have to pay Lagardère 25 per cent of the total rights fee six months before the competition begins, a further 25 per cent three months before, a further 25 per cent on the first day of the competition and the remaining 25 per cent no later than one month after the competition has ended. This income is passed on to Caf using the same schedule.

Caf set an income threshold for each competition. If the agency brings in less than that amount, it must pay Caf the difference. If it hits the threshold exactly, it receives no commission. Above the threshold, the agency keeps the first 25 per cent of income received. Above that level, revenues are split 70:30 in Caf’s favour.

In practice, Lagardère usually sells the rights to all Caf competitions as a single bundle – one of the Egyptian Competition Authority’s concerns about the deal – and does not require the broadcaster to specify an amount for each competition. The agency decides how much to allot to each when passing on payment to Caf.

Arnaud Lagardère said the deal would have provided earnings before income tax of €10m per year from 2020 to 2028. This would amount to overall profit on the deal for the agency of €120m, assuming a similar level of profit for the whole 12-year term.

Clouds over agency sale

The loss of the Caf deal could seriously impair Lagardère’s chances of getting a good price for its Lagardère Sports division, which it has been trying to sell for two years. The loss – if confirmed – follows the loss last year of the lucrative contract for rights to Asian football with the Asian Football Confederation.

As one former Lagardère executive told SportBusiness Media: “There were three reasons for buying Lagardère Sports: the AFC deal, the Caf deal, and the football club marketing business. Two of those are now gone.”

Lagardère’s original asking price for its Sports division was about €500m. Industry experts believe that the best-case scenario now would be €150m to €200m. After two interested parties, the Mediapro and Wasserman agencies, backed away – the latter at an asking price of €250m – the company is now thought to be talking exclusively to private equity houses.

Lagardère Sports was put together by a series of mergers and acquisitions which cost its parent company over €1.3bn.

Another former Lagardère executive told SportBusiness Media the biggest mistake Arnaud Lagardère made was not “going to war” with Uefa over the centralisation of the rights to national team qualifier matches for the Fifa World Cup and the Euros which took effect in 2014.

Buying and selling federation media rights had been the bedrock of the business of the Sportfive agency, the biggest single division of Lagardère Sports. The centralisation process also hit other agencies, effectively putting Swiss-based Kentaro out of business.

“That ripped the heart out of the Sportfive media business”, the executive said. “The company was never the same again. Kentaro went to war with Uefa and they got a big compensation pay-out.”

Lagardère also failed to lock two of its most senior executives – Olivier Guiguet and Stéphane Schindler – into effective non-compete agreements. The pair, who left to set up the CAA Eleven agency, ended up landing the deal to sell the national-team rights on behalf of Uefa.

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