When Franchises Lose Endorsements: LA Clippers Face Repercussions

Following the aftermath of Los Angeles Clippers’ owner Donald Sterling’s racial comments that led to his eventual lifetime ban from the NBA, the Clippers franchise face potential financial losses due to suspended endorsement deals.

Anyone with access to the radio, tv or Internet is familiar with the idea of endorsements: partnerships between a famous person or organization and a product or service to increase sales. What happens when one party to the partnership is involved in a publicly unacceptable scandal? And what happens within complex relationships when a person associated with a party to the endorsement partnership jeopardizes the entire deal?

Let’s first explore why and how public scandals can destroy endorsement deals. When a company is paying a celebrity or sports team to help sell more products, any scandal in which the celebrity or sports team is involved can harm the reputation of the company. Most endorsement deals involve moral clauses that allow deals to be suspended or canceled if one party to the deal publicly diminishes his or her reputation. I touch on these clauses in a post entitled (Reverse) Moral Clause: Protecting One’s Own Brand. So harm to one’s reputation is usually the “why” and moral clauses usually cover the “how.”

Next comes the question of complex relationships; when a person who is not a part of the endorsement deal diminishes the reputation of a party to the endorsement partnership because of personal or professional associations. Let’s look at past practices, in particular the Lady Gaga Monster Ball and planned Fame Kills tours.

Back in 2009, Lady Gaga ran into bad luck with touring with rappers. Gaga and Kanye West were set to headline the Fame Kills tour which was called off following West’s infamous interruption of Taylor Swift’s acceptance speech during the MTV Video Music Awards.
Statements regarding the tour’s cancellation range, with speculation pointing towards poor ticket sales due to anti-Kanye sentiments. Gaga’s bad luck continued when Kid Cudi, an opening act on Gaga’s Monster Ball tour, left the tour five days after jumping off stage to attack a fan during a performance in Vancouver.

Although no statements were made regarding the behaviors of the rappers, their relationship with Gaga or tour sponsorship, speculation arose about the negative affects of the rappers’ behaviors on tour sponsorship and repercussions that Gaga could face with her fan base.

Gaga’s situation is similar to that of big-name Clippers players like Blake Griffin and Chris Paul, both of whom have endorsement deals that are directly or indirectly connected to the Clippers franchise and – consequently – the detrimental actions of Sterling. Like Gaga’s situation with both rappers backing out of the tours, Griffin and Paul’s reputation were saved due to swift efforts to disassociate ties to Sterling.

The Clippers franchise, however, may not be as lucky. Several companies have stated that endorsement deals are suspended, but statements about future relationships with the franchise have not been publicly made since Sterling’s lifetime ban. Public statements also fail to discuss the extent of the suspensions, leaving the question of whether Griffin and Paul’s endorsement deals will be affected because both players are associated with the Clippers franchise.

Moral clauses help protect parties to endorsement deals from the negative reputations and scandals that may arise, but how can parties protect themselves from loss of endorsement deals and blows to reputation due to associated parties?

One option may be by creating a legal relationship with associates that outlines monetary damages or other recourses when associated people and organizations ruin endorsement deals or otherwise get in the way of business ventures. Partnership agreements are common when two or more parties engage in business relationships and/or professionals ties in which one party’s actions could cause financial harm or damage to reputation merely because of association.

If you have questions about morals clauses, partnership agreements, or legal relationships regarding your business and/or musical ventures, please contact a licensed attorney.

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Speech and the Spotlight: A Question about Mr. Sterling and Free Speech

In looking for an opportune moment to get back into blogging, a conversation with a non-lawyer friend about the recent controversy surrounding the NBA and Los Angeles Clippers’ owner Donald Sterling’s alleged racist remarks provided an interesting topic of discussion.

I was recently invited into a conversation for input about freedom of speech rights for high-profile individuals being disciplined by sports and entertainment organizations for offensive comments made publicly and privately. The First Amendment restricts the government from censoring expression due to content, message, and/or idea. Of course exclusions apply to protect and promote public safety, but the First Amendment does not come into play in Mr. Sterling’s situation.

The First Amendment applies to the government, not private actors – in this case the NBA. States can grant broader rights to citizens that extend to private actors, but this is generally limited to private property that is open to the public.

The NBA, a private actor, is able to create regulations and sanctions to combat speech that is detrimental to the organization.

Other sports and entertainment organizations have taken steps to prevent any seemingly detrimental discriminatory practices. For example, the NFL implemented the Rooney Rule, named after Pittsburgh Steelers’ owner and the league’s diversity committee chair, Don Rooney.

Under the Rooney Rule, teams must interview at least one minority candidate for head coach positions, otherwise the team must pay a fine. The NFL created the Rooney Rule to address the lack of diversity among head coaches and senior staff. The rule allows teams to hire their choice candidate but provides qualified, diverse candidates the opportunity to interview for senior level positions.

For more information about the NBA/Sterling situation, read the NBA’s official press release.