COVID-19 Refund Policies for Season Tickets, Season Passes, and Annual Festivals

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With all sports and live entertainment “postponed” or canceled since Rudy Gobert’s March 13th trip to that Oklahoma City hospital, and every concert and festival suffering the same fate by government order, refunds have become top of mind for consumers who have paid for tickets and passes in advance. Not surprisingly, consumer plaintiff attorneys have wasted no time in filing class action suits nationwide, with California being a hot bed for obvious (Business and Professions Code Section 17200) reasons.[1]

The onslaught of class actions already filed—even as each organization grapples with if/how/when it will even be able to hold future events in a safe and commercially practical way—provides yet another variable for these organizations to consider when adhering to, abdicating, or modifying their refund policies in light of COVID-19. And due to the financial crisis resulting from the pandemic, the consumer’s need for immediate re-payment of money rather than future credit complicates things.

Below the surface though, what also complicates things for organizations are issues like the typical use of paid-in-advance revenue, and the over-arching desire to maintain some form of connectivity to the consumer. And this is before getting into the different contractual relationships between the ticket purchasing platforms and the organizations—some of which can differ even for the same event, and some of which can direct the revenue solely to one party, resulting in the need for the other party to be refunded itself before it can then provide a refund to the consumer.    

This article will provide an overview of how sports teams, entertainment festivals, and ticket brokers have been dealing with refund policies before and during the pandemic, and in turn how plaintiff attorneys have been responding with suits filed against the likes of Major League Baseball, South by Southwest, and most every major ticket broker that works with these established organizations. The different environmental and business factors outlined above will also be discussed, perhaps painting a more nuanced picture for the consumer about the predicaments facing their favorite past time.

Pre-COVID-19: The business behind advanced payments and ticket refunds

At some point in most everyone’s life, we’ve all paid in advance for a form of sport or entertainment—whether it be season (or individual game) tickets for a sporting event or passes for an annual festival. Of course, many consumers (perhaps unconsciously) imagine this money to all be placed in a "lock box," where it is only used by the organization after the event or specified time period has taken place.

In reality, this is not how cash flow typically works for these types of organizations, who must put this revenue to immediate use in some form or fashion so it doesn’t just collect dust in a virtual lock box. Whether it be a professional sports team using the advanced season ticket revenue to pay off debt or perform arena improvements or it be a music festival using the advanced revenue for necessary nonrefundable deposits, materials and staff prior to the event, the end result is the same—the advanced revenues are most always being used right away. As such, any refunds will necessarily come from other areas of an organization’s balance sheet—with some organizations in a better financial better position to provide refunds than others.

But aside from this practical reality, all such organizations also value advance payment for the simple reason that it provides some connectivity between the customer and the organization—which is perhaps the most important goal in many internal ticket offices. Whether that is a club or gym member that stays connected despite not accessing the facility for many months, or it’s a season ticket holder who stays connected because his playoff deposit for a non-playoff team is credited to the following season’s tickets, some connectivity to the customer is always preferable to no connectivity—and if the organization has the consumer’s money, there will always be a connection.

For these reasons, under normal non-pandemic circumstances, most sports and entertainment organizations have a policy (either written or internally suggested) that if an event is postponed or canceled, the consumer has the option to pick another event to attend that same season, and if that option is unavailed, the consumer will then be given the right to pick an event the following season. Only if that option is not availed, will some organizations then provide a full refund.

That being said, while connectivity is preferred, customer satisfaction that fosters brand loyalty is the ultimate goal. More established brands can therefore sometimes afford to be more restrictive in their refund policies, while less established (or newer) brands are usually more flexible with full refund policies so as to foster and grow brand loyalty. But in every situation, financial realities often end up dictating the decisions—and never has that been more true than now, in light of COVID-19.

Thus, many (if not most) organizations have found it necessary to modify or suspend their refund policies in light of cancellations or postponements. Some may have the financial luxury to modify the policy for immediate refunded payment to the consumer, while others may have more difficult financial realities that necessitate future credits (or even bankruptcy) as the only viable option.

Adding a variable to the equation are the ticket brokers and other ticket selling platforms, some of whom are the official ticketing platforms of various leagues and events, and some of whom have individual agreements with each team or each event. Given that these platforms essentially act as “middle men” between the consumer and various organizations, it stands to reason that most ticket brokers pre-pandemic policies were to provide a full refund for any event that was canceled, but retain the money when the event is postponed to a later date.

However, just because a ticket broker wants to provide a full refund in light of the pandemic, doesn’t mean it can or will be able to. Due to the nature of many of the individualized contracts with teams and events, some contracts provide for the team or event to collect all of the revenue directly, such that the ticket broker would need to be provided with the “advanced funds” so as to then provide the refund to the consumer. Of course, this is not always the case, but it highlights the fact that the issuance of refunds are not cut-and-dried decisions for these organizations, who also now face legal consequences along with the business considerations outlined above.

Class actions and other litigation against sports leagues, teams, and ticket brokers

Perhaps the most-high profile example of class action litigation in light of the pandemic in the sports context has come in the suit filed against Major League Baseball and its major ticketing broker partners. The suit, which was filed on April 20th in California despite both named Plaintiffs being New York residents, alleges in its most basic form that the failure to provide refunds violated California’s consumer protection and unlawful business practice statutes, along with the usual breach of contract and unjust enrichment counts, since the sporting events paid-for will not be taking place.

Plaintiffs allege that MLB and its ticket broker partners had refused refunds to-date because the games have continued to be classified as “postponed”, when in fact each party knows (or should know) that the games will not be played in front of fans for the foreseeable future, thus the games should in effect be deemed “canceled.” As a result, Plaintiff alleged that the failure to issue a refund while knowing the games are effectively canceled constituted a civil conspiracy among all defendants, and served to provide the Defendants with an interest-free loan to sit on and use the consumers’ money that should be refunded. 

At the time of the filing of the lawsuit, MLB had informed the teams that it should hold off on providing any refunds at the current time while all options were being evaluated. But, this past week, as further discussions among MLB and all major professional sports continued regarding various proposals to play in various cities with or without fans, MLB provided some additional guidance to each of its teams, allowing each team to decide individually if/when refunds should be provided to their ticket holders.

However, even in light of this recent edict, class counsel for Plaintiffs in the underlying law suit reiterated its intent to keep the action alive until all of the teams provide full monetary refunds and all ancillary costs. And as alluded to above, the presence of California’s Business and Professions Code section 17200 (unlawful and unfair business practices) provides a vehicle for consumer plaintiff attorneys to attempt to recover attorneys’ fees for violations that would not be available in most other states.

As such, this MLB case highlights how organizations can expect class action litigation even in the face of measured evaluation and/or corrective action—and most organizations can expect this litigation to be filed in California whenever possible, since the requested relief may include attorneys’ fees. 

This is all similarly concerning for the NBA, who is still grappling to this day about if/how/when it can resume the rest of its current season, with CNBC reporting last Thursday players, agents and teams are pushing for the current season to be canceled outright, while LeBron James and other team management personnel refuted those reports and continued to discuss options for a quarantined playoff tournament in Las Vegas or Florida. The NFL, meanwhile, has the “luxury” of waiting a few more months before confronting these difficult refunding decisions, since the start of the season does not begin until the fall, with the league set to release its schedule full steam ahead on May 7th.

Unfortunately, that luxury was not afforded to the upstart spring professional football league recently launched, which was forced to cease all of its operations and declare bankruptcy in light of the COVID-19 pandemic. Prior to the pandemic, new leagues such as this employed fan-friendly and flexible refund policies, quicker to provide a full refund to new fans so as to help foster and create the aforementioned brand loyalty. When the pandemic initially canceled only the remainder of the 2020 season, fans were offered the option of a full refund, or a credit for the games in the 2021 season. But, two days before declaring bankruptcy, the league asked its league owned-teams to change that policy to a full monetary refund for all ticket holders, without the option for a future credit.

There have been various media reports surmising the reason behind this move, with some pointing out that the league’s owner may not have wanted to damage the goodwill and the brand loyalty of the customers for his other (larger) sports and entertainment enterprise. Perhaps for that reason, counsel for the debtor in bankruptcy court immediately requested to pay $3.5 million of the $5 million available funds to refund the ticket holders who opted to roll over their payments—with the bankruptcy judge initially denying the request, but calling it a “laudable goal.”  

With the other business interests, and the availability of substantial funds, those ticket holders seem to have their interests at least represented—but that won’t always be the case. Without such a compelling interest to keep customers content, the efforts to provide full refunds to everybody (even through the bankruptcy proceedings) may not be as full throated as they are now. This situation underscores how the financial fragility of other organizations may require future credits, or even result in bankruptcy, where the control is taken out of the organization’s hands, and put into the hands of a court or a bankruptcy trustee.

Class actions and other litigation against festivals, concerts, and conferences

These financial and business considerations are also playing out in different ways in the festival and concert space, where different organizations have responded to the cancellation of their events and refunds in a variety of ways, largely depending on their situations.

On one end of the spectrum is Coachella, the well-established and hugely popular Palm Springs festival, who has provided ticketholders with the opportunity to obtain a full refund redeemable until June 1, 2020. Another approach has been taken by South by Southwest (SXSW), the annual Austin-based event which features film, interactive media, live music, and conferences, who has offered to allow ticket holders to use their festival credentials to gain admission to one of the next three festivals, plus a discount on another future year’s event—this despite there being a “no refund” policy in the contract with each passholder, and despite SXSW being in “dire financial condition” as a result of the pandemic, according to their organizers.

For the organizers of the annual electronic dance music festival Lightning in a Bottle, they informed all of their passholders that they were “a small family business”, and further that all of the money brought in for the festival was already paid out on nonrefundable deposits, building materials, and staff. As such, the organizers stated that no refunds would be given, but provided a “promise” to make the 2020 ticketholders “whole” in the coming years for future festivals, without any further specificity.

Somewhat predictably, of the three examples provided, only Coachella (who has offered a full refund for a limited time) has thus far avoided a class action lawsuit being filed against it—though that story may have another chapter once the time limit for the full refund expires.

In the case of both SXSW and Lightning in a Bottle, consumer plaintiff attorneys have brought class action suits for breach of contract and unjust enrichment, arguing that in the time of financial crisis, consumers need their money back instead of future credits.[2] In fact, class counsel for Plaintiff in the Lightning in a Bottle case told Law360 that she believes the organizers "are laying the groundwork to dissolve and/or reinvent ... as a separate entity so as to avoid all obligations ... abscond with monies belonging to the class."

With bankruptcy a seemingly legitimate threat for many similar organizers, arguments such as this highlight yet another area of potential concern for organizations weighing these decisions, and for consumers looking to put themselves in the best position to negotiate for consideration, or adequately set their expectations.

As organizations look to avoid these class action suits, they will first look to any class action waivers in the ticketing or season ticketing contract with the consumer, and then look to any arbitration agreements that may be found within the contract. Of course, this is not the end of the discussion, since class action waivers and arbitration provisions in the State of California are often challenged on various grounds. In attempting to invalidate these agreements, Plaintiffs will typically argue that such a provision cannot be enforceable if it waives an unwaivable public or statutory right, or whether it deals with a waiveable private right. Going further, Plaintiffs typically argue unconscionability, with the argument for consumers being “procedural unconscionability” based on the ticketing contract being a one-sided contract of adhesion made by one party with superior bargaining power. In response, organizations can sometimes point to the variety of different platforms and avenues to obtain tickets and passes, along with the variety of different types of ticketing passes offered to show that the consumer had many different options when making its decision to enter into the contract and the clear and conspicuous language of the terms.

Assuming a class action waiver or arbitration agreement does not carry the day, as organizations look to defend these class action suits, one can expect force majeure (or its common law principles of impossibility and/or frustration of purpose) to be one of the defenses du jour. While it may be more difficult for larger market teams and sports leagues to argue that it is impossible or commercially impractical for them to provide full monetary refunds (due to the large revenues and television contracts known to all), the impossibility argument may have more legs when being made by smaller market teams, or entertainment events that have legitimately expended all of the advanced revenue on non-refundable preparations for the event.

However, in this political and legal climate, with lawmakers calling for businesses to bear the losses stemming from COVID-19 rather than consumers, these legal principles of equity may have a tough time winning the day for organizations looking to force majeure to excuse a potential repayment obligation. In this respect, however, the California forum shopping from plaintiffs could work the other way, as California law allows for a more expansive reading of force majeure provisions than most other jurisdictions—and has also shown in the past to provide for common law relief based on force majeure principles.

Further analysis and information on force majeure amid the COVID-19 pandemic can be found in the various Legal Updates from Seyfarth in the footnote below.[3]

Looking ahead post-COVID-19

The merits and chances of ultimate success for these COVID-19-related class action lawsuits are somewhat unknown, much like the entire sports and entertainment landscape, and much of the legal landscape when it comes to many of these equitable and contractual principles which will be applied this novel pandemic.

But going forward, while teams and events deal with balancing business interests with the threat of active (and often times inevitable) litigation, the traditional uses of cash flow may need to be revisited in light of pandemics like this now being reasonably foreseeable. These organizations may be wise to think about retaining more of the revenue taken in advance, almost as self-insurance against the effects of massive industry-wide shut downs and limitations on social gatherings. Further, businesses need to shore up their contract provisions including arbitration provisions, class actions waivers, updated force majeure provisions, limitation of remedies, and other contractual defense provisions.

Meanwhile, from the consumer side, a recognition that certain organizations may not have the ability to provide full refunds while other organizations may be super-incentivized to provide significant future credit, may not only help deal with the emotional frustration of it all, but may also provide opportunities to “negotiate” for extra consideration for future events or at the very least carefully looking at the fine print before selecting “purchase.”

What those future events will look like, and when, is still a subject of great debate and speculation. But as most reasonable people can agree ... some entertainment is better than none.

 

[1] The class action activity has not been limited to sports and entertainment either, with suits against many ski mountains, theme parks and gyms that have monthly or annual membership access that has been halted. See Radford v. Town Sports International Holdings, Inc. (S.D. N.Y. 4/9/20) (alleging breach of contract under NY law related to gym memberships despite closures); Ruiz v. Magic Mountain LLC (C.D. Cal. 4/13/20) (alleging violation of California law for closing an amusement park but collecting membership fees despite closures). Look for further information to come on this on the Seyfarth Class Action Defense blog.

[2] See Nesis et al. v. Do Lab, Inc., (C.D. Cal, 4/14/20); see also Bromley et al. v. SXSW LLC et al., (W.D. Tex, 4/27/20).

[3] COVID-19 Update: Force Majeure Under California Law in Business and Commercial Disputes
Coronavirus Pandemic: My Construction Agreement Has a Force Majeure Clause, So Now What?
Managing Project Risk Associated with the Coronavirus Outbreak Through Force Majeure Provisions
Reemergence of Doctrine of Temporary Impracticality or Frustration Under Section 269 of the Restatement of Contracts in the Wake of COVID-19