The Anatomy of the Morals Clause in Endorsement Agreements by Celebrity Athletes

Introduction

Celebrity Athletes have always been one of the top choices for the advertisers and companies for endorsing their brand or products. The advertisers pay millions of dollars in order to associate themselves with a Premiere Athlete and the attributes he or she is known for. A correct investment by an advertiser can multiply a brand’s sale and profits exponentially.

But associating a brand’s image with a human being is a huge gamble played by the advertisers. On one hand they benefit from the Endorser’s image of Hard work, Leadership, Discipline, Focus, and Competitiveness by linking their brand to these attributes but at the same time, questionable activities by the Endorser can not only affect the Athlete’s credibility, image and reputation among the public but can also adversely affect the advertiser’s advertisement campaigns and projected profits.

As a precaution against such actions, the endorsement contracts now include a ‘moral clause’ which enables the Endorsee to terminate the endorsement contract and disassociate itself from any such action or ‘scandal’ which may be against what the brand stands for. It not only protects the company’s business, reputation, and image in relation to its Endorser’s behavior but also prevents the company from being criticized for reacting slowly when an immediate action is required.

What is the Morals Clause?

A morals clause is a provision in a contract that prohibits or restrains certain actions, which are immoral, illegal or unethical by the party(s) to the contract.

It is mainly used to protect the reputation and image of a company and it enables one party to unilaterally terminate the contract if the other party engages in activities which might tarnish the reputation and image of the Company.

The inclusion of a morals clause can be dated back to 1921 when Universal Studios initiated a policy whereby all the Actors employed by the Studio would be subject to the morals clause in their contract. This came after the Roscoe Arbuckle Scandal in which the Comedian Roscoe Arbuckle was in a 3 year deal with Paramount Pictures and later he was charged with rape and murder. Paramount Pictures could not escape from their contractual obligations, as a result, Universal Studios implemented this policy. However, the inclusion of moral clause in celebrity endorsement agreement became a fixture only from the 1980s.

A morals clause allows the Endorsee to cut loose an Endorser whose actions have directly affected or are likely to affect the image of the Endorsee. This clause seems necessary as in the competitive field of advertising the advertisers pay an Athlete millions of dollars in a multi-year deal to be the face of the brand. The Company builds a whole advertising campaign months in advance around the Athlete and his or her achievements. In some cases, the advertisements are conceptualized and build around an achievement even before the athlete has achieved the particular milestone. When the Advertiser or Endorsee feel that the achievements, past or future are overshadowed by scandal or criminal conduct of the Athlete then it is reasonable for them to part ways.

The Scope of Morals Clause.

There are no stringent provisions or statutory requirements a moral clause has to meet. A comprehensive moral clause clearly defines the scope of its application and conditions of termination of the agreement. Most of the companies want a morals clause by which the contract can be terminated unilaterally whereas the celebrity endorser would want the clause, which gives bilateral power of termination.

The terms and conditions of each moral clause and the circumstances leading to termination of contract may vary but the main target is towards the behavior of the Endorser which may adversely affect the public image of the athlete and by association of the public image of the company.

Companies generally want the moral clause to have a very broad scope which gives them the discretion in determining which actions will trigger the right to terminate the contract. The broad moral clause uses terms like moral turpitude, acts against public morals, acts offensive to public morals, indecent acts and bringing disrepute to the company. This kind of moral clause does not specify the situations and is solely in the interest of the Endorsee. Such a vaguely worded moral clause is not in the best interest of the Athlete Endorser. A broad moral clause is open to interpretation and is generally more prone to litigation than a specific moral clause which lists the acts which may be considered a violation of the morals clause and lead to termination of the contract. There are many kinds of behavior that fall short of a criminal conviction that could tarnish a company’s image, such as public fights, arrest for drunk driving, and criminal accusations which do not result in a conviction. A company also would desire to terminate the Endorsement Contract if the Athlete criticizes its product or management

A Specific Moral Clause works in the favour of the Athlete Endorser as the contract cannot be prematurely terminated by the Endorsee under the veil of moral values. The success and reputation of the Athlete give him or her the negotiating power on the terms of the moral clause. An athlete with higher negotiating power would make the moral clause as narrow as possible. This can work against the company if the Endorser commits an act which falls short of the terms given in the moral clause but still tarnishes the image of the Brand.

The famous case of NBA star Chris Webber and his endorsement contract with FILA is a great example of the question ‘what happens in a situation in which the Endorser’s contract is terminated for an act which is not explicitly mentioned in the endorsement contract?’

Chris Webber’s contract was terminated by FILA when he was arrested for possession of marijuana but later he was successful in his suit for wrongful termination. According to the Morals Clause the Contract could only be terminated in case of a conviction and an arrest is not same a conviction. FILA stated in their press release that the Company condoned the use of any kind of drugs. Chris Webber sued the Company for wrongful termination alleging that according to the contract it can be terminated only in case of a conviction and not just a charge of drug possession. The decorated NBA star received a hefty compensation from FILA for wrongful termination. Although FILA had a specifically worded moral clause, stating the type of action or conviction that would lead to termination but still Webber was able to maneuver his way through. FILA instead of terminating Webber’s contract could have issued a public letter of condonation of Webber’s behavior and placed a fine on its Endorser.

Case Study: Nike’s relationship with Tiger Woods and Lance Armstrong.

Lance Armstrong and Tiger Woods are arguably the epitomai of success when it came to competitive cycling and golf respectively. Both of them achieved a tremendous amount of success in their respective fields so it was just a matter of time that sports giant Nike would want them to be the face of their company. But both of them faced scandals which led to their image being tarnished n the public eye. The thing to be noted in this situation was Nike’s response to those scandals regarding the endorsement contract.

In 2009, Tiger Woods was accused of cheating his wife with a waitress and it became a headline in news and tabloids. In the next few weeks, a number of women stepped forward claiming that too had relations with Nike’s most Prominent Endorsers. As soon as this scandal became popular brands like Gatorade and Gillette distanced itself from the Pro Golfer. Tiger Woods lost a lot of his endorsements after that but Nike stood beside Woods. Nike imposed a punishment by cutting his 20 million dollar endorsement contract in half for the next two years.

The case wasn’t the same with the Seven Time Tour De France winner Lance Armstrong who was charged with doping and was given a lifetime ban from cycling. Armstrong was stripped off his Tour De France titles and also his Olympic Bronze medal. At that time Armstrong was one of Nike’s Premiere Endorsers and was also in association with the company for his Livestrong campaign which was for the betterment of people who have suffered from cancer.

Nike was quick in cutting ties with the decorated Athlete as his conduct was against what the Company stood for. The Company, when they came to Armstrong for an endorsement deal were actually looking for the quality and respect that came with his name. They wanted to be associated with the attributes he was known for such as Determination, Team Spirit, the Idea was Hard Work, Perseverance, and Overcoming the Odds.  Using performance-enhancing drugs is the polar opposite of those ideas and his purchased reputation.

Though Woods and Armstrong both behaved in a manner which was socially unacceptable, Nike cut ties with only Armstrong and not Tiger Woods. This is because the allegation on Woods did not relate to his success in the golf course, what he was accused of was related to his personal life and in no way related to his skills and capability as an athlete. Whereas using performance-enhancing drugs and to bully your teammates into using them, as confessed by Lance Armstrong on the Oprah Winfrey show is against the ideology of Nike and it directly puts a question on Armstrong’s ability as a competitive cyclist.

Armstrong and Woods were household names during their association with Nike and it is very likely that they had a similar moral clause which would have been made according to their wishes as both of them would have high negotiating power due to their reputation at the time of the signing of the deal. Even if both morality clauses included forgiving language, it is clear to see why Nike terminated their contract with Armstrong, but kept Woods as a sponsor and instead of termination, punished him by cutting his contract in half. 

How to keep your Brand protected?

Every brand or product stands for a specific ideology or is used by a specific set of people. The Endorsees should draft their moral clause keeping in mind the specific consumer base for the product. Companies should think carefully as to what that concept or image is and draft the moral clause that addresses the particular behavior or conduct that could tarnish such image. For example, for an Endorser who is married who endorses products whose target audience is families, companies may consider a morals clause which mentions extra-marital affair as a condition for termination or if a product’s target audience is the upper class of the society, then the Endorsement Contract should contain ungentlemanly conduct like a fight in public as a condition for termination. This would help the Company to close down the loopholes by which an endorser can escape from being terminated.

The current pattern of moral clause provides for termination of the Contract, but what about the huge amount of monies already paid to the Endorser? The remedy is that the moral clause can provide for liquidated damages in case of a breach. This would allow the company to claw back some portion of the amount they have already paid to the Endorser.

Conclusion

With the rise in the use of social networking sites Twitter and Facebook and phone cameras in everyone’s pockets, celebrities have become more accessible than ever. Companies have to be more vigilant than ever to make sure that the conduct of their Endorsers doesn’t affect their image.

The Morals Clause has become a permanent contractual fixture in celebrity endorsement contracts. A strongly worded morals clause can be beneficial for both the parties, on one hand, it protects the Company’s image and reputation and on the other hand, it helps the Endorser to understand which actions would lead to termination of his or her contract.

By: Navin Kumar Jaggi and  Kiratraj Singh Sadana