In the past week, Aaron Hernandez has been charged with first degree murder, five counts of possessing a firearm, been dropped from the Patriots, and has been denied bail. The icing on the cake and likely the least of his worries is that he has also been dropped from his endorsement deal with CytoSport (makers of Muscle Milk) and will likely be dropped from his deal with Puma.
According to Forbes.com, seven of the world’s top ten highest paid athletes made more money from endorsements than from salary or winnings. It’s safe to say that endorsement deals are important to professional athletes and losing them can hurt more than being dropped from a team or struggling to win a major tournament. The question many people may have is how can a company terminate a contract with an athlete? After all endorsement deals are not like NFL contracts, which are not guaranteed; they are business contracts which are drafted to be fully enforced, right?
When investing in an athlete, companies spend millions of dollars to tie their name to a person in hopes that Tom Brady wearing UGGS or Lebron James and Tiger Woods wearing Nike gear, will compel the public to buy their products. The downside for companies in investing millions in one person, is the risk the athlete will behave in a way that will turn the public off to not only themselves, but the product as well. For this reason, most endorsement contracts include a morals clause and that’s how CytoSport and possibly Puma will be able to terminate Hernandez’s contract.
A typical morals clause in an endorsement contract essentially gives the company the right to terminate the contract if the athlete does anything the company does not wish to associate itself with. In the case of Hernandez, CytoSport terminated his contract before he was arrested. It’s important to note that a morals clause in an endorsement contract lacks mutuality. In other words, the athlete does not have the right to terminate the contract if he no longer wants to associate himself with them.
When signing an endorsement deal athletes should consider how the morals clause is worded. More than likely, the company will seek to keep the language of the clause very broad giving themselves more power to decide what behavior is “bad”. It would be in the athletes best interest to attempt to use language that more specifically defines what actions or behaviors will allow the company to terminate the contract.
A couple of years ago Pittsburgh Steelers running back, Rashard Mendenhall, fired off a series of tweets criticizing American views towards Osama Bin Laden’s death as well as tweets raising doubts about 9/11. Mendenhall had an endorsement deal with Hanesbrands, Inc., the parent company of Champion, and he was dropped from it shortly after his tweets. According to Mendenhall’s complaint, the morals clause in his contract stated any act “tending to bring Mendenhall into public disrepute, contempt, scandal or ridicule, or tending to shock, insult or offend the majority of the consuming public or any protected class or group thereof, then we shall have the right to immediately terminate this Agreement”. This is an example of a morals clause that was written very broadly. It essentially gave Hanes the power to terminate the contract if Mendnehall offended almost any group of people. Eventually Mendenhall and Hanes settled the case, but with attorney’s fees and the simple fact the he settled, Mendenhall likely did not receive the amount he would have, had he not been dropped from the deal.
Another example of athlete behavior that was considered immoral by many companies is Tiger Woods. When it was found that Woods had committed adultery with multiple women, many of his sponsors including Accenture and Gatorade, cut ties with him. Losing major endorsement deals led Woods’ income from endorsements to drop from $90 million in 2009 to $54.5 million in 2011 according to CNN. Keep in mind, Woods did nothing illegal but the companies were still able to terminate his contracts. It’s likely the morals clauses in his contract were similar to that in Mendenehall’s.
Another issue athletes should consider when signing an endorsement contract is whether the morals clause is specific to him or to friends and family as well. It would be in the best interest of the athlete to limit the clause to himself as it’s difficult to control what friends and family do or say. Further, (to state the obvious) athletes should conduct themselves accordingly on and off the field. Recently that’s looking more and more like it’s easier said than done (i.e. Hernandez, Scottie Pippen, Gilbert Arenas, Ausar Walcott)
Rashard Mendenhall and Tiger Woods may be able to regain some of their lost endorsement deals. Woods is back to competing at a high level (although has yet to win a major) and Mendenhall will be playing for the Arizona Cardinals this season. Unfortunately for Aaron Hernandez, it’s unlikely he will regain any endorsement deals let alone set foot on an NFL field ever again.