As the coronavirus pandemic swept the globe in 2020, the sports, media, and entertainment sector was one of the hardest hit. The lack of in-person attendees for events – in addition to other events being abandoned altogether – devastated revenues for companies across the industry.

The outlook appeared bleak. However, after breakneck research by the scientific community, and the possibility of widespread vaccination in 2021, there is growing optimism that sports, media, and entertainment companies might make up for lost time, even if such progress is incremental. Certainly, there are tens of millions of consumers eager to enjoy a live concert, attend a sporting event, or otherwise return to the opportunities of pre-pandemic leisure.

In the sports industry, international events such as the 2020 Tokyo Olympics have been postponed until 2021, if not indefinitely, while others such as the 2020 UEFA Champions League have been moved to a single location (often referred to as a “bubble”) without fans. In addition, several other international sporting events are scheduled to begin in 2021 and 2022 – most notably the 2022 FIFA World Cup in Qatar. The same is true for the entertainment industry, where concerts, plays, and movie festivals postponed worldwide in 2020 are being added to the 2021 calendar. In media, companies that struggled in 2020 will now need to keep pace with accelerating demand.

The re-emergence of corruption risk

Under the Foreign Corruption Practices Act (FCPA), U.S. regulators have broad jurisdictional mandates to enforce U.S. law. In addition to domestic U.S. companies, foreign entities (and individuals affiliated with those entities) are subject to that jurisdiction if they are “issuers” (that is, the company is listed on a national securities exchange in the United States, or is required to file SEC reports and has its stocks traded in the over-the-counter market in the United States), as well as other foreign entities or persons who “commit any other act in furtherance of” a corrupt payment “while in the territory of the United States” 15 U.S.C. § 78dd-3(a). The Department of Justice (DOJ) has taken the position that Section 78dd-3(a) confers jurisdiction whenever a foreign company or national causes an act to be done within the territory of the United States by any person acting as that company or national’s agent.

Functionally, this grants extensive extra-territorial jurisdiction to the United States to bring enforcement actions for overseas conduct. The pandemic has come at a time when professional sports leagues in the United States have looked to expand their media and consumer footprint into international markets. For example, the pandemic caused the postponement or cancellation of several international events for leagues in Europe and Mexico. As international events are rescheduled, the risk of improper payments and corruption will continue to increase internationally.

On the heels of the pandemic, during which many companies have been forced to realign budget allocations or cut resources, a brisk return to normalcy – if mass vaccination proves successful – poses substantial risk and places a tremendous burden on both business units and compliance functions. As one potential example, it is not hard to imagine vendors or third parties in the sports, media, and entertainment industries using in-kind donations, such as tickets to a game or concert, to cut through government bureaucracy. Indeed, the FCPA has long been used as an enforcement tool to penalize the exchange of donations and gifts in exchange for business opportunities.

Steps you should take

To address the various risks facing companies in the sports, media, and entertainment sector, we have identified several issues to consider as business returns to normal.

Review compliance budgets

The depth of COVID-19’s impact on the sports, media, and entertainment sector is hard to quantify, but the industry has clearly suffered significant financial loss. And with significant financial loss, there will no doubt be pressure to rebuild the business and meet increased demand – but companies should be mindful of keeping compliance budgets on par with growth.

Even before the pandemic, compliance departments across the globe were feeling an element of strain. In Hogan Lovells’ second global survey on navigating bribery and corruption risk published in early 2020, only 41 percent of compliance leaders had seen their AB&C budget grow over the past three years, as compared to our 2016 study, which found that the vast majority of compliance teams (88 percent) had seen a recent budget increase. The 2020 survey also found only 42 percent of compliance teams had grown over the period, as compared to 89 percent in 2016.

This data, combined with the recent effects of the pandemic on companies in the sports, media, and entertainment sector, indicates that it is critical for companies to proactively “right-size” their compliance budgets before business expands past a suitable risk threshold.

Assess vendor/supplier risk

The COVID-19 pandemic has made third-party management more difficult. With a surge in market activity expected soon in these industries, the increased pressure to meet business expectations, as well as a newly competitive landscape, may lead vendors to disregard or de-emphasize anti-corruption compliance policies and procedures. There will also be significant turnover, with new vendors seeking to establish themselves in the months and years after the pandemic. For live entertainment businesses, geographic expansion is likely to result in continued utilization of local joint ventures, to both add local operating capabilities and for cost efficiencies.

The FCPA’s reach not only includes direct liability for prohibited conduct, but, in certain circumstances, can also include indirect liability for the conduct of agents. Therefore, companies should continue or begin to conduct thorough – and perhaps enhanced – risk-based due diligence on established vendors and new vendors alike, to determine whether corruption risk exists and whether the vendors are complying with required policies and local rules. Increased third-party screening for these issues and for conflicts of interest are essential to ensure that compliance rolls down through vendors, and eliminates as much risk as possible.

Update compliance programs

The COVID-19 pandemic has also highlighted the need for companies in the sports, media, and entertainment industries to review their compliance programs. Indeed, as you read through the other articles in this Outlook, you’ll note DOJ’s expectations regarding compliance programs to be a recurring theme. Attention should be paid to those updates. Policies that might have worked before COVID-19 may not work in the new setting where a lot of work is performed remotely. Given the unprecedented circumstances created by COVID-19, companies should engage in a risk re-evaluation process to determine which compliance processes and procedures need adjusting. The risks facing businesses in the sports, media, and entertainment industries have changed significantly, and the policies and procedures that were developed in the past likely need to adapt as well. This may include something as simple as updating policies to allow for virtual due diligence reviews, or to account for remote working while ensuring continued compliance.

Vigilance is key

There is no question that enforcement authorities across the globe have initiated high-profile enforcement actions against companies in the sports, media, and entertainment industries. These include the United States’ investigations into corruption at FIFA, and France’s criminal investigations into bribes to cover up positive doping results from Russian athletes.

Despite the financial difficulties that companies have faced in 2020, enforcement actions in the United States have continued apace. Given the expected growth in the sports, media, and entertainment sector in 2021 as we emerge from the pandemic, companies must remain vigilant in their compliance efforts as they attempt to deliver services to customers and recoup the massive economic losses suffered as a result of the crisis. Meanwhile, compliance officials and legal departments should remain aware that conduct in 2021 might result in enforcement actions in 2022 and beyond.

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