LAWBEES is starting a new series of simplifying clauses in the Sports and Entertainment Contracts. This is the first article in the series and would be dealing with Sports Industry, specifically the Exclusivity Clause in the endorsement contract.

The proliferation of sponsorships in the sports marketplace poses a challenge to sponsors attempting to establish a unique brand position apart from the clutter. The competition between corporate rivals for sponsorship exclusivity in the world’s highest-profile sporting arenas has begun to spill into the courtroom. The substantial investments of these companies are protected, in part, by the exclusivity of their sponsorship agreement, which provides them with the opportunity to differentiate themselves from their competitors. The exclusivity clause is used to determine how the athlete’s likeness, image, and the name is used for marketing and promotion purposes. Athlete endorsement contracts can become rather lengthy and complicated. They can be up to 15-20 pages long and contain a variety of clauses and legal jargon. Exclusivity clauses are one of the most significant provisions in these contracts that every athlete should be aware of. In the world of sports endorsements, exclusivity clauses legally restrict athletes from promoting or using similar products from another brand. The idea is that a brand does not want to pay an athlete money and then see them actively or passively promoting a competing brand. Put simply, this is the clause that prohibits Virat Kohli (Puma athlete) from wearing Adidas shoes on the ground, in public, or on social media.

TYPES OF EXCLUSIVITY

There are two different categories of exclusivity in endorsement contracts. The first limits the deal by product type. For example, a contract can restrict an athlete from promoting or using other types of “athletic shoes,” “sports drinks,” or “golf clubs.” The second category limits the deal by company. For example, a contract using this category can restrict an athlete from promoting or using other products from other “manufacturers/sellers of athletic shoes.”

If a brand or sponsor wants to make a contract exclusive, a narrower exclusivity clause is more advantageous for the athlete. The narrower and more favourable category is almost always product type. This allows an athlete that has an athletic shoe sponsor to go sign with a different brand for clothing, eyewear, or accessories.

Company-based limitations will prevent that same athlete from entering into clothing, eyewear, or accessory deals with companies that also make or sell products in the exclusive category. This may also lead to unintended consequences since many companies make and sell a very broad range of products.

A real-life example of this exact scenario is when swimming legend Michael Phelp s was sponsored by both Speedo and Under Armour at the same time. We all know Speedo provides racing and training equipment for the sport of swimming, but they also make and sell active-wear clothing and footwear, which is exactly what Under Armour provides. The reason he was able to promote both brands at the same time was because of careful legal consideration in the exclusivity clauses in both contracts. Distinctions were made by product type that allowed him to have a “pool deck” relationship with Speedo and a “dry-land” relationship with Under Armour. If the exclusivity clauses in either one of these contracts were company-based, Phelps would not have been able to partner with both brands because they both made and sold activewear. Limiting exclusivity clauses to narrow product types allows athletes to partner with more brands, and in turn, make more money.

CONFLICTING SPONSOR

Oftentimes, athletes and the teams or leagues they play for may have conflicting sponsors. For example, as previously mentioned, Virat Kohli is a Puma athlete. Supposing that the IPL franchise, Royal Challengers Bangalore (RCB) enters into a partnership with Adidas to provide their jerseys, it would mean that every time Kohli puts on an RCB jersey, there is a big Adidas logo right above the team name. And of course, we all remember the time Michael Jordan used an American flag to cover up the Reebok logo on his jacket at the 1992 Olympics. He did this because the USOC had a partnership with Reebok at the time and MJ famously endorsed Reebok’s competitor, Nike.

So how do athletes protect themselves in this scenario? It’s simple, all athlete exclusivity clauses should contain language that permits an athlete to wear a competing brand as long as it is mandated by the competition or event they are competing in. This type of careful legal review can be beneficial to the athlete to prevent further conflicts.

HOW TO AVOID CONFLICT ISSUES

Due to social media accessibility and other services that connect athletes directly to brands, there has been a huge push towards modern-day athletes negotiating their own endorsement deals. While this is great and can certainly lead to more revenue opportunities for athletes, there is a level of caution that needs to be taken. Without a proper understanding of sponsor limitations in exclusivity clauses, it can be very easy for an athlete to accidentally breach one of their existing endorsement contracts.

The best way to prevent these scenarios can be done through an athlete’s own careful review or having an agent/attorney on your team to assist you with negotiating and tracking these clauses. Whether you are a professional athlete with dozens of sponsors or an athlete looking to gain a sponsor, the best way to avoid breaching your contracts and further straining your relationship with your sponsors is to be aware of the language in your exclusivity clauses.

CONCLUSION

Exclusive sponsorships are pretty cut-and-dry in the sense that the agreement clearly spells out which other products or services cannot be activated. When an athlete or celebrity signs an exclusivity-based sponsorship, they are signing on to solely represent that brand within that particular category. For instance, if someone signs an exclusivity deal with Coca-Cola, they would only rep Coke brands and not any competitors within that space. Essentially, exclusivity deals are put into place to strengthen the relationship and to incentivize the athlete with more money and assets to keep them loyal to that particular brand and dissuade them from engaging with competitors. The quest for exclusivity must be well-vetted and specifically spelled out should athletes wish to expand their potential earnings with other organizations. However, the question of what constitutes exclusivity must be specified to clear up ambiguity.