Author: Alan Wetterhahn
Athlete endorsement is big business. It has been widely reported that Rory McIlroy has recently signed a ten year deal with Nike worth in excess of £150 million. The deal has propelled McIlroy into the (long) list of fabulously wealthy sportsmen and women. With cameras following athletes’ every move and millions of eyes watching and reading stories about them, it is no wonder that sponsors are so eager to be linked to successful athletes.
Nike is a frontrunner in this regard and it spends millions of pounds every year on athletes such as Roger Federer (tennis), LeBron James (basketball), Maria Sharapova (tennis) and Cristiano Ronaldo (football). You may be aware that Oscar Pistorius, Lance Armstrong and Tiger Woods are (or were) also part of the Nike family.
Tiger Woods admitted he was unfaithful to his wife. Lance Armstrong admitted using performance-enhancing drugs. Oscar Pistorius admitted that he shot his girlfriend. Those admissions undoubtedly had a major impact on the lives of those sportsmen (and others) but those admissions also had a major impact on their sponsors. The recent images of a distraught Oscar Pistorius were accompanied by pictures of banners being removed from billboards in his homeland, South Africa, as sponsors quickly sought to distance themselves from the athlete.
Nike has adopted a varied stance in relation to Pistorius, Armstrong and Woods: it has suspended its contract with Oscar Pistorius and terminated its contract with Lance Armstrong. Nike has, however, stood by Tiger Woods.
Fladgate has recently written about persons who are guilty of match fixing and doping facing civil claims ‘Match-fixing and doping scandals – the potential fallout’ and, certainly, it is conceivable that unhappy sponsors that believe that their brand has been damaged or brought into disrepute may seek compensation or repayment from their former golden boys and girls.
From a legal point of view, it is prudent for a sponsor to include provisions in an endorsement agreement so that the sponsor can quickly and easily terminate the agreement, stop paying the athlete, remove any association with the disgraced athlete and recover its sponsorship fees.
Traditionally, endorsement agreements had little in the way of express protections for sponsors, who were forced to rely on broad material breach provisions to escape from the agreement. Sponsors have moved on and are now including provisions which allow termination if the athlete commits a doping offence, is involved in match fixing, is involved in any act of dishonesty or violence, or does anything at all to damage the brand’s reputation or bring the brand into disrepute.
These provisions vary slightly – depending on the strength of the sponsor and the bargaining power of the athlete. An athlete-friendly agreement will allow termination only when the athlete is found guilty of the offence, while a sponsor-friendly agreement will allow termination when the athlete is charged, investigated or convicted of the offence in question or if the brand is damaged. Termination provisions relating to damage to the brand are not, however, watertight because the question of what constitutes damage to the brand or its reputation is subjective and, of course, not clear-cut. As a sponsor it is accordingly sensible to include provisions which allow for termination if, in the sponsor’s sole opinion, damage has been caused. This advice is easy to dispense but difficult to put into practice because, in reality, it is the athletes who hold the upper hand while sponsors clamber over each other to get those big names on board.
Sponsors should also consider including a liquidated damages clause which would assist a sponsor in recovering some of the fees already paid to an athlete. The clause would take effect in the event of a specified breach of the agreement by an athlete and would allow the sponsor to recover an agreed amount of money as compensation for loss suffered. In light of a recent High Court ruling (Cavendish Square Holdings BV and another v El Makdessi ), the courts are less likely to challenge a liquidated damages clause on the basis that such clause operated as a penalty clause (penalty clauses are unenforceable under English law). This is likely to be seen as a commercially justifiable approach adopted by the sponsor.
There has been an interesting twist in developments relating to disgraced athletes. It has been reported that the US Government has joined a law suit against Lance Armstrong in an attempt to recover sponsorship monies paid (through the US Postal Service) to Armstrong’s team during his heyday. According to the reports, talks between the US Government and Armstrong’s legal team broke down because Armstrong’s legal team contended that the US Postal Service suffered no loss – their argument was that the US Postal Service had in fact benefitted from the sponsorship relationship to the tune of more than $100 million. This is, on the face of it, a sound argument.
It is always the case that the best agreements are those that are put in the top drawer and never looked at again. If, however, athletes (and any celebrity or other person receiving payments for endorsing a brand) do not behave themselves and sponsors are searching through that top drawer to pore over the termination provisions, it certainly makes for better reading for sponsors if they are able to terminate immediately without fuss (and without any further payment).
If you would like more information on the above, or any other related matter, please contact a member of Fladgate’s Sport Group.
Alan Wetterhahn, Associate, Fladgate LLP (firstname.lastname@example.org)