Faced with the fallout of losing its 15-year, $280 million contract with Under Armour, UCLA on Wednesday filed a $200 million federal lawsuit against the Baltimore-based apparel company for breach of contract, bad faith and unfair dealing.
The 25-page complaint fights back against the three arguments Under Armour used in its letter of termination to the school, which cited the cancellation of spring sports and the school’s involvement in last year’s headline-grabbing admissions scandal. The Bruins are demanding a jury trial, a process that will likely take months, as opposed to seeking an immediate restraining order from the judge.
“It is unfortunate that Under Armour is opportunistically using the global pandemic to try to walk away from a binding agreement it made in 2016 but no longer likes,” a UCLA spokeswoman said in an email. “UCLA has met the terms of the agreement, which does not require that games in any sport be played on a particular schedule.”
At the time, UCLA’s Under Armour deal was a massive coup for the Bruins. Among the biggest apparel contracts in NCAA history, it produced a (seemingly) steady revenue stream that the Bruins could rely on through tough financial times. UCLA spent $127 million on athletics in 2018-19 but only generated about $105 million. The $22 million deficit was covered by the university and its students.
To put that another way, the Under Armour deal was worth the equivalent of nearly three years’ worth of athletic department revenue. The $18.6 million average annual value is more than the school made in 2019 off football and men’s basketball ticket sales combined, or from athletics donations.
In the years since the deal was signed, however, Under Armour became a very different company. Once a high-flying upstart nipping at the heels of Nike and Adidas, it has hit a multi-year skid. Amid a lengthy restructuring, the company underwent a change in leadership and marketing philosophy, deciding long-term deals were no longer a high priority. That was true even before COVID-19 upended the entire retail business.
The complaint charges that Under Armour has “used the COVID-19 pandemic as a cover” to get out of a deal it doesn’t want to fulfill. Under Armour’s actual reason, UCLA surmises, is that the deal now “seems too expensive for the financially-troubled sportswear company.”
Under Armour is also looking to terminate its 10-year, $86 million deal with Cal, but for some other legal reasons. It does not appear to be trying to end its deals with schools like Notre Dame, Wisconsin or Maryland, a fact that UCLA uses in its argument.
Under Armour said in a statement that it was confident in its legal position and would defend it vigorously. “We sought and remain open to working out a reasonable and appropriate transition for the university,” the company said. “In fact, at UCLA’s request after the termination of the agreement, Under Armour continued to deliver athletic products for the 2020-21 school year because we support athletes, even as it remains uncertain when sports will resume.”
According to UCLA, none of Under Armour’s three grounds for voiding the contract should be considered valid legal arguments.
First, Under Armour cites the contract’s force majeure clause, which instructs that if a qualified event continues for at least 101 days, either party can opt out of the deal. The contract defines a force majeure event as one “which renders the performance of this agreement by the affected party either impossible or impracticable.” Natural calamities and national emergencies are mentioned among other examples.
UCLA insists that Under Armour had no right to invoke this clause. The school contends that the clause can only be raised if a qualified event has “actually”—not possibly, potentially or theoretically—made it impossible or impracticable to satisfy a contractual term. “Nothing about COVID-19,” attorneys for UCLA write, “made it impossible or impracticable.”
Such a statement might seem surprising given the havoc COVID-19 has caused both broadly and within the sports industry. To that point, the Pac-12 recently canceled fall sports, including UCLA football.
But UCLA sees the clause in a different light. It notes that Under Armour can, and has, continued to provide financial support—including money and products—to most of its other partner schools.
In fact, UCLA notes that Under Armour went so far as to publicly announce a four-year contract extension of its sponsorship deal with Texas Tech after terminating its deal with UCLA. If the pandemic was so damaging to Under Armour’s relationship with existing colleges, UCLA surmises, then why is the company striking new deals with other schools?
UCLA also maintains that it has met all of its contractual obligations to Under Armour during the pandemic. The school says it has supplied all required tickets and other so-called “company recognition” obligations, which include advertising and marketing terms. Under Armour has publicly complained that the company is “paying for marketing benefits that we have not received for an extended timed period.” But UCLA maintains that its “teams and athletes [have] continued to engage in team meetings, volunteer workouts, and other preparations for games, while wearing Under Armour products.”
The second reason provided by Under Armour involves athletic activities. Under the contract, the company could exit the deal if—for a reason other than force majeure—UCLA fails to field a football, baseball, men’s basketball or women’s basketball team, or if one of those teams misses at least 50% of its games in a regular season. With the Pac-12 canceling fall sports and with uncertainty over the prospect of spring football, the football team might not play 50% of its regular season games.
In its termination letter to UCLA, Under Armour referred to the Bruins baseball team failing to complete its spring regular season. UCLA says Under Armour misunderstands the clause and its contextual meaning. The clause only applies, UCLA maintains, if the school stopped having a team or was barred from playing due to NCAA or Pac-12 sanction. UCLA stresses it has continued to “field” its core teams, as they remain engaged in team and practice activities. The Bruins also note that if Under Armour is referring to a force majeure reason (COVID-19 pandemic) for cancellation of games, that reason is explicitly excluded in the clause’s language.
The third reason, UCLA asserts, for Under Armour dropping the Bruins relates to the Operation Varsity Blues college admissions scandal. Under Armour says UCLA failed “to take reasonably appropriate action(s)” regarding former soccer coach Jorge Salcedo. UCLA says this reason is contradicted by the facts: The school placed Salcedo on leave on the same day of his arrest.
The school also asserts that Under Armour never raised an issue with UCLA’s handling of the admissions scandal until the company sent a letter trying to get out of its deal. This depiction implies Under Armour was fishing for a reason to get out and wasn’t actually worried about UCLA fallout from Salcedo’s arrest.
UCLA maintains that Under Armour, by offering so-called “pretextual” reasons for exiting the contract, has failed to act in good faith and has illegally breached the contract. The school also says it detrimentally relied on assurances from Under Armour’s commitment to the school and the company should thus be stopped from breaching its promises.
Under Armour will answer the complaint and attempt to rebut UCLA’s claims. Expect the company to offer different interpretations of the contract. Ultimately the two sides will likely reach an out-of-court settlement, as these types of disputes often end without the messy business of going to trial.
