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The recent high profile cases of Tiger Woods, Lance Armstrong and now, Oscar Pistorius, each individually highlight, in radically different circumstances, how the conduct of an athlete may affect the sponsor's business.
From a legal perspective, the most common way of mitigating this type of risk is by including a so-called 'conduct' or 'morality' clause in the sponsorship contract. The sponsoring company could rely on this provision to terminate its relationship with the team or athlete where they have acted in a way that negatively affects their image or public perception in a way that has, as far as the sponsor is concerned, a detrimental effect on the sponsor's brand.
This provision puts the sponsor in a strong position with regard to its relationship with the team or athlete, as it gives the sponsor the option of walking away completely from the sponsorship or creates a strong negotiating position from which to modify its terms or the way it implements its sponsorship.
In the cases mentioned above, the individual sponsors of the athletes concerned didn't all adopt the same approach with regard to their sponsorships. Primarily, this undoubtedly reflected the magnitude and nature of the alleged conduct. It is also likely to be influenced by the stage of the athlete's career and the level of sponsor's investment in activating the sponsorship and the amount of product or stock that they have produced in connection with that relationship. It may also be a result of what legal remedies they had built into their sponsorship contracts.
An ability to terminate or at least modify a sponsorship contract is helpful in allowing a sponsor to deal with the immediate aftermath of misconduct by a sponsored team or athlete. It is reasonably straightforward to achieve. A separate matter, which may be considered by the sponsor after it has dealt with the initial fall-out of the conduct or incident concerned is whether the sponsor can recover sponsorship fees from a sponsored team or athlete, when they have breached a term of the sponsorship contract.
There is no doubt that it is possible to include provisions in a sponsorship contract that would enable a sponsor to recover sponsorship fees where the sponsored team or athlete has breached a conduct clause. Given the significant expertise that the lawyers advising a large brand owner will possess, there is little doubt that these provisions will be included in major sponsorship contracts.
There is, however, little public evidence of sponsors recovering sponsorship fees from 'tarnished' athletes. This may be a result of confidential out-of-court settlements, but it may also reflect a lack of appetite from sponsors to draw further attention to their sponsorship for strategic reasons.
However, given the increasing appetite for sports sponsorship and the inevitability that there will be misconduct from sports teams or athletes in the future, we would expect this to be an area that sponsors will increasingly focus on.
Grigor Milne is a partner at law firm Dundas & Wilson
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