[Sunday, July 7th, 2013]
Andy Murray, Wimbledon trophy in hand, has become one of the elite global sports superstars. Like David Beckham or Tiger Woods, his annual earnings from sponsorships and endorsements will now forever exceed his tournament prize winnings. In the coming weeks, his career management representatives will be parlaying his Wimbledon victory — so soon on the heels of his Olympic gold and U.S. Open trophy — into lucrative deals with equipment manufacturers, credit card issuers, automobile companies, luxury watch-makers, and the like. Good for him!
But what should the lawyers on the other side of those deals be thinking about? Murray’s current deal with Adidas pays him more than $24 million over 5 years (through the end of 2014). As the lawyers responsible for negotiating and drafting a contract in that stratosphere, how best to protect your client’s investment? Here are seven risks and contingencies the company contract negotiator should have in mind:
- Disaster Planning. There is no reason to think Murray will not continue to be healthy and sound in mind and body, thrive in his career, and enjoy a happy and unremarkable private life. A sports star of his athletic and moral caliber would appear to be an ideal partner in an endorsement deal. But every athlete risks injury or fading of his on-court powers, and consequent fading of the value of the sponsorship. Off-court issues can also affect the athlete’s value as a spokesperson. Whatever might make gossip-column fodder — run-ins with the law, relationships gone sour, all sorts of peccadilloes — can degrade the sponsorship. The contract must account for this risk with a termination provision in the event Murray’s tennis career is significantly interrupted or shortened, and a morals clause in the event of bad behavior. In addition, the company should insure for injury, death, and scandal.
- Athlete’s Duties. Everything always looks rosy at the outset of a sponsorship deal, with the athlete gushing enthusiasm for the company and product. But then it’s time to show up for a promotional event or tv ad shoot. And the athlete must trade out his wardrobe and accessories for the sponsor’s products. Don’t rely on good will for the athlete to perform his side of the bargain. Lay out every element of performance with specificity, from where, when, and how often the athlete should use the sponsor’s products, to dates, times and locations of personal appearances. Define logo placement and size on the athlete’s apparel/accessories. Establish geographic and temporal coverage. Anticipate potential conflicts — existing deals and potential future relationships — and limit where possible the athlete’s association with the company’s direct and indirect competitors. Ideally, obtain veto rights over the athlete’s future sponsorship deals in relevant categories. Enumerate every obligation and the nature of the athlete’s performance.
- Intellectual Property. The company is bringing value to the table beyond that fat paycheck it’s writing to Mr. Murray. Sponsorship deals deploy a company’s prize intellectual property such as trademarks, copyrights, and similar assets, including property created during the course of relationship with the athlete. To clarify and protect these rights, the sponsor should insist on retaining ownership of all such rights — in existence at the outset and created during the term of the agreement. This necessitates the athlete agreeing either that his performance under the contract is a “work for hire” or that he forever assigns his rights to the sponsor. So when the athlete loads sponsor logos onto his Facebook page, appears in a YouTube video in sponsor apparel, or tweets about sponsor products, there is no mistake that he does so as an agent of the company for the purposes of future intellectual property ownership. And for precisely that reason, the sponsor should reserve the right to review in advance all such athlete uses of social media or any public testimonial about the company or its products.
- Risky Pastimes. Most major league sports — in which the athletes are employees of a team — place substantial limits on risky pastimes. The NFL standard player contract prohibits players from engaging in “any activity other than football which may involve a significant risk of personal injury.” The NBA frowns on motorcycling, skydiving, and hang-gliding. NHL team members cannot play any other sport without their club’s written consent. In individual sports, like tennis, the player must self-regulate. Sponsors might want to manage the risk of a risk-taking athlete by placing off limits any off-court recklessness for the duration of the contract.
- Release and Indemnity. Murray’s performance of his sponsorship-related duties may entail activity that risks injury, including playing the very sport that won him the deal in the first place. If he is injured playing tennis at a sponsor event, or on behalf of the sponsor, he may seek to hold the company liable. That exposure should be eliminated with a provision in which the athlete acknowledges the risk of playing his sport, and releases and indemnifies the sponsor for any playing-related injury.
- Boilerplate Basics. Don’t overlook the details of what many lawyers dismiss as the boilerplate provisions of the contract. Care is required for such provisions as notice and payment, choice of law/forum, and force majeure. When it comes to notice and payment, sponsors should account for the possibility that the athlete will change representation. Avoid getting mixed up in payment/commission disputes that can arise between athletes and their former agents with specific contract language about the limits of the sponsor’s exposure in this event. Athletes often change domiciles, so it makes more sense for the choice of law/forum provision (in the event of a contract dispute) to accommodate the sponsor. Sports events are more vulnerable than ever to schedule disruption due to everything from catastrophic weather to terrorist threats. To the extent aspects of contract performance will occur on site at tournaments, contingency planning is necessary.
- Termination. Termination of the sponsorship relationship is inevitable, ideally because it has run its course successfully, with both parties satisfied with each other’s performance. An amicable parting should be built into the initial contract, with provisions for ultimate non-renewal, accounting of outstanding payments and receivables, and resolution of any rights ownership issues. But contract termination may be necessary in less ideal circumstances (see point 1), for example, if a party is in breach, an unfortunate injury shortcircuits a playing career, the athlete’s bad behavior undercuts his spokesperson value, or the sponsor goes broke. Whatever the reason for premature termination, the contract should provide clarity and predictability in terms of both the process of termination and substantive outcomes. And the sponsor should remain alert throughout the duration of the contract for performance issues — failure to police and correct the athlete’s lapses in performance may result in forfeiting termination rights and remedies.