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

28.11.2018

Abstract: Extreme sports and extreme sports sponsoring have become key features of the modern entertainment and sports industry. This article attempts to investigate fundamental issues of the law and economics of extreme sports sponsoring from a comparative perspective. 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 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.

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