Business

Don’s Diatribe: When Endorsement Deals Go Bad

Endorsement deals between companies and athletes can be high-risk, high-reward propositions. Businesses spend millions and millions of dollars to align themselves with athletes with the hope that such association will give them a better connection with the public. But as the truth slowly comes out about Lance Armstrong’s use of performance-enhancing drugs and the subsequent cover-up, one can quickly see how these deals can go wrong. Companies are left scrambling to distance themselves. Even our own Sporting KC wasted no time in ending its association with Armstrong’s popular cancer support organization, Livestrong. What can a business do in such a situation?

 

Seeking to grab the attention of consumers and to break through the clutter of everyday advertising, businesses will strike endorsement deals with athletes to market their goods and services. Companies are banking on a positive association with the athlete. Choosing the right athlete for one of these deals can raise a business’ profile enormously. But as recent scandals involving Michael Phelps, Tiger Woods, and Michael Vick demonstrate, companies may seek to terminate the deal in order to avoid public backlash. One way to disassociate themselves from an endorser is to include and utilize the “morals clause.”

 

A morals clause allows a company to terminate, or otherwise take some action against, an athlete who has, in its opinion, tarnished the company’s reputation based on some “immoral” conduct. They can take a form similar to the following:

 

“If at any time, in the opinion of Sponsor, Athlete becomes the subject of public disrepute, contempt, or scandal that affects Athlete’s image or goodwill, then Company may, upon written notice to Athlete, immediately suspend or terminate this Agreement and Athlete’s services hereunder, in addition to any other rights and remedies that Sponsor may have hereunder or at law or in equity.”

 

The athlete might want to limit a clause like the one above to a short and specific list of actions that will trigger it, such as a criminal conviction or a violation of league rules. The business might want broader contract language because there are many kinds of behavior that, though falling outside of criminal activity, could still harm its image. These include public fighting, arrests for drunk driving or drug use, criminal charges (even if those charges are later dropped), and domestic scandals. A company might also want to be able to take action if the athlete publically criticizes the company’s products or services.

 

The list of athletes and other sports professionals who have been suspended or terminated because of illegal, immoral, or unethical behavior is growing. Because the stakes are so high for businesses, morals clauses have become integral parts of endorsement deals. It’s unfortunate when an athlete of Armstrong’s caliber falls from grace, but these clauses give companies options when an athlete’s actions threaten their reputation. Don’t let a bad endorsement deal sidetrack you from success!

 

 

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 Donald R. Simon, J.D./LL.M., is president and CEO of Simon Business Consulting, Inc., a firm providing consulting services such as business and marketing plan development, incorporations, intellectual property advising, franchising regulatory assistance, and presentations on the basics of starting a small business.  Send questions or comments to don@simonbizconsulting.com .  This blog is provided as a source of information and is not to be construed as legal advice or opinion, or to form an attorney-client relationship.  For legal advice, please consult an attorney.