Ryan Lochte has continued to make headlines this week, as the U.S. Olympic swimmer lost all four of his major sponsors on Monday, including Speedo USA and Ralph Lauren, following his apology for an "exaggerated" story about being robbed at gunpoint at the Rio Olympic Games.
As we told you in connection with Nike, which dropped boxer Manny Paquiao from its roster of athlete endorsers earlier this year, companies can generally very easily up and fire any of their star endorsers in light of negative press. This is because the vast majority of well drafted endorsement contracts come with explicit morals clauses, the violation of which allows a company to give the celeb the boot, which Lochte, a 12-time Olympic medalist, learned this week.
Companies take on quite a significant amount of risk when contracting with professional athletes and/or celebrities to endorse their products, as the famous individuals and their behavior – whether in terms of sporting or in their often paparazzi-plagued personal lives – serves as a reflection of the brand. In order to protect themselves and their carefully crafted identities, brands include explicit morals clauses in their spokespersons’ contracts.
Morals clauses are typically worded in such a way as to allow a brand (such as Ralph Lauren or Speedo) to immediately terminate an endorsement contract, without any penalty, should the athlete endorser act in a certain manner that would tarnish the reputation of the brand.
A particularly strict clause (which is likely what the brands at issue bargained very hard for) may read as follows: "If at any time, in the opinion of Sponsor, Athlete becomes the subject of public disrepute, contempt, or scandal that affects Athlete's image or goodwill, then Company may, upon written notice to Athlete, immediately suspend or terminate this Endorsement Agreement and Athlete's services hereunder, in addition to any other rights and remedies that Sponsor may have hereunder or at law or in equity."
But regardless of what behavior triggers the clause, the remedy for such a violation may ultimately be more significant. The endorser/brand (Speedo, for instance) will likely seek any number of potential remedies for such a violation, including but not limited to: the termination of the agreement; suspension the agreement for a period of time; imposition of a financial penalty for the behavior at issue without terminating the endorsement contract; or the payment of damages by the athlete for breaching the agreement.
As Christopher Chase of Frankfurt Kurnit Klein & Selz, PC accurately states: “Termination and suspension raise another issue – the payment of compensation. If either option is exercised, the advertiser may want to: hold back compensation owed to the athlete; pay the athlete on a pro-rata basis either for the services performed to date or based on the term of the agreement (and pay nothing else going forward); or seek a refund of any compensation paid to the athlete (however, a refund clause is often a difficult provision to insert).”
Based on a statement from Speedo, it seems the swimwear company is holding back on at least some of Locate's pay. Per Bloomberg, "Speedo announced it would donate a $50,000 portion of Lochte’s pay to a charity that works with poor children in Brazil." The company said in a statement this week: "While we have enjoyed a winning relationship with Ryan for over a decade and he has been an important member of the Speedo team, we cannot condone behavior that is counter to the values this brand has long stood for."
So, while it is certainly news in itself that Speedo, Ralph Lauren, Syneron Candela, and Airweave have terminated their relationships with Lochte, it will be interesting to see what action these companies take in terms of seeking recourse for Lochte’s actions. Chances are, we will not be privy to the majority of such information, as it is likely confidential, but what we can safely say is that this is certainly not over for Lochte or his former sponsors.