POSTED BY Meghan Bonk
No one can sell a brand quite like a superstar athlete. Most of these athletes aren’t born superstars, however, and many of them partake in some lower-tier endorsement deals before they hit the peak and sign with companies like Nike or Under Armour. Unfortunately, when athletes sign enter into endorsement contracts, the fine print and pesky provisions often get overlooked. One provision that makes its way into most high level endorsement deals is a first refusal provision which gives a brand the upper hand over its athlete when that athlete’s contract expires. The provision essentially allows for the brand whose contract has just expired to match any terms offered by a third party involving the endorsement of products, so long as the products are substantially similar in nature. Issues arise when the athletes supposedly breaches the contract with its original sponsor to sign with a bigger company who offers an endorsement deal that makes the athlete’s eyes turn into dollar signs. The smaller company sues, but it seems unfair to sue when it couldn’t match the new contract in the first place.
Popular athletic brand Oakley launched a lawsuit against golfer, Rory McIlroy as well as his new sponsor, Nike in the spring of 2013. A recent Forbes article reports that although McIlroy’s contract with Oakley expired in December 2012, the company claims to have had a first refusal provision in which “granted Oakley the right, but not the obligation, to match any terms offered to McIlroy by a third party regarding the endorsement of products the same as or substantially similar to the products in his agreement with Oakley.” To sum it up, December 2012 came around the corner, Oakley’s contract expired, and Nike clearly made McIlroy an offer he couldn’t refuse. Nike’s contract with McIlroy is rumored to be worth between $200-250 million, and with McIlroy rising to the top of the world’s golf rankings, most sports fanatics wouldn’t be shocked by that number.
As this case goes to trial, several issues are being brought up, and important facts are coming out of the wood work. It seems that Nike may be banking on e-mail conversations between a marketing manager at Oakley named Pat McIlvian and McIlroy’s agent, Conor Ridge to make its case. Nike will mostly likely argue that although Oakley did, in fact, have a first refusal provision in its contract with McIlroy, Oakley waived its right when Pat McIlvian e-mailed Conor Ridge stating, “Understood. We are out of the mix. No contract for 2013. Pat Mac.” Should Oakley win at trial, it not only seeks an injunction that would prevent McIlroy from keeping his contract with Nike, but it also alleges that it has suffered irreparable damages which include $300,000 spent on a photo shoot that would have been endorsed by McIlroy in 2013. The question that looms throughout these proceedings is: Could Oakley even match Nike’s $200-250 million contract with McIlroy? If European golf publications are correct, then Oakley was planning on offering McIlroy around $60 million to continue his contract through 2013. There’s a big difference between $250 million and $60 million, and the Oakley contract’s provision required Oakley to match any terms offered by a third party.
Even though Pat McIlvian’s emails to Rory McIlroy’s agent seem to seal the deal in Nike’s case, there’s always the chance that the judge does find that there was a breach of contract and that Oakley is entitled to damages. Specific performance is not an option in this case because forcing McIlroy to participate in a contract with Oakley would look like involuntary servitude, and McIlroy has a thirteenth amendment right which prohibits slavery. Oakley seeks monetary damages; however, the amount has not been released yet. It seems as though Oakley is the quintessential, teenage ex-girlfriend in this case. It doesn’t want McIlroy (more like it can’t afford McIlroy), but it definitely doesn’t want the more successful, good looking, and popular Nike to have him. If the judge rules in Oakley’s favor in this case and does grant monetary damages, what kind of policy is it enforcing if Oakley couldn’t afford to match Nike’s deal in the first place? It will create a trend of brands that sponsor up-and-coming athletes and continue to make first refusal provisions a primary section of their contracts. Then, when their contracts expire, they’ll sue the larger, more powerful companies like Nike for violating this provision, when in fact, they couldn’t match the new contract’s value in the first place. So, companies like Oakley will continue to play the victim and receive monetary damages when their athletes find a better deal, and companies like Nike will be punished for a breach that didn’t really happen on top of funding a larger-than-life contract with an athlete that better be worth their weight in gold.