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SBD Global/August 26, 2013/Marketing and Sponsorship

Companies Using Clauses In Endorsement Contracts To Guard Against Athlete Scandals

To mitigate the risk of many of sport's most marketable names becoming embroiled in scandals, while the cost of endorsement contracts and worldwide marketing efforts is huge, companies such as Nike "are using specialised insurance plans and more stringent contracts in endorsement deals worth hundreds of millions of dollars," according to Jason Abbruzzese of the FINANCIAL TIMES. Companies normally "have two choices when an endorsement goes wrong." Cut ties with the athlete, "or ride out the storm." Forgoing the sports star connection altogether "is not an option." IMG Global Consulting Dir David Abrutyn said that "endorsements are more important and more lucrative than ever before." Abrutyn: "It's a cliché, but the death of talent marketing has been widely exaggerated. If you take a wide look at it and you see how celebrity and talent are able to break through in a world today that is as cluttered as it has ever been, I would venture to say more money has been spent this past year on talent marketing than the year before." Not all brands will stand by a disgraced athlete, "and need a tidy way to terminate contracts and recoup losses." Companies "have begun to insert clauses to allow for the sponsor to cancel the agreement if an athlete acts in a way that could be considered damaging to the brand." Aon Risk Solutions' Global Entertainment Group CEO Joe Addison said, "What has happened over the past few years is that contracts have gotten pretty tight. It has evolved because of what has happened." Addison added that "some major stars have the clout to negotiate morality clauses out of their contracts, leaving companies to pursue insurance coverage." Law firm Dickstein Shapiro associate Shaun Crosner said that these policies have become more popular, "as they allow companies to sign up the most popular players while addressing concerns about possible losses." Crosner: "There's so much money going into these ad campaigns. You could pay tens of millions of dollars to partner with these athletes. If you have to abandon that campaign, it's potentially a big loss on your books" (FT, 8/23).
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