Key points for athletes to consider before signing a sponsorship agreement
Published 23 May 2018 By: Joe Tompkins
The financial rewards available to professional athletes from entering into brand endorsements are extensive. However, whilst the amount of the fee and identity of the brand is inherently important to any athlete’s decision to enter into an endorsement, athletes also need to bear in mind the impact that their endorsements and other commercial activities may have on aspects of their life other than their bank balance. This article looks at some of the key factors that athletes should consider when negotiating an endorsement agreement, including:
how best to structure the term and financials of the agreement;
awareness of potential commercial restrictions owed to third parties;
how to limit any impact on an athlete’s sporting commitments;
how to control use of an athlete’s image; and
issues arising when an endorsement ends or is suspended.
Term of the agreement
The length of an endorsement may seem to be straightforward commercial point agreed between an athlete/agent and the brand at the first stage of negotiations. However, there are some related issues to consider, particularly where the athlete utilises the brand’s products in competition:
Does the term of the endorsement fit with my playing schedule?
For instance, if a tennis player’s current racket deal were to run from 1 June to 31 July, the knock-on effect is that any subsequent deal with a new supplier would be likely to take effect from 1 June. This would mean changing the player’s key piece of equipment in the middle of the tennis season, which may well be disruptive to performance (or, alternatively, disincentivise the player to move suppliers even if a better offer was on the table). When an endorsed product is to be utilised in competition then the potential “changeover” period between suppliers should always be structured to fall in the off-season. Similarly, athletes should seek to ensure that, at the least, their endorsement contracts permit them to practise privately using third party products towards the end of an endorsement deal (but not to promote the new products publicly until their current deal expires).
What renewal rights should be included?
Brands may request the right to automatically renew or extend the endorsement. On the other hand, athletes should ensure that renewal/extension rights do not restrict or exclude their ability to find better equipment or a higher-value new deal. Usually, this means that the athlete should resist granting an automatic renewal/extension right, but if the brand insists then athletes should try to:
qualify the drafting of the renewal/extension clause by ensuring it is not a one-way right, but rather an obligation to “enter negotiations” (during a “negotiation window”) with a view to agreeing new terms;
if the athlete is not entitled to negotiate with third parties until after the expiry of any negotiation window, ensure that this window ends as early as possible and that the athlete is immediately free to negotiate with third parties thereafter; and
qualify any renewal/extension clause by stating that any new commercial terms will be “no less favourable” to the athlete than the existing terms.
Is the term of the endorsement appropriate?
It is increasingly common to see brands enter into endorsement contracts in respect of specific short-term campaigns (or even for just a single social media post). This allows brands to ensure they are selecting an appropriate athlete for each individual campaign, rather than having to create multiple campaigns around an athlete with whom they have a long-term deal. This trend towards brands entering a greater number of short-term endorsements makes it important for athletes who are going through a successful or popular period to maximise the impact (and therefore value) of their short-term endorsements, as savvy brands will continuously collect and analyse short-term data in an effort to understand which athletes are best suited to the brand’s overall long-term strategy and should be rewarded with extensions or renewals of their endorsements.
Cash is usually king and it is in the athlete’s interest to structure a deal to receive as much of the fee as quickly as possible; this is primarily to provide the athlete with a little more leverage in the event of a dispute arising during the term of the endorsement. In addition, athletes should consider the following:
Should I accept a lower fee for a higher performance bonus?
Many brands prefer to pay a lower base fee in exchange for higher performance bonuses if the athlete is successful.
Athletes minded to leverage an endorsement with bonuses should consider a variety of options – for example, whilst a standard rugby player endorsement may include performance bonuses for winning international caps, what if the player is selected for a British & Irish Lions tour; is appointed captain of his national team; or even nominated for BBC Sport Personality of the Year? Such appointments would bring significant exposure to the player and justify a bonus being paid.
Athletes could also try to negotiate bonuses and/or higher fees in relation to metrics such as number of social media followers or overall views of brand’s content on athlete-owned channels. Modern brands expect greater detail on the ROI of their endorsements and sponsorships against their marketing objectives, so an athlete who is able to over-deliver on expected exposure should be rewarded appropriately.
One example of a metric to which brands may attribute value is unique views or “eyeballs” on sponsor-related content posted on the athlete’s social media channels. Given this, athletes should ensure that they or their agents are tracking the impact and value of their own social media activity and, and as top athletes such as Cristiano Ronaldo1 become considerably more popular on social media than their own clubs, top athletes should consider utilising the services of the numerous agencies who offer media value analysis and tracking for rights holders. Having evidence of the media value of their personal brand allows athletes to structure their range of endorsements in a way that best exploits that brand, as those athletes who are able to properly understand the core demographics and interests of their personal fan-base will be able to target (and demonstrate the real value of) endorsement deals with aligned brands.
What are the tax implications?
Athletes should always speak to their financial adviser regarding the tax treatment of any endorsement agreement in all relevant jurisdictions. Firstly, some athletes may have image rights companies through which they enter into endorsement deals. The issues relating to image rights structures are outside the scope of this article, but an athlete should always take professional advice if using such a structure. Aside from the fees and image rights issues, endorsements which include an athlete taking permanent delivery of a high-value product such as a car or luxury watch on a “free-of-charge” basis can have material benefit-in-kind tax implications.
What ancillary expenses should be covered?
If the athlete is to attend promotional appearances then all costs should be covered. Athletes may also want their agent and/or other persons attending the appearance with them and the expenses for these persons should also be specified as costs borne by the brand.
An endorsement deal will usually include the athlete receiving some “value-in-kind” products from the brand free-of-charge (these could be for use in competition or the athlete’s personal life). Key points to consider in relation to products which are to be used in competition are:
Are the products of an appropriate quality?
This matters for both practical and reputational reasons, including:
Compliance with laws/regulations: if an athlete is to use a particular item of equipment or apparel in competition, then he or she must have assurances that it will comply with applicable regulations in the athlete’s sport. If the product is food, drink or nutrition-related then it is also imperative that the brand guarantees that the products will not breach (or cause the athlete to breach) regulations such as the WADA Code.
Association with a world-class athlete: athletes with a particularly high commercial standing may consider whether they have the bargaining power to include a clause which obliges the brand to ensure that the endorsed products/services are “best-in-class” and of a quality commensurate for association with a world-class athlete. This might be particularly relevant where a well-known athlete is promoting a challenger brand or product. For example, Roger Federer has built an association with a number of luxury brands (including Rolex, Nike, Mercedes-Benz and Moet & Chandon).
Performance of new products: brands usually want an athlete to use its latest version of a product, whereas an athlete may consider that older versions deliver better performance – this can be a contentious area of negotiation. On the other hand, some world-class athletes request that technical suppliers commit to providing free hours of research and development to develop a new product that provides the athlete with a performance advantage. We have also seen athletes seek the right to use alternative third party products or terminate a contract if independent testing demonstrates that a third party product provides superior performance.
Athletes should also try to negotiate carve-outs from brand sector exclusivity (see below) that allow the athlete to obtain (at the brand’s cost) and use third party products in the event that a brand fails to meet the athlete’s quality requirements (until such time as the brand rectifies the issue). In particularly serious cases, the athlete may also opt to terminate the agreement. Ultimately the commercial context will dictate how far an athlete is able to push these points.
What is the delivery schedule?
Athletes tend to have busy global schedules. As an opening position, it is important to insist on the value-in-kind products (including replacements for broken or lost products) being delivered at a convenient time anywhere in the world at the brand’s cost (with no cap on the number of deliveries each year nor any geographical restrictions). The position on delivery will largely depend on each party’s bargaining position and the brand’s distribution network; for example, some global golf brands may well accept the delivery costs of providing replacements if their superstar golfer’s clubs are lost by an airline en route to a major tournament, but athletes with less commercial clout or who are endorsed by smaller brands may not be able to negotiate such favourable terms.
A more contentious part of many endorsement negotiations relates to “product category” or “brand sector” exclusivity. These negotiations generally centre around the adverse interests of a brand wanting to protect their investment against as many potential competitors as possible, and an athlete wanting to ensure that their future ability to endorse other products is not unnecessarily restricted.
How does the contract define what are competing products?
As an example, a brand such as Coca-Cola might look to restrict an athlete from signing endorsement deals with any other drinks brand. However, the athlete’s position may be that by choosing to endorse Coca-Cola he or she should of course not endorse Pepsi (as Ronaldinho2 demonstrated in 2012), but should not be precluded from endorsing what could arguably be considered non-competing drinks products (such as protein or recovery shakes, mineral water, beer, wine, spirits or even energy drinks). For certainty, athletes should seek to restrict the “competing products” to a short list of specific brands, rather than attempt to define a particular category.
Brands will usually try to resist a list-based approach to this (for fear of omitting a competitor or of a new challenger product entering the market after the list is agreed), so an athlete who accepts a definition of “competing products” must ensure they try to carve-out certain sub-categories. Using the Coca-Cola/Pepsi example, a compromise could be to define competing products as “non-alcoholic beverages (excluding water)”, therefore allowing the athlete to sign a water and/or wine endorsement alongside their Coca-Cola deal.
What are your restrictions in respect of competitors and competing products?
Ideally an athlete would only be restricted from actively promoting competing products during the term of the endorsement, rather than also being restricted from discussing (but not entering into) a future endorsement with a competitor. In addition, athletes must consider whether the exclusivity obligations placed on them need any carve-outs – as highlighted by the following examples of types of carve-out:
a footballer endorses a luxury headphone brand and is not permitted to wear any other audio equipment. However, his club has its own official audio partner and therefore: (i) his image is used (on a collective basis together with other players) in promotional imagery for the club’s official audio partner, and (ii) his playing contract prevents him from wearing any other brand’s audio equipment when on “club duty” (i.e. training, playing or otherwise representing the club). In this scenario, the footballer’s personal endorsement contract needs to be clear that he is not in breach of his deal by virtue of his club using his image to promote a competitor audio brand in the context of him representing his club, nor is he required to wear his individually-endorsed headphone brand when on “club duty”. The reactions of FIFA in respect of the 2014 FIFA World Cup3 and the NFL4 to guerrilla marketing tactics by Beats by Dre highlight how grey areas between what is “personal” time and what is “team” time can be exploited by brands (or cause confusion for athletes); or
a tennis player has a deal with a mineral water brand, which prevents her from using the products of other mineral water brands. However, during Wimbledon she is photographed celebrating a victory with a bottle of a different mineral water brand, the tournament’s official partner, in her hand. Here, the player should have ensured that any obligation on her not to drink rival products during matches expressly excluded situations where a tournament has an official (and exclusive) drinks product provided to competing players.
What are your obligations to your club or national team?
Team sport athletes also need to check the obligations they owe to their team (who may well be their employer). In most major UK team sports, athletes’ playing contracts will restrict them from carrying out personal promotional work in club kit or using club intellectual property, and also from entering into personal deals which may conflict with the team’s existing sponsors. The precise restrictions will depend on the specific playing contract (for example, some high-profile footballers who transfer to a new club will have tailored carve-outs for existing endorsements), so before agreeing to any endorsement deal or promotional activity athletes should always ensure that they notify or obtain the required approval of their team, club or union of the brand activity (or sometimes vice versa, as demonstrated by Michael Phelps, at the time an Under Armour athlete, appearing in Nike clothing on the front cover on Sports Illustrated to celebrate his Rio 2016 success5).
In some team sports, player contracts may also include collective restrictions negotiated with the relevant players’ union – for example, by preventing more than three players from one team from signing endorsement deals with the same brand. This is to prevent individual players joining together to create an impression that the brand is an official partner of the team/club, rather than a number of individuals (which would likely be less expensive for the brand than signing a broader “official partner” deal with the team, club or union).
Individual athletes are also not exempt from third party restrictions, however, particularly those who compete in competitions such as the Olympic Games. The draconian sponsor restrictions in place for Olympic athletes are beyond the scope of this article, but are well-covered across LawInSport6, and individual athletes should ensure that their endorsement deals include clauses which ensure they are not deemed to be in breach of contract by virtue of observing the rules and regulations of any competition in which they compete.
It is imperative that an athlete does not let their commercial endorsements affect their ability to deliver continued sporting success. Although short-term endorsements have become more prevalent (as discussed above), high-profile brands remain conscious of the need to build authentic long-term partnerships with top athletes in order to create an ongoing brand association with consistent message that goes beyond a simple endorsement (for example, adidas’ long-term investment in “Team Messi”7 as a lifestyle proposition). Brands who partner with internationally-renowned athletes for the long-term may well take a more genuine interest in ensuring the continuing success of the athlete, but athletes of all profiles should bear in mind the following principles:
Do my sporting commitments take precedence?
Contractual clauses relating to promotional appearances should always include an express reference to the exact location and time of the appearance being subject to an athlete’s training, playing and (if possible) other commitments. Similarly, the duration any appearance should be stated on a basis that is inclusive of travel time, so the athlete has certainty.
Athletes should also be able to be excused from using endorsed products or to re-schedule appearances if prevented from doing so by injury/illness (for example a tennis player with a watch deal should ensure that the endorsement contract does not require her to wear it if she reasonably considers it would affect performance).
Do I need specific permission or additional insurance for an activity?
As brands strive for the most engaging content possible there is a natural tendency towards filming more active, dynamic content. Athletes should first always consider whether any particularly active promotional activity is permitted by their playing contract and, if it is, whether it requires additional insurance. If so, the brand should be asked to procure and pay for any additional cover.
Innovative brands continue to create new, exciting athlete activations (such as PokerStars’ well-received #raiseit challenge8 featuring Dwyane Wade and Cristiano Ronaldo) to engage modern consumers. For the athlete, this is clearly preferable to appearing in a staid television advert that does the athlete’s image (and commercial value) no favours. However, each athlete needs to ensure that he or she is able to control how their image is used.
Which brand and products may be promoted using my image?
If, by way of example, an athlete was to grant the Unilever Group the right to use his or her image, but did not specify that the image must only be used in the promotion of Unilever’s “Dove” deodorant brand, then, from a contractual perspective at least, there is a risk that Unilever could argue that they have the right to use the image in the promotion of its other brands and products (for instance, Persil or Marmite). The right to use the athlete’s image should therefore always be expressly limited to a particular brand and particular types of products, as even a small single-brand company could quickly become part of a global conglomerate following an acquisition.
How will I approve use of my image?
A right of approval relating image use and promotional activations should be non-negotiable for athletes. As social media promotional campaigns become the main focus of endorsement contracts, athletes need to be aware of regulations regarding sponsored posts (such as the UK’s CAP Code) and, although the nature of the social media promotional campaign featuring the athlete is likely to be driven by the brand, the athlete should ensure they (or their agent) retain ultimate control over what is posted on their channels (and how regularly promotional posts are made).
Which channels may my image be used in?
Generally, an individual athlete will grant use of his image in whichever channels the brand wishes (e.g. social media, online, outdoor advertising, TV, etc.). However, athletes should ensure they are being paid fair value for the use of the image. For example, if a video-shoot is purported to be for use only on the brand’s social and digital channels, but ends up forming part of a six-week paid-for TV and outdoor advertising campaign, the value paid to the athlete should reflect this higher level of exposure.
Ending or suspending the endorsement
With the brand and athlete focused on their exciting new partnership, issues regarding the end of the relationship are likely to be the most difficult issues to discuss, yet these are arguably the most important parts of the contract (and the most likely to be reconsidered in the event of a dispute).
What happens if I’m injured or retire?
Generally, athletes should avoid accepting termination rights linked to poor on-field performance or injury. The athlete should argue that if a brand is to participate in the upside of success, it must stick by the athlete if more difficult periods occur. However, in the case of long-term injury or retirement it is likely an athlete may need to strike a compromise position, particularly if the injury/retirement adversely affects the athlete’s commercial value, as many brands insist on a right to reduce fees or even terminate the endorsement in the event of a serious injury or retirement. As a general rule when negotiating this point, athletes should ensure any injury-related fee repayments/reductions are assessed by reference to a specified number of missed events, rather than by reference to a calendar period. For example, an injury-related fee repayment/reduction for a golfer should not be triggered by the golfer being injured for a period of four consecutive months, but rather if the golfer does not participate in a minimum number of tournaments across a 12-month period. This allows the athlete to try and make up for periods of injury by participating in more tournaments at other times of the year, if necessary. In addition, athletes could argue that injury or retirement does not necessarily diminish an athlete’s profile (e.g. periods of injury often give well-known athletes the opportunity to carry-out more promotional or television work which can lead to a higher public profile).
Is the brand insisting on a “morality clause”?
Detailed discussions around morality clauses are available elsewhere on Law in Sport, but the basic principle is that a brand should have the right to terminate the agreement if an athlete does (or fails to do) something which offends “morality” or damages the athlete’s or brand’s reputation (for example, Steve Smith recently lost various endorsement deals including his Weet-bix endorsement9) following the Australian cricket ball-tampering scandal). As general principles, an athlete should:
accept that it is difficult to reasonably argue against the inclusion of some form of morality clause, given that the primary driver for a brand’s decision to enter into an endorsement deal is the reputation or standing of the athlete. Ideally, any termination right should be limited to black and white matters such as criminal sanctions (excluding minor motoring offences) or anti-doping violations, but this is not likely to be sufficient for most brands;
limit the scope of the clause to matters within the athlete’s control and which would objectively offend public decency in the athlete’s home country. For example, if the media criticises an athlete for an on-pitch act that is within the laws of the relevant sport (perhaps for poor sportsmanship), then this should not be sufficient to trigger the clause;
ensure that the brand’s right to terminate is conditional upon the athlete having been through all available appeal processes and being subject to a final sanction. For example, a positive anti-doping test should not trigger a morality clause unless both an “A” and “B” sample are found positive and the athlete has no further right of appeal (or has elected not to appeal); and
consider whether it would be appropriate to include a “reverse” morality clause enabling the athlete to terminate if a brand suffers reputational damage (which could have a knock-on effect on the athlete’s reputation). Again, detailed discussion of these clauses are outside of the scope of this article, but for athletes with a strong personal brand and a deep association with a brand (such as Nike’s lifetime endorsement deals10 with Michael Jordan, LeBron James’s and Cristiano Ronaldo’s lifetime endorsement deals with Nike), it would pay to consider how the athlete may extricate itself in the event of a corporate scandal.
Social media and the prevalence of video and clip content has allowed athletes to become rights holders in their own right and to develop and promote their personal brands to a greater extent than ever before. Alongside these democratising trends, where a high-profile athlete endorsement deal was once the preserve of those blue-chip global brands able to afford major TV or other traditional above-the-line advertising campaigns, brands’ general movement towards shorter-term endorsements focused on social channels means that challenger and other smaller brands are now able to create bespoke, inventive associations with athletes they consider to be aligned with their brand and/or target consumer. These trends show no sign of slowing up and as athletes continue to have more opportunities to enter into bespoke endorsements with brands who demand a measurable return on their investment, athletes would do well to bear in mind the key considerations set out above.
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Joe Tompkins: Senior Associate, Onside Law
Joe is a senior associate at onside law who specialises in commercial law in the sports sector. His particular focus is advising rights holders on contractual matters relating to the exploitation of their commercial and media rights, high-value sponsorship agreements and the delivery of international sporting events. He acts on a wide range of commercial matters for international federations, national governing bodies, clubs, individuals and agencies, including World Rugby, the ECB, Saracens, Team Sky and a Premier League football club.