Local attorney explains the nuts and bolts of sponsoring athletes
In the early 1980’s, Steve Hed, a small business owner and entrepreneur who owned Grand Performance Bicycles in St. Paul, began tinkering with road bicycle wheels. In particular, Hed – a young pioneer in a crowded market – was focused on making aerodynamic bicycle wheels by using carbon fiber materials, essentially making bicycles faster. In 1985, he founded HED Cycling in Shoreview, Minnesota. After three decades of making some of the fastest wheels on the planet, HED has become a multi-million dollar business that now employs over 50 people. If you ever find yourself watching the Tour De France or the Ironman World Championships, it’s almost a certainty that you will see HED wheels on your television set.
HED’s growth, however, can be tied to successful marketing strategies that raised brand awareness. In 1988, a young cyclist, named Lance Armstrong, was making waves on the international cycling tour and demonstrated that a bright future laid before him. Hed reached out to Armstrong, who at the time was 16 years old, with a sponsorship of $500 a month to ride HED wheels. The young Armstrong quickly snapped up the offer, and both HED and Armstrong never looked back. By entering into a beneficial partnership with an emerging athlete, HED demonstrated a cost-effective model to showcase their best products to target audiences.
Hold the thought in your mind that Armstrong later became a tarnished figure. His brand — not to mention his career — imploded due to the revelation of his practice of doping. This is always a risk among athletes and other celebrities in this day and age. We saw a more recent example of immoral behavior at the Summer Olympics in Rio. American swimmer Ryan Lochte lost several endorsements from businesses when he admitted to participating in a hoax that he was robbed at gunpoint in the city. Businesses can terminate endorsement contracts through morality clauses in the respective sponsorship agreements. An example of a morality clause in an agreement between an entertainer and advertiser could be written as follows:
If an athlete commits or is accused of any crime or becomes involved in any situation or occurrence tending to bring the athlete into public disrepute, contempt, scandal or ridicule, or tending to shock, insult or offend the majority of the consuming public or any protected class or group thereof, then the business shall have the right to immediately terminate the sponsorship agreement.
Nevertheless, for young companies in crowded marketplaces, partnering with emerging athletes can be a boon to business. For little investment, an emerging athlete will proudly wear your business name, display your company’s trademarks and solely utilize your products. In addition, contracts can be entered into where athletes will discuss your products in interviews and journal articles. This type of marketing exposure can be a big boost to the bottom line. Indeed, Armstrong went on to win many titles, and HED was able to grow into a cycling giant.
In order to secure these rights, business owners should seek to acquire “publicity rights” from athletes (See Hart v. Electronic Arts, Inc., 717 F.3d 141 (3d Cir. 2013)). Publicity rights are owned by the athlete, who grants a license (for a fee) that allows someone to use their name, image or likeness (Haelan Labs, Inc. v. Topps Chewing Gum, Inc., 202 F.2d 866 (2d Cir. 1953)). Moreover, many of these publicity rights are protected by state law that hold that the athlete possesses the exclusive right to use their name, likeness, signature and voice for commercial purposes (Cal. Civ. Code § 3344(a)). The unauthorized use of these names, images or likenesses could subject businesses to penalties under both state and federal law.
Notwithstanding the above mentioned hurdles, businesses should obtain these rights through written contracts. The contracts should state the applicable types of rights that are being granted and the type of exclusivity between the athlete and the business. Typically, these exclusivity contracts will state said athlete will not endorse, advertise or publicly wear competing products. In exchange, the athlete can be given payments, free products, and access to early releases of new products. In this type of relationship, both parties can receive the benefit of the bargain.
In the mid-1980s, Hed Cycling showed that a symbiotic relationship between a business and an athlete can be beneficial to both parties. By documenting their understanding through contracts, Lance Armstrong and HED Cycling were able to give each other a leg up in their respective industries. When businesses decide to team up with athletes, they can raise product awareness, boost profits, and gain market share.
Aalok K. Sharma, a former NCAA Division 1 athlete, is an attorney in Foley & Mansfield’s Minneapolis office. Aalok is a commercial litigator with a focus on matters affecting the sports, media, and entertainment industry. In addition, Aalok serves as an adjunct associate professor of law at the University of Minnesota law school. He can be reached at (612) 338-8788 or asharma@ foleymansfield.com.