Following Zoopla's decision to end their sponsorship of West Bromwich Albion as a result of Nicolas Anelka's 'quenelle' goal celebration, we explore how sponsors can protect themselves against the bad behaviour of their athletes.
Anelka and other 'Bad Boys'
There is no doubt that companies and brands can increase their profile and goodwill dramatically and therefore up their profits by entering into sponsorship agreements with sporting and entertainment personalities, teams, competitions and events.
Football star and fashion icon David Beckham provides the most obvious example of a sponsor's dream, with his numerous endorsements of products including 'Breitling for Bentley', Police Sunglasses and H&M underwear.
However, the potential pitfalls which accompany sponsorship contracts have again been highlighted by footballer Nicolas Anelka's decision to make the controversial 'quenelle' gesture after scoring in a Premier League match against West Ham, and property website Zoopla's subsequent announcement that it will be ending its sponsorship of Anelka's club West Bromwich Albion at the end of this season.
Anelka, branded 'Le Sulk' by some after forcing a move from Arsenal to Real Madrid at the end of the 90's, is not the only sports person whose actions have prompted swift action from a sponsor. In recent times, Tiger Woods, Lance Armstrong, Michael Phelps, Martina Hingis and others have all put their sponsors in difficult positions.
So how can sponsors obtain legal protection before entering into mouth watering but potentially hazardous endorsement deals? Aside from the obvious need to conduct detailed due diligence regarding the historical and current conduct, visibility and chances of success of the relevant team and/or player, we have set out a few tips regarding the drafting of sponsorship agreements below.
1. Length of the Contract
One method of limiting the potential brand damage caused by the failure, cheating, or illicit activities of the sponsored athlete (or one particular athlete belonging to the sponsored team) is to enter into a short term agreement. This is demonstrated by the Anelka case, where Zoopla have decided not to extend their two year agreement with West Brom in order to distance themselves from the controversy surrounding Anelka's gesture.
It is unclear whether Zoopla would have had the right to terminate the contract as a result of the gesture (and this may depend on the outcome of the FA's investigation), and in any event such action could lead to a costly and public legal dispute. Under the circumstances, Zoopla will be relieved that they have the option to end the contract at the end of the current football season without having to prove that it has been breached.
The flip side to this is of course that the sponsor would ideally prefer a longer fixed term deal (to avoid giving the athlete the chance to renegotiate a higher sponsorship fee after a short period of time) in circumstances where the agreement is likely to run smoothly and the sponsor is enjoying the benefits of being associated with a particular team or player. As such, a balance will need to be struck between potential risk and reward when deciding how long the initial contract should be, and whether it should include any break clauses.
2. 'Morality' (also known as 'Bad Boy') Clauses
Although sponsorship of a team or an event can be more complicated, most sponsorship contracts entered into with an individual athlete contain clauses which require the athlete to abide by the rules of the relevant sport and to refrain from pursuing any activity or making any comment which could bring the game or the sponsor into disrepute.
Lance Armstrong reportedly provided Coca-Cola and other sponsors with contractual warranties assuring them that he was free from performance-enhancing drugs. So, when Armstrong was found by the US Anti-Doping Agency to have led "the most sophisticated, professionalised and successful doping programme sport has ever seen", a raft of sponsors terminated their contracts with the disgraced cyclist.
Although Armstrong is an extreme example, the case of Tiger Woods (who saw contracts with Tag Heuer, Accenture, Gatorade and AT&T either terminated or not renewed as a result of his infidelity) highlights the need for sponsors to include clauses which go further than requiring adherence to the rules of the given sport. Care should therefore be taken to draft morality clauses as widely as possible, and sponsors should also take into account any particular risks associated with the team or individual athlete.
Although commercial considerations will be key, if the sponsor is in a strong contractual position when things do go wrong, it is more likely to be able to gain the upper hand in coming to a commercial agreement with the team / athlete without even implementing any contractual remedies.
In light of this, savvy sponsors will try to include some or all of the following in the contract:
- Termination Rights - the most obvious and clean-cut option in the event of material breach of contract: Nike eventually terminated NFL star Michael Vick's endorsement contract in 2007 when he went to prison for involvement in a dog-fighting ring (although the two parties resumed their relationship in 2009 after Vick's release).
- Repayment of Sponsorship Monies - insurance company SCA Promotions is currently engaged in a legal battle with Armstrong in an attempt to recover US$12m in bonuses it paid him for winning the Tour de France in 2002, 2003 and 2004. However, in a trend which reflects wider practice, it appears that most of Armstrong's sponsors will not attempt to sue him for damages, put off by high profile, costly litigation.
- Liquidated Damages - a more efficient alternative is to include a 'liquidated damages' clause in the contract, which sets out specific sums which will be paid (or repaid) by the athlete to the sponsor in the event of various specified breaches of contract. In order to be legally enforceable, such sums would need to be 'commercially justifiable' and a genuine pre-estimate of the loss which the sponsor would expect to suffer, and the intention behind the clause must be to compensate the sponsor rather than punish the athlete for a breach of contract. It can be easier and quicker to recover liquidated damages (if worded clearly in the contract) than trying to recover general damages.
- Payment Structure - negotiating a payment structure where sponsorship monies are released to the athlete in stages on the proviso that certain contractual requirements have been met (such as for example, good behaviour and achieving specified levels of sporting success) is clearly beneficial for sponsors and should help to avoid the need to claim general or liquidated damages.
- Other specific rights - the sponsor may consider inserting other obligations, for example a requirement for an athlete to publicly apologise in the event of poor conduct, in order to try to limit any damage to the athlete's, and thus the sponsor's, reputation.
Conclusion - remember to be yourself
In the context of team sponsorship, Zoopla reportedly asked West Brom to remove the Zoopla name from Anelka's shirt for the game against Everton, before confirming they would sever ties with the club. This specific situation may not have been anticipated in the contract between Zoopla and West Brom, but it provides an example of the wide range of creative remedies which sponsors should consider inserting into their contracts.
And finally, without wanting to encourage unwholesome behaviour, sponsors should also be alive to the marketing opportunities which can arise when a star does get into trouble. When in 2009 photographs surfaced showing Michael Phelps (now the most decorated Olympian of all time) smoking a bong, there was outrage in some quarters, a parting of the ways with Kellogg's and a 3 month suspension.
However, Subway responded creatively with a television advert titled 'Be Yourself' featuring Phelps enjoying a foot-long Meatball Marinara - they were clearly able to overlook Phelps' indiscretion on the basis that his reputation was still largely intact and therefore valuable to the Subway brand.