The most famous professional athletes may earn huge sums from signing endorsement agreements with brands across all types of industries. Businesses also gain a significant boost from being affiliated with these athletes, who may be some of the most revered and recognizable people in the world. Less famous athletes may sign smaller endorsement agreements, which sometimes are limited to free equipment or apparel.
Endorsement deals often extend for many years, but their course is not always smooth. If an athlete suffers an injury, causing their career to spiral downward, their value as an endorser may plummet. Depending on the sport and the nature of the business, controversial behavior by the athlete may undermine their value to the sponsor as well. For example, a company seeking to present a wholesome image to consumers may no longer want to be affiliated with an athlete who is arrested for DUI or sexual assault. These agreements thus must be carefully devised and contain an exit route for the business if unexpected problems arise.
Contracts With Juvenile Athletes
Some promising athletes are under 18 years old. Contract law generally provides that a minor can void a contract at will at any time through their 18th birthday, although the other party to the contract will be bound. To address this problem, some states have created specific laws that allow courts to confirm endorsement agreements with juvenile athletes and make them binding if certain requirements are met.
Protections for Sponsors
A sponsor will want to ensure that they clearly define the obligations of the athlete throughout the term of the contract. This will prevent disputes down the road. A sponsor also should ensure that the athlete does not sign endorsement deals with their competitors, and ideally they should require the athlete to get their approval before signing any other deals. If an athlete already has ongoing endorsement obligations with other sponsors, these should be disclosed and discussed. The agreement should identify any other deals that will continue after the agreement takes effect.
Some athletes aspire to collaborate with their sponsors on producing creative content, such as commercials or print ads. While they can work together with the company, the agreement should provide that the sponsor retains all the intellectual property rights to this content. Works made in collaboration with the athlete can be designated as "works made for hire" under federal copyright law, or the copyright simply can be assigned to the sponsor.
An endorsement agreement may provide for termination or restructuring in the event that an athlete cannot compete for an extended period, such as when they suffer a serious injury. If the athlete and their agent reject this term, the sponsor might be able to get an insurance policy for this situation. In addition, an endorsement agreement should include disclaimers of liability if the athlete is injured while performing an obligation for the sponsor. These will provide that the athlete assumes the risks in the activity.
The Morals Clause
One of the most famous components of an endorsement agreement is the morals clause. This allows a sponsor to suspend or terminate the agreement if the athlete engages in conduct that undermines their image and thus reflects poorly on the sponsor. Standards for athlete conduct vary dramatically among sports, so the situations in which these clauses are triggered also vary.
Terminating Endorsement Agreements
The termination provision in an endorsement contract should clearly describe the situations in which either side can walk away from the relationship. These may involve a breach of the agreement or simply a decision not to renew it. The termination provision should define the notice that either side must provide for terminating or extending the agreement. It should provide for any final payments owed to the athlete after a termination notice is issued.
Sometimes a sponsor will terminate an agreement for cause if the athlete breaches its terms. However, a sponsor cannot suddenly terminate an agreement for cause if it has consistently allowed the athlete to engage in the behavior that forms the basis for termination. Therefore, a sponsor should carefully monitor compliance with the agreement and address any problems with the athlete as soon as they arise.