By: Katie Warren
COVID-19 has brought a lot of change to our world. In these uncertain times, stores have closed, people have been laid off, movies are now streaming online instead of premiering at movie theaters, and the mask industry is booming. With all of this change and uncertainty, is the global pandemic a valid reason to end a sponsorship agreement? Under Armour seems to think that it is.[1]
In 2016, Under Armour and UCLA entered into a fifteen-year sponsorship agreement that was worth $280 million.[2] It was the largest college sponsorship deal to date.[3] In June 2020, Under Armour told UCLA that they were terminating the Agreement.[4] In a released statement, Under Armour reasoned the termination by saying, “[w]e have been paying for marketing benefits that we have not received for an extended time period. The agreement allows us to terminate in such an event and we are exercising that right.”[5]
In the agreement between UCLA and Under Armour, there were three instances that would allow Under Armour to terminate that agreement without liability. The Agreement had a “Force Majeure” Clause that allowed either UCLA or Under Armour to terminate the Agreement with written notice if a Force Majeure Event lasted “for more than one hundred days.”[6] A “Force Majeure Event” was defined as a cause or event that (1) “is beyond the commercially reasonable control of” Under Armour or UCLA, and (2) “renders the performance of this Agreement by the affected Party either impossible or impractical.”[7] Also provided in the Agreement, Under Armour is allowed to terminate the Agreement if one of UCLA’s NCAA Division 1 Core Teams “does not participate for any reason (other than for a Force Majeure Event) in a complete regular season, missing at least fifty percent (50%) of the scheduled games during the regular season,” or if UCLA fails to take reasonable actions if a head coach is “convicted of or pleads guilty or no contest to a severe felony.”[8]
Under Armour cited all three of those instances as grounds to terminate the Agreement. First, for the “Force Majeure” Clause, Under Armour claimed that COVID-19 was a “Force Majeure Event” that lasted over 100 days and justified the immediate termination of the Agreement. [9] Second, Under Armour claimed that UCLA’s baseball team only played sixteen of the fifty-seven originally scheduled games, and therefore missed more than fifty percent of their scheduled games for the regular season. [10] Third, Under Armour claims they have ground to terminate the Agreement because UCLA’s soccer coach was arrested and indicted in connection to the “‘Operation Varsity Blues’ college admissions scandal.” [11] Under Armour looked at every possible “out” that they had available to them to try and terminate the deal. However, wanting to terminate the Agreement was one sided.
In August 2020, UCLA sued Under Armor for breach of contract, breach of implied covenant of good faith and fair dealing, and promissory estoppel, and rejected all three grounds Under Armour used to terminate the Agreement.[12] First, UCLA argues that Under Armour is not an “affected party” under the “Force Majeure” Clause since COVID-19 has not made it impossible for either UCLA or Under Armour to “meet [their] material obligations under the Agreement.” [13] The UCLA athletes and coaches were still wearing Under Armour gear at workouts, meetings, and other preparation for the resumption of games during the coronavirus outbreak.[14] Second, UCLA argues that their baseball team played all of their scheduled games.[15] The rest of the season was cancelled by the NCAA.[16] In addition, if UCLA did fail to play fifty percent of their scheduled regular season games, it would have been because of a Force Majeure Event, which is an exception for termination under this clause.[17] Third, UCLA argues that they took reasonable actions when the soccer coach was arrested and indicted.[18]
In addition to rejecting Under Armour’s termination reasons, UCLA also alleges that Under Armor wanted to get out of the deal due to their financial troubles and not because of COVID-19.[19] In January 2020, Under Armour reported a $18.9 million budget deficit.[20] In February 2020, Under Armour’s stock dropped 20%, and it is predicted that their sales this fiscal period will drop by around 54%.[21] Further, Under Armour was subject to an investigation by the Justice Department and SEC over accounting practices that were designed to manipulate the appearance of its finances.[22]
The question remains, does Under Armour want to get out of their Agreement with UCLA because they are not getting enough marketing to make the deal worth it, or is Under Armour unable to afford the contract anymore and is using the global pandemic as an out? UCLA claims that both parties were still able to fulfill their primary obligations in the Agreement during the pandemic.[23] If the court agrees with Under Armour, and therefore allows them to terminate the Agreement without liability, it could create precedent that broadens the scope of Force Majeure clauses and the meaning of “impossible” or “impractical.” The overall result will be a floodgate of litigation from companies with similar types of clauses trying to easily opt out of agreements they no longer want to participate in.
[1] Mark Schlabach, UCLA sues Under Armour for terminating $280 million sponsorship deal with school, ESPN (Aug. 26, 2020), https://www.espn.com/college-sports/story/_/id/29749328/ucla-sues-armour-terminating-280-million-sponsorship-deal-school.
[2] Complaint at 15, UCLA v. Under Armour, Inc., (C.D. Cal. filed Aug. 26, 2020) (No. 2:20-cv-07798).
[3] Id. at ¶ 16.
[4] Id. at ¶ 34.
[5] Barrett Sallee, Under Armour terminates 15-year, $280 million apparel deal with UCLA over lack of ‘marketing benefits,’ CBS Sports (June 27, 2020), https://www.cbssports.com/college-football/news/under-armour-terminates-15-year-280-million-apparel-deal-with-ucla-over-lack-of-marketing-benefits/.
[6] Complaint, supra note 2, at ¶ 9.
[7] Id.
[8] Id.
[9] Id. at ¶ 36.
[10] Id. at ¶ 42.
[11] Id. at ¶ 49.
[12] Id.
[13] Id. at ¶ 38.
[14] Id.
[15] Id. at ¶ 45.
[16] Id. at ¶ 47.
[17] Id.
[18] Id. at ¶ 49.
[19] Schlabach, supra note 1.
[20] Carlie Porterfield, Under Armour – Coronavirus Financial Strain – wants Out Of Record $280 Million UCLA Deal, Forbes (June 27, 2020) https://www.forbes.com/sites/carlieporterfield/2020/06/27/under-armour-amid-coronavirus-financial-strain-wants-out-of-record-280-million-ucla-deal/#5a5242b115eb.
[21] Id.
[22] Schlabach, supra note 1.
[23] Complaint, supra note 2, at ¶ 38.
