With Under Armour notifying UCLA of its intent to terminate their 15-year, $280 million sponsorship agreement – while the Bruins explore options to enforce it – the company and school appear headed for what could become a first-of-its kind legal dispute.
The argument would center on the contractual rights of a major apparel brand to extinguish its financial commitments on account of a major change in circumstances: In this case, college sports are not being played.
UCLA is not alone in attempting to sustain its lucrative relationship with Under Armour. The company also removed Cal–Berkeley from a list of collegiate partners on its website. Cal, which is in the fourth year of a 10-year deal worth $86 million, released a statement that read, in part: “We are confident that we are fulfilling the terms of our agreement and Under Armour does not have grounds for termination.”
Under Armour works with dozens of colleges across the country, so why cut these? For one, UCLA’s deal is by far the company’s most expensive, and Cal’s is also on the high side. Second, they might be the only partnerships that give Under Armour an out. Sportico reviewed 12 Under Armour college contracts (not including Cal’s), and UCLA’s was the only one with force majeure exit language.
Once the glitzy new upstart in athletic apparel, Under Amour has watched its rapid growth reverse in the last five years. In that span, the company’s leadership marshaled what they called a total restructuring of the business. Under Armour wrote down inventory, eliminated 40% of its product and tried to streamline manufacturing. When those efforts didn’t fully right the ship, Under Armour cut 400 jobs in September 2018, or 3% of its global workforce, and later said it may forgo plans for a new flagship store in New York City. In the biggest change, longtime CEO Kevin Plank, who founded the company in his grandmother’s basement, stepped aside last October after two decades in charge.
New CEO Patrik Frisk hasn’t strayed too far from Plank’s course. While Under Armour’s rivals found success with athleisure, the Baltimore-based company has remained dedicated to performance shoes and clothing. And despite promises that 2020 would be the coming-out party for a new streamlined company, Frisk in February lowered Under Armour’s expectations for the year. That was even before the COVID-19 pandemic hit its full force in the U.S., shaking the retail industry.
In short, the Under Armour that signed UCLA and Cal to a combined $366 million worth of deals in 2016 is not the same company that exists now. The company’s market cap when those deals were being finalized was around $20 billion, it now sits at $4.25 billion.
Under Armour’s restructuring included a re-thinking of the company’s marketing approach. Focusing less on the big-ticket league and school partnerships, Under Armour concentrated more on individual athletes, like Warriors star Steph Curry, and celebrities, like Dwayne “The Rock” Johnson—relationships they felt returned more for their dollar. In the highest-profile example of this change, Under Armour in December 2016 announced a 10-year deal to be the official supplier of uniforms for Major League Baseball. The company backed out of the agreement a year later, before the partnership was set to begin. Rival Nike eventually won the contract.
Under Armour’s UCLA deal, signed in May 2016, came right on the brink of that shift. To many in college sports, the move appeared geographically motivated—Under Armour works with a number of colleges across the country, but the West Coast was one area it wasn’t heavily invested. (Cal signed its deal weeks earlier.) It also came at the tail end of a string of massive collegiate apparel agreements that reset the market for the NCAA’s biggest programs. They included big deals for Ohio State (Nike), Texas (Nike), Michigan (Nike) and Notre Dame (Under Armour).
The COVID-19 pandemic likely sharpened Under Armour’s desire to shed some of these long-term commitments. Company CFO David Bergman essentially said as much in May, telling analysts on an earnings call that Under Armour was negotiating new terms on its marketing deals. “Sports marketing contracts are part of that,” Bergman said. “We’ve been negotiating and working with them, and we’ve been able to get some extended payments terms there, which are helpful.”
It’s unclear how deep Under Armour’s purge may reach. Sportico reached out to the other nine FBS schools that are under contract with Under Armour to ask about the status of their contracts. Representatives at Northwestern, Auburn, Texas Tech and Wisconsin said their relationships remain the same; the others didn’t respond. A request to an Under Armour spokeswoman also wasn’t returned.
According to Section VIII of the UCLA agreement, which runs until 2031, Under Armour can terminate the deal in the event the school breaches an obligation. However, the company must provide a written explanation of the alleged breach, 30 days’ notice and an opportunity for the school to remedy a breach that is fixable.
One type of breach that would authorize termination: UCLA ceases for any reason—other than a “Force Majeure Event” (more on that below)—to field a “core team,” or if a core team misses at least 50% of its games in a regular season. The agreement defines a “core team” as the football, baseball, men’s basketball or women’s basketball teams.
A statement issued by Under Armour about its intentions with UCLA does not explicitly refer to missed games. Instead, Under Armour expresses frustration over “paying for marketing benefits that we have not received for an extended time period.” The claim alludes to UCLA moving its classes online, closing its dorms and, most relevantly, shutting down athletic activities in response to the COVID-19 pandemic.
Section III of the agreement concerns UCLA’s contractual obligations to Under Armour. The obligations are far-reaching. They include a requirement that all UCLA coaches, staff and team members wear Under Armour supplied products. In addition, the school must provide game tickets, including 12 “best-available season tickets” to all home football games and parking passes.
UCLA also has “company recognition” obligations, which include:
- signage in all athletic competition and practice venues;
- advertising in all football and basketball game programs;
- radio advertisements;
- scoreboard and public address announcements; and
- incorporation of Under Armour logos in various locations.
These obligations help to illustrate the marketing benefits that Under Armour insists it hasn’t received with sports on hiatus.
The agreement’s repeated references to “Force Majeure Event,” however, could become meaningful. The pandemic has led to a de facto shutdown of college sports, and many doubt if sports will resume for the fall season. California has been hit especially hard, with more than 216,000 reported cases and nearly 6,000 deaths attributed to COVID-19. Under state law and UCLA policy, fall sports student-athletes have been permitted to return to campus. However, there is no timetable on when workouts and practices will resume.
In addition to arguing that UCLA failed to meet its obligations, Under Armour could seek to invoke the agreement’s Force Majeure clause. The clause is detailed in Section XIII. So long as a qualified Force Majeure event continues for more than 100 days, either Under Armour or UCLA can terminate the agreement with immediate effect by written notice.
The agreement defines a qualified event as one “beyond the commercially reasonable control of Under Armour or the reasonable control of UCLA” and one “which renders the performance of this agreement by the affected party either impossible or impracticable.” The agreement contains a non-exhaustive list of examples. They include a flood, earthquake, fire, work stoppage, natural calamity, national emergency and any governmental act that restricts performance, including the play of sports.
It has been 109 days since President Donald Trump declared a national emergency in response to the pandemic. For their part, states and municipalities—including California and Los Angeles—have issued stay-at-home orders, gathering restrictions and similar measures that make college sports impracticable, if not impossible. Both a qualified event and exhaustion of the 100-day clock appear to have been met.
UCLA is not without possible legal recourse. The school could seek a court-ordered injunction that would, at least for a while, prevent Under Armour from exiting the agreement.
To that point, the agreement is governed by California law, which supplies a number of legal avenues. For instance, UCLA could argue that Under Armour is fraudulently or deceptively misusing a public health crisis to escape its financial obligations. California has one of the most robust unfair practices laws in the country. Courts in California have also repeatedly held that parties can’t escape contractual obligations merely because costs proved higher than forecasted.
The school could emphasize that the pandemic threatens the welfare and safety of its student-athletes and coaches, and it would be an unfair practice to invoke the crisis to save money. UCLA might also contend that it would be “not yet ripe” for Under Armour to exit the agreement since it remains possible that fall sports will happen. Along those lines, the school could argue that since Under Armour hasn’t (yet) attempted to void its other nine contracts on the same grounds, a court should question if those grounds are pretextual and explore if Under Armour is motivated by an unstated goal: to avoid making payments.
It’s unknown if UCLA and Under Armour have attempted to negotiate a less severe resolution, such as a suspension of the contract or a reduction in compensation owed. A judge would be interested in whether the parties have made good faith efforts to mitigate their dispute.
One thing is for sure: Other apparel companies and schools will be watching the Under Armour–UCLA dispute play out.
