WHEN THE ENDORSEMENT DEAL GOES WRONG: THE LEGALITY OF ENDING ENDORSEMENT DEALS
By Spencer Powell
The Masters Tournament occurred earlier this month, and this was the first tournament that Tiger Woods played in approximately six months. Tiger’s reemergence reminded me of the sex scandal that has somewhat derailed his career and cost him millions of dollars in endorsements. Tiger lost many of his endorsement deals such as Gillette and Gatorade. Electronic Arts, a gaming company, has even decided to no longer title its golf game after Tiger Woods and has decided to have Rory McIlroy be the face of its game. These events made me think about how these companies can legally end these contractual relationships, even though the contract may not have expired. The simple answer is that many of these contracts include what is referred to as a “morals clause.”
Morals clauses are clauses that allow companies to end their relationship with an athlete if that athlete’s actions do something to tarnish the image of the company or the athlete. The battle behind the scenes with these clauses is how broad the clause will be written. Companies that are hesitant to sign an athlete may want a very broad clause to make the company feel more comfortable in signing an athlete with a history of bad behavior. Some of the more strict morals clauses in today’s celebrity endorsement contracts will cover a variety of types of behavior such as criminal, scandalous, or publicly reprehensible behavior. The celebrity, on the other hand, will want to limit the kinds of activity that the morals clause will encompass.
In Tiger Woods’ case, it is likely that Woods will no longer have much leverage in negotiations regarding morals clauses. Tiger Woods admitted in 2009 to have cheated on his wife. More than a dozen women later stated to the press that they had extramarital affairs with Tiger. This scandal is what led to multiple companies eventually dropping Tiger as their endorser. If Tiger wants any future endorsement deals, the endorsing company will likely require a broad morals clause that encompasses a wide range of behavior. One factor that may help Woods, however, is that morals clauses are often litigated. Litigating the scope of a morals clause can be very expensive and many times it is more beneficial for an endorsement company to just remove the athlete from its advertisements without terminating the endorsement contract.
Other athletes, on the other hand, may be able to learn from Tiger’s mistakes. These athletes need to realize that companies do have the legal right to drop them as an endorser. Athletes should make sure to not overlook the morals clause in their contracts because the language of that clause could potentially cost them millions.