Artificial Intelligence driven Marketing Communications
Under Armour has decided to discontinue its partnership with UCLA and break a 15-year contract that required the apparel company to pay the university a total of $280 million. It is justifying an early termination of the agreement entered into by the parties in May 2016 based on allegedly not receiving marketing benefits for an extended time.
“The agreement allows us to terminate in such an event and we are exercising that right,” Under Armour said in a statement. UCLA has indicated that it is exploring all of its options to “resist Under Armour’s actions.”
The 37-page Athletic Product and Sponsorship Agreement between The Regents of the University of California and Under Armour, Inc. includes a controlling law section that indicates the agreement shall be construed under the laws of California, but it does not have a jurisdiction clause. It is assumed that if UCLA chooses the option of litigation, it will bring such a case on its home turf, in Los Angeles, and that Under Armour will have a tough time dismissing or removing the action for lack of jurisdiction.
Ultimately, a legal action will be focused on the language that begins on the bottom of page 26 of the terminated (according to Under Armour) agreement. The agreement provides permission for Under Armour to terminate early if UCLA breaches any material term of the agreement or any one of seven circumstances (laid out in the agreement) occur and UCLA does not cure the breach or circumstance within 30 days of receiving written notice from Under Armour specifying the breach or concern. The only circumstance that seems to be even remotely relevant is the one that centers on UCLA not fielding an NCAA Division I Core Team or that one of those teams does not participate for any reason (other than for a force majeure event) in a complete regular season, missing at least 50% of the scheduled games during the regular season.
Core teams are defined as UCLA’s football, baseball, men’s basketball and women’s basketball teams.
What provision of the agreement Under Armour is resting on to cause an early termination is not clear. The company’s public statement merely said that it has been paying for marketing benefits that it has not received, and says that the lack of deliverables has been an issue for “an extended time period.” That statement makes it seem as though the issue goes beyond any claim that Under Armour may have concerning a lack of play by any core team due to coronavirus. Instead, it appears to imply that UCLA has failed to perform on its obligations, which begin to be laid out on page 14 of the agreement and includes many requirements concerning signage, advertising, and appearances by UCLA coaches and administrators.
Further, it is not clear that Under Armour properly provided UCLA with an advanced notice of any breach nor an opportunity to cure any alleged failure by UCLA to comply with the terms of the agreement.
However, if Under Armour is actually going to rest on the failure of any UCLA core teams to participate in at least 50% of the scheduled games during a regular season as a way to cause an early termination, then the force majeure event definition will need to be inspected. It is defined as any cause or event that is beyond the reasonable control of UCLA and renders the performance of the agreement by the affected party either impossible or impracticable. While the definition does not specifically include epidemics nor pandemics (and it should be assumed that these types of contracts will in the future), a persuasive argument can be made that COVID-19 made it, at a minimum, impracticable for UCLA to perform. As such, it would make it incredibly difficult for Under Armour to cite to a lack of participation by a core team as grounds to terminate with cause and without penalty.
Expect UCLA to challenge Under Armour’s early termination by initiating litigation against the brand and for UCLA to have strong claims that Under Armour had no solid grounds to terminate with cause.