Under Armour to Terminate Apparel Deal with UCLA
July 16, 2020
New UCLA Athletic Director Martin Jarmond knew that he was walking into a great athletic program that had many challenges ahead. A significant challenge is the football team, which has been struggling and losing revenue. As it turns out, that may not be his most immediate challenge. Under Armour has announced that it will terminate its 15-year, $280 million apparel, and footwear contract with the university.
In a statement from the company, they explained their justification for the termination: "Under Armour has recently made the difficult decision to discontinue our partnership with UCLA, as we have been paying for marketing benefits that we have not received for an extended period. The agreement allows us to terminate in such an event and we are exercising that right."
It is not clear what those "marketing benefits" might be. UCLA was unable to finish spring sports due to the Covid-19 pandemic. UCLA basketball finished second in the Pac-12 with an overall record of 19-12. They were certain to make the NCAA tournament. UCLA softball, the defending national champions, were ranked No. 1 in the country at 25-1 when the virus ended the season. UCLA baseball was ranked No. 1 in the nation in RPI.
The original agreement went into effect in July of 2017 and ended UCLA's previous affiliation with Adidas. The 15-year, $280 million contract broke the previous record for shoe and apparel contracts, beating Nike and Ohio State's $252 million deal from earlier that year. The UCLA athletic department received a $15 million dollar signing bonus as part of the record contractual agreement.
In a statement, UCLA responded with determination: "We are exploring all our options to resist Under Armour's actions. We remain committed to providing our hard-working staff and student-athletes with the footwear, apparel and equipment needed to train and compete at its highest level, as they-and our loyal Bruin fans-deserve." Another way of saying, we will see you in court.
The agreement has not worked out well for Under Armour, but that is not the concern of UCLA. In 2016, Under Armour needed a west coast school to add west coast exposure and the UCLA contract with Adidas was winding down. With Nike the dominant player in the apparel and shoe business on the west coast, signing UCLA gave Under Armour a stronger West Coast presence, as the company had also recently added Cal at the time.
Under Armour also is seeking to end its 10-year, $86 million deal to outfit players at Cal, which is contesting the move as well. It is interesting that Under Armour chose to terminate their contracts with UCLA and Cal, but not with schools like Notre Dame, Auburn or Wisconsin. So, UA wanted a presence on the west coast, but when they did not get the expected return on their investment, they decided to terminate the agreement.
It would be easy to say that Under Armour overpaid and UCLA underperformed, and then Covid-19 hit. Under Armour lost $590 million dollars last quarter and in this quarter the projection is for a loss of about $980 million. They need to renegotiate or terminate contracts to cut some expenses. But they still owe UCLA a $9 million annual payment for the next 12 years for a total of $108 million.
UCLA is not going to let that revenue go without a fight. This case does not look like a winner for Under Armour and will likely be settled out-of-court, with the Bruins receiving a cash settlement. Page 27 of the contract between UA and UCLA lists seven possible causes or reasons for UA to terminate the agreement.
The only one that would seem to be relevant would be UCLA not fielding an NCAA Division I Core Team or that one of those teams did not participate for any reason (other than for a force majeure event) in a complete regular season, missing at least 50% of the scheduled games during the regular season. Core teams are defined as UCLA's football, baseball, men's basketball, and women's basketball teams.
Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or an event described by the legal term act of God, preventing one or both parties from fulfilling their obligations under the contract.
Baseball was unable to complete 50% of their regular-season schedule due to the pandemic, but that would likely be ruled in court a "force majeure event." With UA also looking to terminate the Cal agreement and renegotiating other agreements, this looks like a way to cut short term and long-term expenses. That does not look like a winner for UA, but a cash settlement would cut long-term committed expenses, which would help Under Armour financially.
Either way, UCLA's relationship will with Under Armour will soon be ending and they will need to find another apparel partner. They could go back to Adidas or join the Nike family. This could not be happening at a worse time, given the current pandemic and the recent subpar performances from the football team. The Bruins have not won a conference title in football since 1999.
Of the four core sports in the Under Armour contract, men's basketball, and women's basketball both performed well, and the baseball program has been among the best in the nation. But Jarmond needs a better football program to come close to the revenue in the UA contract. UCLA still has a respected athletic brand and they are in the 2nd largest market in the country, so there is hope. But it will be incredibly challenging for Jarmond.