Colorado Rapids vs. Ciao - What next?

A few weeks ago, the Denver Post revealed that the Colorado Rapids jersey sponsor, Ciao Mobile, had only paid the club $75k out of the $560k which was due by Sep 30th. The paper published a link to the claim for the outstanding $485k as filed by the Rapids ('KSE Soccer, Inc.') against Ciao ('Global Logistics Solutions, LLC'). One fact that jumped out was that while a total of $800k was due for 2014 (a further payment of $240k is due on Nov 30th & is referenced in the complaint), the payments went up in steps every year until the end of the agreement in Dec 2018 culminating in $2.25m being payable in the final year. The total payable for just under five seasons jersey sponsorship was $8.3m.

The case information includes a letter sent by KSE's in house legal department on Sep 16th to Ciao about the non-payment of 240k by Jun 30th. This letter contains a slight error as the payment was actually due on Jul 30th, although this does not materially alter the complaint. There is no reference to the $5k outstanding from the initial $80k payment required to activate the agreement. While the club / KSE only needs to send one reminder letter under the terms of the sponsorship agreement, it is assumed (& hoped!) that the club made multiple attempts to contact Ciao to chase payment throughout the summer.

Subsequent to the lawsuit being filed on Oct 28th, one of the U.S. District Court's first actions was to establish whether it has jurisdiction over the case. After a routine query regarding whether the defendant, Ciao, is a U.S. entity (it is), the court confirmed it had jurisdiction on Nov 3rd. The next procedural item was for the Rapids to formally send the court summons & complaint to Ciao, which they did on Nov 12th. Ciao have until Nov 25th to respond.

The court has set a hearing (known as a 'scheduling conference') for 10am on Wed Feb 4th next year. However before then, the court has mandated that both the Rapids & Ciao, with their legal representation, 'shall discuss the nature and basis of their claims and defenses and the possibilities for a prompt settlement or resolution of the case'. In addition, both parties are encouraged to meet informally before then to see if a settlement can be reached. It should be noted that in payment disputes, it is a common tactic for a court summons to be used as a way to get the alleged non-paying party to the negotiating table. We are sadly not privy to how productive the clubs' attempts (if any!) were to discuss the sponsorship payments situation before the legal proceedings were commenced.

As for what will happen in the pretrial discussions, we can only speculate at this stage. Legal action rarely results in business relationships continuing in a fruitful manner & most commentators are of the opinion that the jersey sponsorship agreement will be terminated as a result of this with a revised payment schedule for the 2014 payments agreed with Ciao, presumably with monies being collected well into next year. It should be noted that Ciao's lack of payments gives the Rapids the right to terminate the agreement, however to date the club does not appear to have done so.

The other option, and one which the Rapids will certainly pray doesn't happen, is that Ciao goes out of business before the hearing date. Speculation that the company is financially weak has been abundant since this case came about. The Denver Post article says that, from information gleaned from a March 2014 SEC filing, Ciao had $2m cash in hand but has liabilities of $65m which is one possible explanation for the lack of payments, however it must be stressed that details are sketchy at best. If the worst were to happen, the Rapids would mostly likely be placed in a line of unsecured creditors to receive cents for every dollar they are owed.

Either way, the court case will provide one of the more intriguing stories in what is sure to be a very interesting off-season for the Rapids.