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August 15th, 2018
Summer Sports Industry News
Here's what's happening at the intersection of sports, marketing, and entertainment law as we close out the Summer.
Papa Don't Preach, You're In Trouble Deep
Papa John's founder and face of the brand "Papa" John Schnatter recently came under fire after he reportedly used a racial slur during a conference call with the pizza chain's creative agency. He subsequently resigned his position as the company's chairman. The controversy led a number of professional and collegiate teams to suspend their sponsorships with Papa John's or cancel specific company-themed promotions.
More significantly, the University of Louisville, for which Schnatter is a major donor, decided to remove the Papa John's name from its football stadium. Naming-rights deals, which are very lucrative for the stadium owner/operator and are typically ten to twenty years long (Louisville's deal with Papa John's ran through 2040, after a recent extension), do not always take issues like these into consideration. Here, it appears that the University did not have a right to terminate the naming rights agreement for "morals" related violations nor could it unilaterally modify the name. As such, the university is exposing itself to a breach of contract claim from Papa John's.
A similar situation occurred in Charlotte, where UNC-Charlotte apparently does not have the right to remove the name of former Carolina Panthers owner Jerry Richardson from its stadium. (The NFL found that Mr. Richardson engaged in sexual and racial misconduct during his time as owner.) The university's naming rights agreement for "Jerry Richardson Stadium," which for $10 million would require the use of his name on the football complex in perpetuity, also does not include a "morals clause" that could address Mr. Richardson's situation.
The lesson: while always difficult to foresee trouble ahead, parties to naming-rights and other long-term and sponsorship deals should carefully consider the right of either party to terminate - whether for a "morals" issue or otherwise.
All the World's a Stage
Other than fines handed down by FIFA to the England National Team for displaying 'unauthorized commercial branding on playing socks" and to the Croatian National Team for drinking "non-authorized beverage products" during a game, this year's World Cup was seemingly free of highly publicized "ambush marketing." However, there were other interesting World Cup related marketing issues:
- Rafa Marquez, a star for the Mexican National Team playing in his fifth World Cup, is on the US Treasury Department's blacklist for allegedly laundering money for drug cartels. As a result, he does not drink from the same branded water bottles or conduct interviews in front of the same on-field boards as his teammates and is otherwise kept away from being filmed near US-based sponsors' logos.
- The brand removal for non-sponsors inside FIFA-sanctioned venues meant that vending machines filled, for example, with Nestle or Mars owned brands would have to remain anonymous (e.g., a Kit Kat was labeled as "chocolate with a crispy wafer").
- Using molecular gastronomy, soccer sponsor (but not a FIFA sponsor) Carlsberg created beer-flavored caviar "to give soccer fans a taste of Russia."
- Egyptian National Team goaltender Mohamed El-Shanawy received the "Man of the Match" award for his stellar performance against Uruguay, but turned down the award and trophy for religious reasons because the award is sponsored by Budweiser. This led to an awkward moment for the trophy-presenting FIFA official.
- Although the US Men's National Team was not present at this year's World Cup, former star Landon Donovan was all over the television coverage - appearing in oft-broadcast commercials for Modelo and Verizon. His appearance in a Wells Fargo commercial, however, caused some controversy, as he professes his support for the Mexican National Team - the US' biggest rival - in that spot.
- And the biggest whopper of all from this year's World Cup marketing - Burger King's Russian division ran a campaign that offered Russian women impregnated by players competing in the World Cup Whoppers for life and the equivalent of $47,000. The chain later apologized.
Moving On but Leaving Something Behind
Long-time Nike endorser Roger Federer recently parted ways with the brand and signed a reported 10 year, $300 million agreement with Japanese apparel brand Uniqlo. The move was not without controversy - Federer would like the notable "RF" logo to move with him, but Nike owns the intellectual property rights to that logo. Nevertheless, Federer is hopeful that he can take the logo to Uniqlo.
Caddies Go Off Course
The Ninth Circuit Court of Appeals recently affirmed the dismissal of professional golf caddies' class action lawsuit against the PGA Tour, where the proposed class argued that they were being exploited as "walking advertisements." Hicks v. PGA Tour, Inc., No. 16-15370 (9th Cir., July 27, 2018). They teed up claims for breach of contract, right of publicity violations, unfair competition, false endorsement, and antitrust violations. The caddies, who signed a mandatory "Caddie Registration and Regulations Form," were required to wear uniform "bibs" that included the tournament logo and sponsors' logos at all PGA tournaments. They argued that the PGA Tour and the local tournament host received $50 million per year in free advertising as a result of these uniforms.
Both the district and appellate courts held that by signing the Form the caddies consented to wearing the promotional "bibs." The caddies also acknowledged that the PGA Tour has required caddies to wear bibs for decades. As a result, the contract and quasi-contract, right of publicity, unfair competition, and false endorsement claims all failed. Additionally, the caddies were not able to allege proper product markets to support their antitrust claims, which led the Ninth Circuit to affirm the dismissal of these claims as well.
RunGum's Claim Doesn't Stick
RunGum, the "energy gum" brand started by track star Nick Symmonds, sought to have track athletes wear the brand logo while competing in Olympic trials and other national competitions. But advertising and logo restrictions promulgated by the US Olympic Committee ("USOC") and USA Track and Field ("USATF," the national governing body for track and field) stood in the way. So the brand brought an antitrust suit against the USOC and USATF, arguing that the regulation limiting sponsorship of athletes at these competitions was "an anticompetitive horizontal and vertical agreement among competitors to fix artificially - and unlawfully - the number of individual sponsors and the price paid to athletes for individual sponsorships." Gold Medal LLC v. USA Track and Field, No. 16-35488 (9th Cir., August 7, 2018).
The Ninth Circuit, however, affirmed the dismissal of the complaint by finding that the advertising and logo restrictions applied by the USOC and USATF to the sponsorship of athletes during Olympic trials "should be afforded implied antitrust immunity under the Ted Stevens Olympic and Amateur Sport Act ("ASA"). 36 U.S.C. § 220505. Agreeing with the district court, "an injunction preventing enforcement of the advertisement regulation 'would open the floodgates' the Ninth Circuit held that potential advertisers, some of which might enhance the Olympic brand and some of which might devalue the Olympic brand." Both the district court and court of appeals found that the restrictions passed under the auspices of the ASA allowed these organizations to "play a gatekeeping function" that would "preserve the exclusivity - and thus value - of the Olympic Symbols and name." In holding that the USOC and USATF were given broad authority to protect corporate sponsorships and maximize sanctioned fundraising, the decision underscores the importance of preventing "ambush marketing" and protecting rights-holders' value.
Noted and Quoted
A High Velocity Lawsuit
Ned Rosenthal addresses right of publicity issues in a Yahoo! Sports article detailing Cleveland Indians' pitcher Trevor Bauer's lawsuit for unauthorized use of his likeness.
It's Coming Back
Christopher Chase spoke with Law360 about how the victorious North American joint bid for the 2026 World Cup would be a boon for soccer industry attorneys.
The Difficulty of the Transfer
The European Leagues' legal newsletter recently published Christopher Chase's article "How Major League Soccer's Transfer and Acquisition Rules Affect Its Standing in the International Transfer Market...To Its Detriment," which provides an overview of the differences between Major League Soccer's player transfer system and those systems adhering more closely to FIFA's Regulations on the Status and Transfer of Players.
Just Passing Through
Jeffrey Marks and Bernard Topper discuss recently proposed regulations from the IRS that provide guidance on the meaning of "specified services business" under the 2017 Tax Cuts & Jobs Act's new rule that allows an individual taxpayer to deduct up to 20% of his or her income from a domestic business operated as a sole proprietorship or through a partnership or S corporation. The proposed regulations clarify what it means to be an "athletics" business in order to qualify for the deduction.
Want to Learn More?
Hayden Goldblatt leads a team of Frankfurt Kurnit's finest at the Let's Kick This Soccer Cup, a soccer tournament taking place on August 18 at Chelsea Waterside Park benefitting Voices Against Brain Cancer.
LawInSport is hosting its annual conference on September 13 and 14 in London. Frankfurt Kurnit is a proud member of the LawInSport community.
If you have questions about sports industry legal matters, please contact Christopher Chase at firstname.lastname@example.org or (212) 826 5568, or contact any other member of the Sports Group at Frankfurt Kurnit.
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