Cancelling the Commonwealth Games - A Setback for Victoria’s Sporting Future?
I. INTRODUCTION
The Victorian Government’s decision in July 2023 to pull out of hosting the 2026 Commonwealth Games was heavily criticised both locally and internationally[1]. Although a settlement agreement was reached by the Victorian Government and the Commonwealth Games Federation[2] a variety of legal and economic issues remain. This essay will explore some of these issues. It will begin by firstly addressing why a settlement agreement was the preferred option in light of the expected damages the Victorian Government would have been expected to pay for breach of contract. It will then consider the legal consequences for other parties connected to the Games with regards to force majeure clauses and frustration of contract. The final part of this essay will examine the impact this decision could have on hosting future events in Victoria, concluding that it is likely that the decision will have little impact on Victoria’s reputation.
II. BREACH OF CONTRACT – WHY A SETTLEMENT WAS NECESSARY FOR THE VICTORIAN GOVERNMENT
It is clear that Victoria deciding against hosting the Commonwealth Games was a breach of an essential term of the contract that it agreed with the Federation as defined in Tramways v Luna Park[3] since neither party would have entered into the contract unless assured that Victoria was hosting the games. Victoria was also engaging in repudiation of the contract signalling its intention to no longer be bound to this essential term of the contract[4]. This all amounts to breach of contract, entitling the Commonwealth Games Federation to damages for this breach.
Since the actual contract between Victoria and the Federation remains confidential, it is unclear how the clauses would govern the resolution of damages. However some general comments can be made. Since the general purposes of damages for breach of contract are to put the party back in the position they would have been had the contract been performed[5] there could be a wide range for the sourcing of damages. When cancellation was considered by the Queensland Government for the 2018 Gold Coast games, advice suggested that damages could include offsetting the cost of finding another host country[6]. Considering the increasing costs of hosting the Commonwealth Games today and considerable lack of interest as evidenced by the lack of bids for 2026 since the cancellation and for the Games’ 100 year anniversary in 2030[7] it would stand to reason that this could be extremely high.
Compensation would also be expected to include the loss of revenue the Games would have brought to the Federation such as in regards to sponsorship agreements, ticket sales and broadcasting rights[8]. 1.5m tickets where sold during the Birmingham games in 2022 alone with global TV viewership of at least 800m[9]. Although it cannot be certain how profitable the 2026 Victorian games would have been, especially considering it was adopting a regional model which could have brought less revenue[10] these statistics from the Birmingham games would likely be considered when awarding damages. It follows then that a compensation arrangement would have been necessary by the Victorian Government, to prevent a damages payment from becoming incredibly expensive, in addition to the payment of legal costs.
III. LEGAL CONSEQUENCES FOR THIRD PARTIES
The cancellation of the games by the Victorian Government would also have follow on effects with other parties who may have made contracts where the games being held in Victoria would have been a consideration. For example, with respect to broadcasting rights, although an Australian broadcast agreement had not been finalised, the fact that the games were set to be hosted in the Australian timezone would have been a significant consideration for broadcasters[11]. The only broadcaster to have been named globally was Sky TV in New Zealand[12], however the fact that they contracted with the Federation in 2019 means that it was unlikely that the location of the Games was a significant consideration for them when they made this deal, so there would be no breaches of express terms that would justify termination.
Legal consequences could also follow from other contracts indirectly relating to the games. Several construction companies were engaged by the Victorian Government for various projects relating to the Games[13]. Although it is unclear whether or not these contracts had been signed, if they had been the Government would now be seeking ways to get out of these agreements. Many construction contracts include ‘force majeure’ clauses where the parties are excused from their obligations due to an event outside the control of the parties[14]. However a force majeure clause would be unlikely to excuse the Victorian Government in this case. As held in Lebaupin[15] such a clause would be interpreted narrowly to refer to actions that are not in the control of the parties that makes performance impossible. A decision by the Government to cancel the Olympic Games is not only a decision that the Victorian Government had control over, but does not stop the works from going ahead despite the reason for the works no longer being present.
For similar reasons, the Victorian Government would also not be able to rely on the doctrine of frustration to escape the contract. As held in Krell[16] where a contract contemplates the existence of a particular state of affairs, the inability of this state of affairs to arise will be grounds for termination. The Victorian Government could argue that it was a foundational basis of the contract that the Commonwealth Games were to be held in Victoria. However, even if this basis could be established upon an examination of the express words of the contract or surrounding circumstances[17] there is a qualifier where the party seeking to rely on frustration cannot do so if the frustrating event was the party’s own responsibility[18].
In light of this analysis, then Victoria’s decision to go ahead with certain construction works associated with the games[19] makes sense from a legal perspective. Not only does it avoid a costly damages settlement, but the Victorian Government had no grounds to escape any contract it would have entered into relating to the construction. However, beyond these settlements, the harm suffered to Victoria in relation to hosting future sporting events is likely to be minimal.
IV. THE MINIMAL IMPACT OF THE DECISION ON VICTORIA’S REPUTATION
The Decline of the Commonwealth Games
The first reason why Victoria’s decision to cancel the Games is likely to have little impact on its ability to host future events is because there is largely declining interest in them as a whole. For the past 23 years, the Games have only been hosted in either Australia or the UK (with the exception of Delhi in 2010) suggesting a lack of interest amongst Commonwealth Nations in hosting as a whole. This is further reinforced by the fact that a bid for the 2030 Games is still yet to be received by the Federation despite this being the centenary of the Games[20].
The Commonwealth Games are also an extremely unprofitable venture for any host nation. Budgets are regularly exceeded as much as four or five times their original forecast[21]. Although some economic benefits can come to the host nation, considering the Commonwealth Games has a limited outreach, greater revenue is received from hosting other major sporting events such as the World Cup or the Olympics[22]. If a host nation is going to take on the risk when hosting a major sporting event, then it would be rational for them to prioritise these events instead.
The Commonwealth Games also struggles for relevancy amongst athletes and the general public. Many events also appear in the Olympics, European, Asian and African Games alongside their respective World Championships. Since those events have a larger profile and are more lucrative, athletes may prefer competing at these events as opposed to the Commonwealth Games. The Commonwealth Games have also been criticised as a colonial institution akin to modern ‘sportswashing’ by attempting to distract from Britain’s role in the slave trade[23]. This is also linked to the decline of the British Commonwealth in general, with many former colonies becoming republics and severing their ties to the Monarchy[24]. When all this is considered, there is little justification for hosting the games. It is competing for attention and relevance amongst athletes and amongst the general public.
Victoria’s decision to cancel the Games should be understood within this declining context. Any host nation for the Commonwealth Games would have needed to address these problems and based on past Games would have struggled to create a successful event[25]. The Commonwealth Games Federation generally struggles to find willing hosts. What matters for Victoria’s reputation is how it performs for events that there is some competitive interest for by other states.
Victoria’s record hosting international sporting events in the current economic climate.
Victoria has performed consistently well in staging international sporting events, particularly with regards to the F1 Australian Grand Prix.
Although Victoria suffered some criticism for cancelling the event in 2020 and 2021 due to COVID concerns despite other races going ahead in other countries with greater COVID cases[26] ,Victoria signed a 10 year contract with F1 on the back of a successful event in 2022. This is despite competition from other Australian cities[27]. Similar concerns were also mentioned about the Australian Open where the event was subjected to crowd restrictions and other cities expressed interest in taking the event from Melbourne[28], however like the F1 the 2023 event was a huge success in revenue and tourism[29].
The reason why the F1 and Open before and after COVID needs to be discussed is two-fold. Firstly, it shows that despite the Victorian Government intervening and either cancelling or restricting how the event operated during the pandemic, even when other Opens or F1 races where ongoing without restrictions in other countries, this did not result in long term distrust in Victoria’s ability to host these events. The second reason is that the strong commercial performances of these events reinforces Victoria’s ability to host major sporting events. If there were doubts about Victoria’s ability to host, then F1 would not have awarded a 10 year contract.
If Victoria makes a bid for a major event, then it is the Australian Open and F1 that it will be relying on to demonstrate its capacities rather than its decision to cancel the Commonwealth Games. However, even if an organisation is concerned by the cancellation, there may be a lack of alternative options given the current economic climate. There has been an increasing lack of bids for mega events such as the Olympic Games due to the increasing costs associated with hosting[30]. Events such as the World Cup are hosted by individual countries rather than cities, and even then, joint bids between countries are expected to become the norm given FIFA’s increased requirements for hosts. An organisation would therefore be looking at two things. Firstly, whether or not the host has the finances to support an event and bid, and secondly its track record on hosting the event. In both aspects, Victoria would remain a strong contender.
V. CONCLUSION
Although there are significant legal consequences for the Victorian Government’s decision to cancel the Commonwealth Games, the long-term consequences are likely to be minimal. Aside from the payment of a settlement fee to the Federation, and the continuation of some construction contracts that they may not have wished to honour in light of the cancelation this is unlikely to damage Victoria’s reputation. The Commonwealth Games are in decline and the hosting requirements for any major event are only going to increase in the future. When organisations decide who to award hosting rights for events, they will be making this decision from a narrow pool where past performance is going to be a relevant factor. On these criteria, Victoria still has a solid reputation despite the cancelation.
[1] Jack Anderson ‘The fallout from the cancellation of the 2026 Commonwealth Games by Victoria’ (LawInSport, 27 July 2023) < https://www.lawinsport.com/topics/item/the-fallout-from-the-cancellation-of-the-2026-commonwealth-games-by-victoria#:~:text=The%20principal%20reason%20given%20for,could%20no%20longer%20be%20justified.> Accessed 30 October 2023.
[2] Duncan Murray ‘Victoria to pay $380m for cancelled Games’ (Australian Financial Review, 19 August 2023) <https://www.afr.com/politics/victoria-to-pay-380m-to-commonwealth-games-for-cancelled-event-20230819-p5dxt2> Accessed 30 October 2023.
[3] Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) HCA 66.
[4] Carr v JA Berriman Pty Ltd (1953) HCA 31.
[5] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) HCA 24, McRae v Commonwealth Disposals Commission (1951) 84 CLR 377.
[6] Annika Smethurst, Rachel Eddie, Broede Carmody and Michael Gleeson, ‘Taxpayers on hook for big bill as Commonwealth Games axed’ (The Age, 18 July 2023) <https://www.theage.com.au/politics/victoria/taxpayers-on-hook-for-big-bill-as-commonwealth-games-axed-20230718-p5dp9e.html> Accessed 30 October 2023.
[7] Ibid.
[8] Roy Masters, Patrick Hatch, Annika Smethurst, Broede Carmody and Rachel Eddie ‘Games authorities pursuing ‘hundreds of millions’ in compensation’ (Sydney Morning Herald 19 July 2023) <https://www.smh.com.au/sport/victoria-hit-with-games-compensation-package-worth-hundreds-of-millions-20230719-p5dph7.html> Accessed 30 October 2023.
[9] Department for Digital, Culture, Media and Sport ‘Birmingham 2022 contributes 870 million pounds to UK economy (Press Release, 17 January 2023) <https://www.gov.uk/government/news/birmingham-2022-contributes-870-million-to-uk-economy> Accessed 30 October 2023.
[10] Elias Visontay ‘Daniel Andrews says $380m Commonwealth Games compensation ‘the best outcome Victoria could get’ (The Guardian, 19 August 2023) <https://www.theguardian.com/sport/2023/aug/19/commonwealth-games-victoria-to-pay-380m-in-compensation-after-cancelling-2026-event> Accessed 30 October 2023.
[11] Calum Jaspan ‘Andrews blindside puts Commonwealth Games broadcast deal on ice’ (Sydney Morning Herald 18 July 2023) <https://www.smh.com.au/business/companies/andrews-blindside-puts-commonwealth-games-broadcast-deal-on-ice-20230718-p5dp46.html> Accessed 30 October 2023.
[12] Chris Keall ‘Sky takes Commonwealth Games from TVNZ’ (NzHerald 11 November 2019) < https://www.nzherald.co.nz/business/sky-takes-commonwealth-games-from-tvnz/LSF3YI4F4VACGOUTAZGRSDAT2Q/> Accessed 30 October 2023.
[13] Geoff Berkeley ‘Construction companies being sought to build Victoria 2026 Athletes’ Villages (Inside The Games, 3 February 2023) <https://www.insidethegames.biz/articles/1133230/construction-companies-victoria-2026> Accessed 30 October 2023.
[14] Kanchana Kariyawasam and Rangika Palliyaarachchi ‘Importance of the doctrines of frustration and force majeure in light of COVID-19’ (2021) 50 Australian Bar Review 370, 370-376.
[15] Lebeaupin v Richard Crispin and Co (1920) 2 KB 714, 719.
[16] Krell v Henry (1902) 18 TLR 823.
[17] Ibid.
[18] Davis Contractors Ltd v Fareham Urban District Council (1956) UKHL 3 729 Lord Radcliffe.
[19] Premier of Victoria ‘Commonwealth Games Costs Too High At Over $6 Billion’ (Press Release, 18 July 2023) < https://www.premier.vic.gov.au/commonwealth-games-costs-too-high-over-6-billion> Accessed 30 October 2023.
[20] The Guardian ‘Alberta withdraws support for 2030 Commonwealth Games bid due to cost’ (The Guardian, 4 August 2023) <https://www.theguardian.com/sport/2023/aug/04/commonwealth-games-2030-alberta-cancels-bid-victoria> Accessed 30 October 2023.
[21]Musa Gumede, Vusi Mazibuko and Pumela Mswelli ‘Commonwealth Games: Can Africa afford the games?” (2017) 6(1) Public and Municipal Finance 57, 60-61; David Owen ‘New financial statements detail how Birmingham 2022 Commonwealth Games funding was spent’ (Inside The Games, 18 January 2023) < https://www.insidethegames.biz/articles/1132649/birmingham-2022-commonwealths-funding> Accessed 30 October 2023.
[22] Owen (n 52); Martin Muller, David Gogishvilli, and Sven Daniel Wolfe, ‘The structural deficit of the Olympics and the World Cup: Comparing costs against revenues over time’ (2022) 54(6) Environment and Planning A: Economy and Space 1200, 1200-12006.
[23] Brian Lewis ‘Why the Commonwealth Games Federation should establish a reparations foundation’ (Inside The Games, 26 April 2023) < https://www.insidethegames.biz/articles/1136371/brian-lewis-cgf-reparations-foundation> Accessed 30 October 2023; Martin Polley ‘Introduction: The Empire and Commonwealth Games and the Challenge of History’ 34(3) Sport in History, 383, 383-385.
[24] Madeleine Wedesweiler ‘Colonial Roots: Why some are celebrating the cancelation of the Commonwealth Games’ (SBS News, 19 July 2023) <https://www.sbs.com.au/news/article/the-commonwealth-games-history-is-rooted-in-colonialism-some-abandoned-it-long-ago/ct2qs0f0k> Accessed 30 October 2023.
[25] Gumede, Mazibuko, and Mswelli (n 52); Muller, Gogshivilli, and Wolfe (n 53).
[26] Australian Grand Prix Corporation ‘2022 Annual Report’ (Annual Report) 3-4.
[27] Nell Geraets ‘Hard Bargain’ driven to keep Australian Grand Prix at Albert Park (The Age 16 June 2022) <https://www.theage.com.au/sport/motorsport/australian-grand-prix-contract-extended-at-albert-park-until-2035-20220616-p5au3s.html> Accessed 30 October 2023.
[28] Seb Mottram ‘Tiley issues Australian Open warnings after attempts to poach iconic tournament’ (SEN, January 2023) <https://www.sen.com.au/news/2022/12/29/tiley-issues-australian-open-warning-after-attempts-to-poach-iconic/#> Accessed 30 October 2023.
[29] Australian Open, ‘AO delivers huge economic benefits, record broadcast numbers’ (Press Release, 8 August 2022) <https://ausopen.com/articles/news/ao-delivers-huge-economic-benefits-record-broadcast-numbers> Accessed 30 October 2023.
[30] Muller, Gogshivilli, and Wolfe (n 53).