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SBD Global/May 16, 2013/Marketing and Sponsorship

Experts Say Athlete Endorsement Contracts Undergo A Major Change Due To Scandal

Experts said that "endorsement contracts are undergoing a major shift, and it's due to scandal," according to Daniel Roberts of SPORTS ILLUSTRATED. Former IMG General Counsel Peter Carfagna said, "This whole industry has changed because of ... Lance Armstrong, not so much Tiger or other scandals. He had federal sponsors, like the postal service, and what recourse do they have when it is alleged, now, that he fraudulently induced them at a time when he was doping. He must have given them some rep that he was clean." So "how do companies now protect themselves when signing a deal with an athlete they believe is squeaky clean?" For one thing, there are often "clawback clauses" that allow a sponsor to recoup its investments (even money they already paid a star) if they "can prove that the athlete misrepresented himself when the contract was signed." But that can be difficult to prove. The language of a contract depends on leverage, and the amount of security a company "can work in to protect itself is higher if the athlete has made mistakes in the past." In the wake of so many high-profile athlete scandals, the balance of the reps and warranties "are shifting in favor of the companies." And yet the endorsement contracts "aren't only protecting companies against the athlete doing something illegal." What about scandals that "ruin a player's reputation even when he didn't technically break any law?" Thus: "the morals clause." Morals clauses "aren't new, either, but they are getting far stricter." And a guy "can cause damage to his sponsors not just with a serious crime, ethical misstep, or public outburst, he can do it on social media, too." That's the other big change "causing companies to use tougher trigger language allowing them to suspend deals." The widespread flood of social media and its prevalent use -- by everyone, from fans to officials, coaches and even the athletes themselves -- "had permanently altered the language of contracts" (SI, 5/14).
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