Monday, the Baltimore Ravens terminated Ray Rice after the video surfaced showing him knocking out his then fiancé, now wife, Janay. The NFL suspended him indefinitely, and now Nike and EA Madden NFL 15 have severed ties with the football star, taking away his potential for lucrative endorsement deals.
Endorsement deals between companies and athletes are high-risk, but these businesses bank on a high reward. A corporation spends millions of dollars to align with a popular athlete, and millions more on advertising campaigns around that athlete. Because of this investment, there is now a “morals clause” included in contracts.
A morals clause allows a sponsor to terminate a deal with an athlete who has tarnished the company’s image based on some “immoral” conduct such as drug use or criminal charges.
Notable examples of dumped athletes due to morals clause infringements include Paraolympian Oscar Pistorius, who had $2 million annual endorsement deals prior to his arrest on murder charges, and cyclist Lance Armstrong, who had enormous deals with Nike and Anheuser Busch before his admission to doping. MLB’s Barry Bonds and Jason Giambi lost millions in sponsorships with Nike, Pepsi, MasterCard and KFC after the BALCO steroid scandal broke.
A morals clause can also cover public fighting, drunk driving and domestic scandals.
Tiger Woods had some of the biggest athlete product endorsers ever, yet in 2010, the fallout from the golfer’s extramarital affairs cost him over $20 million as AT&T, Gatorade and others bailed.
Inappropriate social media behavior detrimental to a brand’s reputation can also cost an athlete a contract. Champion sportswear dropped NFL player Rashard Mendenhall after he tweeted personal comments sympathizing with Osama bin Laden and questioning the September 11 terrorist attacks.
The list of athletes who have been abandoned by sponsors because of illegal or unethical behavior will continue to grow. Because the risks are so high for businesses, morals clauses have become a necessity in endorsement deals.