Posted by Adidas Pulls Out Of National Lacrosse League Title Game
University of California is now suing Under Armour for breach of contract and is seeking $200 million in compensatory damages. The school claims that Under Armour failed to honor its contractual agreement by not making scheduled payments on time or delivering its athletic product on time.
In addition, it claims that it never received the product it was promised in good faith or did not provide the services that were initially promised.
Under Armour Lawsuit
Under Armour responded with a lawsuit of its own, later claiming that the original complaint was “baseless and without merit.” In January, 2021, U.S. District Judge Robert H. Answers ruled in favour of the school. In his ruling, he cited language from a U.S. Supreme Court case which says that contracts may be interpreted as both express and implied.
According to the Third Circuit’s reasoning, if the marketing benefits provided by the contract are clear, then there is no reason why the company should have any reason to negotiate on the terms. If the terms are ambiguous or vague, then there may be a chance that the marketing benefits offered by the contract can be negated. The Third Circuit has yet to hear oral arguments in the case.
Pursuing a contractual dispute over breach of sponsorship agreement requires the plaintiff to show that there was a contractual agreement between the sponsor and Under Armour.
This is actually the whole point of the sponsorship lawsuit. The courts often require an athlete to seek financial compensation from the sponsor of their sports equipment or apparel contract.
A court may decide that there was a breach in the agreement because it found that the conditions in the contract, when construed as written, allowed the sponsor to force Majeure Clause (the right to use specific language that is not customary in the relevant market) into clauses in which it forced the plaintiff to accept an amount of payment beyond and above the customary market price for the goods or services that the goods were purchased for.
Under Armour had a similar problem with its contracts. When it tried to force sponsorship of its football players, it was repeatedly rejected by the courts.
Because the NBA is considered a professional sports league, it held that the league had the legal authority to bar Under Armour from providing certain items to its players.
The decision was based on an argument that the company was not a professional sports league, nor did it have financial standing sufficient to protect its commercial interests in the apparel company. The Court of Federal Claims ultimately declined to grant class status to the plaintiffs, stating that Congress intended for collegiate athletics to be left to the universities and colleges to regulate themselves.
The plaintiffs in this case hoped that the denial of class status would allow them to file a lawsuit to recover their losses.
Instead of going forward with the lawsuit, however, the defendants decided to settle the case out of court, avoiding the possibility of going to trial. It is unknown whether the defendants actually agreed to settle the case or if they were negotiating the terms of a settlement before the decision was announced. Under Armour has previously settled professional claims and many people expect that the company will negotiate a similar agreement in the face of such a decision.
Many companies prefer to settle lawsuits involving commercial disputes rather than go to court. Universities also prefer to avoid the expense and time involved in having to go to court.
While a lawsuit may delay the process of paying the athletes their contractual compensation, it does not necessarily stop the athletic department from selling sponsor strips and apparel. Under Armour continues to sell its products, despite the loss of the sponsorship deal. Even if Under Armour decides to drop its sponsorship deal, there is no guarantee that the company will be able to find a replacement for Adidas.
Universities and colleges lose money when they lose sponsorship deals.
Even if the loss of the contract does not directly affect a college’s ability to pay athletes, the impact of the lawsuit can cause financial trouble for the athletic department.
It is unknown whether there will be additional suits as a result of the Lacrosse suit, but it is a possibility. If there is a settlement, college sports programs could see financial ruin as a result of the Lacrosse incident and the implications of the lawsuit.
Adidas will be back in the college sports apparel market in the near future.
The question becomes whether or not the company will suffer financial ruin because of the Lacrosse incident. The short answer is probably yes and no. While Adidas is in the apparel industry, they are a global company that stands behind its products and does not stand accused of any wrongdoing in the wake of the Lacrosse scandal. While Lacrosse may have been the catalyst for Adidas’ withdrawal from the NCAA, they have not pulled out of the sport altogether.