Contract Law CONTRACTS IPR AND SPORTS

The Privilege of Morals Clause: Endorsement Deals and Associated Scandals

[Image Source: campaignlive.co.uk]

[Author: Taamara Rajeev Nair, student of Law at IFIM Law School, India]

Let’s talk sports law E4_S10

INTRODUCTION

The road to becoming an athlete is not an easy one. Apart from the constant training that they endure, they must make themselves look profitable. Choosing to make a career out of sports is not only a tough task but also an expensive one. If the athletes aspire to make a living out of playing competitive sports, they must learn the skill of marketing themselves. The athletes in the today’s day and age are not just considered as players but also celebrity personalities. They gain immense amount of publicity and garner millions of followers which boosts their marketability. This leads to gaining several sponsorships or endorsement deals. Endorsement deals are a great way to make revenue in the sporting world. Modern sports require the athletes to not only perform their best in court but also off court.

The focus of this article will be on sports endorsement deals and its morals clause. It would aid in comprehending the privilege of morals clause from the perspective of a corporation, as well as its implications on athletes-endorsers. This article is primarily concerned with the termination of endorsement contracts.

MORALITY CLAUSE OR MORALS CLAUSE

Certain protections are guaranteed to the company against the behaviour of the athletes they are willing to contract with. The morality clause gives a party the right to terminate an endorsement contract if such contract would harm the reputation of that party in the eyes of a reasonable person. This has been the most common clause broken by athletes who have been contracted to promote a company’s product. Morality clauses are a means of protection provided to the endorser company from an athlete’s misconduct or wrongdoing. The athletes are expected to behave in a manner that is aligned with the company’s ideals as well as that of the public. These clauses keep a check on the behavior of an athlete and ensures that their behavior is with due regards to the reasonable public morals and decency. These clauses may be strict or open to interpretation and negotiation. The clauses may be written in a way the contract could be easily terminated if an athlete endorser is accused with suspicion of misconduct or false allegations.

The company, in the event of a breach of morals clause, may resort to the usage of remedies such as publicly distancing themselves from the acts of the athlete by suspending the contract for a certain period, deny renewing the contract after expiration or terminate the contract. Businesses look for athletes with the image and value that perfectly fits their perceived status in the eyes of the general public. It is the easiest method for businesses to hold the athletes accountable for their actions and not be held responsible for the actions of such athletes.

RE-EXAMINING THE ENDORSEMENT DEAL

Numerous athlete endorsement deals are signed every year, but not all turn out to be successful. The athletes succumbing to injuries who may not be able to perform their best in the later years or may not be able to perform at all, will either lose their sponsorship deals or may not be able to earn as much as they would have prior to the incident. Athletes may also be held liable for breaching the terms of the endorsement contracts. Athletes are always under the scrutiny of the people around the world. The sponsors must safeguard the image of their businesses by defining a clear set of rules and requirements that the athletes must follow.

Lance Armstrong is one of the biggest examples of companies re-examining the endorsement contracts in the sporting world. In the year of 2012, 8 of the 11 sponsors terminated contracts or announced plans not to renew the contract on the same day after the release of the U.S. Anti-Doping Agency report, which contained evidence against Armstrong related to substance abuse resulting in the loss of an estimated $150 million. He was stripped off his title and banned from cycling for life. In the year 2016, Maria Sharapova failed a drug test leading to a two-year suspension which took a toll on her endorsement deals. Brands like Tag Heuer and Nike decided to cut ties and suspend the contract. O.J. Simpson, a football star, was accused of murdering Nicole Brown Simpson and Ronald Goldman in the year 1994 which resulted in severing of ties between O.J. and Hertz causing a million dollar contract to fall through. Hertz and O.J. Simpson had forged a partnership in the year 1975.

ACCUSATIONS AND SCANDALS

Brands are often witnessed to be quick to drop the sponsorship deals with athletes who have been accused of certain wrongdoings, which has not been proven in the court of law. Mere accusations do not hold any substantive proof. The morals clause in an endorsement agreement helps a company to turn their backs on athletes accused of misconduct that offends the community. American cereal company, Kellogg’s, dropped Michael Phelps, a renowned swimmer, from their sponsorship deal due to a picture of Phelps allegedly smoking marijuana was being circulated on the internet. Wayne Rooney, in the year 2009, was accused of cheating on his wife which resulted in the removal of his image from the cans of Coke Zero drink by Coca Cola. The company deemed it to be inappropriate to show the players face on the cans although the relationship was still intact but was later severed after a series of outburst on national television. At the same time, Nike and EA Sports decided to retain the contract since the matter was of a private nature and did not affect the player and his on-field activities.

PUBLIC SCRUTINY

After the purported allegations are brought to light via social media and other channels of information, the general public is quick to scrutinise the athletes. News reporters and paparazzi also play a huge role in igniting the debate about an athlete’s alleged misconduct. It spreads the word faster and reaches thousands of people who are free to make assumptions about the athlete in question. It is out of the fear of the general public that the brands rethink the endorsement contract and terminate the same. They do not want to be associated with any athlete that has a dubious reputation. The companies are guided by the principles of respect and promise to provide the optimum service to the public. Businesses must adhere to certain principles of integrity and must not engage in unethical behaviour. According to most companies, backing athletes who have been accused of misconduct or wrongdoing, must face the penalty of losing their endorsement contracts. This ends up causing more harm than good. When it comes to accusations made without evidence, the athletes may very well be given the benefit of the doubt.

A 19 year old professional tennis player, Emma Raducanu, was questioned by the public on social media platforms after she lost to Katerina Siniaková at the Miami Open in March 2022 regarding her commitment towards the sport. The public scrutinized her for the several sponsorship deals that she had signed since she won the US Open. The public tend to overlook the fact that these athletes put in hours of work to perfect their skills in their respective sports. They question the choices of the athletes who contract with brands and businesses for a sponsorship deal and create a misleading impression that the athletes are not focused in playing sports but are instead interested in profiting from the sponsorship deals. These insensitive remarks, which cast doubt on an athlete’s morals and ethics, are both discouraging and disrespectful to the athletes.

The perception of the public matters. If a case is filed against a company for wrongful termination of contract, the company must be able to prove that the athlete-endorser had acted in a manner that was against the generally accepted standards for pubic decency. In the case of Mendenhall v. Hanesbrands, Inc., a legal dispute arose between Rashard Mendenhall, a former NFL player, and Hanesbrands Inc – on May 2, 2011, Mendenhall’s endorsement contract with the company was terminated after he made a series of controversial tweets concerning Osama Bin Laden’s death. The former player filed a lawsuit against Hanesbrands, claiming breach of contract. Hanesbrands had furnished a morals clause preventing Mendenhall from taking actions that would offend “majority of public.” This demonstrates the significance of the general public’s opinions.

WRONGFUL TERMINATION

Termination of an athlete’s endorsement deal may permanently damage their reputation. Furthermore, this may lead to a decrease in the number of brands approaching the athletes in future. The clauses are at times found to be formulated upon the perception of the wrongdoing instead of recognizing the actual fact. Chris Webber, a former NBA player, sued FILA for wrongful termination of contract. Webber’s endorsement agreement with FILA was terminated after he was found in possession of marijuana and was also arrested for it. The morals provision in the contract stated that it could only be terminated if Webber was convicted of a crime. Since Webber was only arrested and not convicted in this case, the court judged the termination to be irrational and unwarranted, and the judgement was pronounced in the athlete’s favour. The premise of this case is that the language of morals clauses is critical in determining whether an endorsing party’s conduct is prohibited.

SUGGESTIONS AND CONCLUSION

Although morals clause may present certain legal challenges, it is advisable to include them in endorsement agreements ahead of time to avoid further complications. Companies must have a contingency plan to assist in the management of adversity even before a crisis strikes. They must specify the penalties for violating a contract’s morals clause depending upon the gravity of the same, which will aid in limiting the possible damages caused by endorsers.

The clause must state whether the breach could be caused by the endorsers’ acts before or after the agreement was signed. It should also describe in detail the forms of public perception and remarks that could result in the contract being terminated. One must also ensure to negotiate the morals clauses before signing any contract and remember to not restrict the freedom of speech and expression of the endorser. Given the power of public perception, spectators, fans, and followers- they must give the athletes the benefit of the doubt when false accusations are levelled against them. They are easily agitated by the charges made since they are likely to have been victims of the purported accusations levelled against the athlete and have a misguided perspective on the matter. This is why we have a justice system in place that strives to examine the evidence and deliver a verdict. Although the Author agrees that it is unreasonable to expect the general public, including viewers, fans, followers, news channels, paparazzi, and tabloids, to be impartial; however, it is perfectly reasonable to expect the public to not encourage or actively engage in spreading false narratives about athletes that could jeopardise the athletes endorsement deals. Businesses rely on athletes to portray a positive image that can be associated with their business. Any negative publicity might jeopardise the company’s as well as the athlete’s reputation.

Due to the proliferation of internet and increased use of social media, athletes must be extremely cautious in both their personal and professional life, because their behaviour and actions are being closely monitored. The morals clause must be meticulously structured to benefit both the company and the athlete who endorses it. The morals clause should be specific rather than broad and generic since this will make it easier for the companies to identify the correct action to take in the event of a breach of the clause. It must also be written in such a way that the athlete endorsers can easily comprehend the reason for termination or non-renewal of the contract.

*For any query, feedback or discussion, the Author can be contacted at [taamararajeev@gmail.com]

*NOTE- The opinions and views expressed in this article are that of the Author(s) and not of SLPRR- the expressed opinions do not, in any way whatsoever, reflect the views of any third party, including any institution/organization that the Author(s) is/are currently associated to or was/were associated to in the past. Furthermore, the expressions are solely for informational and educational purposes, and must not be deemed to constitute any kind of advice. The hyperlinks in this blog might take you to webpages operated by third parties- SLPRR does not guarantee or endorse the accuracy or reliability of any information, data, opinions, advice, statements, etc. on these webpages.

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