Under Armour tells UCLA they want out of $280M Sponsorship Deal

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UCLA AD Dan Guerrero (left) & Under Armour Founder Kevin Plank (right) aren’t nearly as happy as they were four years ago. Photo from Daily Bruin

In May 2016, Under Armour agreed to a 15-year, $280 million deal with UCLA to become the school’s official sponsor for all athletic apparel and equipment, including $135M in rights fees, $112.85M in product, $15M in marketing, and $2M in rebranding and upgrades for UCLA Athletics. Beginning July 2017, UAA agreed to provide the school with roughly $7.4 million in clothing, shoes and equipment each year along with a $15 million signing bonus up front. At the time, it was the richest apparel sponsorship deal in college sports history, and it was largely seen as a way for Under Armour to put themselves on the map and challenge Nike and Adidas for athletic brand/apparel dominance.

Now just three years in, Under Armour is trying to terminate their agreement with UCLA because they aren’t getting their expected return on investment. Under Armour claims the agreement allows them to exercise their right to terminate the contract with UCLA because they have not received the marketing benefits they have been paying for, over an extended period of time. Outgoing UCLA athletic director Dan Guerrero swiftly responded to the announcement, stating that the school intends to contest Under Armour’s claim that they can unilaterally dissolve the agreement. Guerrero’s 18-year tenure at the school is set to end this week, and the timing of this news is far from ideal.

UCLA has traditionally been one of the most powerful brands in the NCAA, but their recent struggles in major sports and inability to meet financial benchmarks is worrisome. Since their agreement with Under Armour began, the school has won national championships in sports such as gymnastics and softball, but the two teams which receive the most national coverage, football and men’s basketball, have performed well below expectations. The football team has finished with a losing record four years in a row, and the school’s historically dominant basketball program has failed to make the NCAA Tournament each of the last two seasons. The school’s athletic department also took on an interest-bearing loan from the university to cover an $18.9 million shortfall for 2019, and that was before the COVID-19 pandemic hit.

The sudden termination of this deal would be a massive blow to UCLA and yet they aren’t even the party in the most dire situation here, as Under Armour has been, well… going under.

When Under Armour and UCLA reached their $280M agreement in 2016, it raised some eyebrows but it didn’t appear to be a decision filled with regret. Under Armour was on the rise, and becoming a major competitor in the athletic apparel industry. They had endorsement deals with the MVPs of all four major North American sports (Cam Newton, Steph Curry, Bryce Harper and Carey Price) as well as Tom Brady and Jordan Spieth to boot.

It also came in the middle of an apparel contract boom over the span of two years. While Nike still dominated as the apparel provider for almost 70% of all Division I NCAA Schools, Under Armour was picking up some bigger names like Notre Dame, Wisconsin, and Auburn.

For reference, here are the ten biggest apparel licensing deals for Colleges in the United States:

10. Notre Dame — Under Armour (2014–24, $90 million, $9M per year)

9. Wisconsin — Under Armour (2016–26, $96 million, $9.6M per year)

8. Michigan — Jordan/Nike (2016–31, $173.8 million, $11.58M per year)

7. Nebraska — Adidas (2017–28, $128 million, $11.64M per year)

6. Washington — Adidas (2019–29, $119 million, $11.9M per year)

5. Kansas — Adidas (2017–31, $196 million, $14M per year)

4. Louisville — Adidas (2018–28, $160 million, $16M per year)

3. Texas — Nike (2016–31, $250 million, $16.667M per year)

2. Ohio State — Nike (2018–33, $252 million, $16.8M per year)

1. UCLA — Under Armour (2017–32, $280 million, $18.667M per year)

When Under Armour signed Notre Dame for $90 million in January 2014, it was record-setting. Yet just two years later, they were paying $190 million moreto secure the apparel licensing rights for UCLA as they attempted to keep pace with Nike, who had just reached ground-breaking deals with Ohio State and Texas. If it seems like an egregious overpay, that’s because it is one, and Under Armour’s motivations for terminating the agreement are starting to become more clear.

However, this wasn’t UAA’s only bad business deal over that time period either. The company is also trying to prematurely sever ties with California, which they reached a 10-year, $86 million agreement with back in 2017–18, currently the 12th biggest deal in the NCAA. Cal appears to be echoing UCLA’s beliefs, that they haven’t violated their agreement and will fight to ensure the agreement is not terminated. Additionally, both UCLA and Cal’s brand and team apparel can no longer be found on Under Armour’s website. (Update: It appears Navy may be next).

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The cracks in the armour are starting to show, and Under Armour’s financial outlook is getting worse by the day. The first sign should have been when Under Armour backed out of its 10-year uniform deal with the MLB. In April, Under Armour furloughed 6,600 workers at its retail stores and distribution centres in the US, which made up roughly 40% of its workforce. In May, Under Armour also announced it was re-negotiating some of its sports marketing contracts to defer payments and would be cutting $325 million in operating costs. When they reached their agreement with UCLA, Under Armour’s stock was trading at $44. Today, the company’s stock is at roughly $9.

By all accounts, this seems to be Under Armour trying to use the COVID-19 pandemic as a way of backing out of a bad business deal. They’ve come to the sobering realization that while UCLA is a school steeped in tradition that has historically been one of the most successful athletic programs in the NCAA, it’s not one worthy of the richest apparel sponsorship deal in college sports history. Their brand simply isn’t as big as a Texas, nor is it doing well enough nationally like an Ohio State to justify that kind of price. It appears their strategy to make the rest of the agreement void is by claiming that UCLA committed a material breach, or that they are entitled to terminate the agreement due to the pandemic.

The UCLA-Under Armour agreement, which you can find here, is interpreted under California law, and contains a “right to cure” provision in Art. VIII(c), which requires Under Armour to provide UCLA with written notice for any claimed material breach of contract and affords UCLA the ability to try and repair the alleged breach. UCLA would have 30 days to cure it after receiving notice, however this period can be extended if UCLA was “making substantial and diligent progress towards correction” and it could not be reasonably corrected within 30 days. The agreement would then remain in full force and effect… but may be terminated upon notice thereafter for a number of reasons, including:

UCLA no longer being allowed to wear apparel featuring Under Armour marks or the number of marks is significantly reduced,

UCLA ceasing to field a NCAA Div I Core Team or does not participate for any reason other than a Force Majeure Event, missing at least 50% of their scheduled games,

UCLA committing a NCAA Level I violation and receives resulting sanctions,

A UCLA coach or high-ranking figure is convicted or pleads guilty to a severe felony, and

UCLA coaches/staff/team members repeatedly fail to wear Under Armour products and publicly disparage the Under Armour brand.

Of the reasons listed, the only one that Under Armour seems to be able to claim termination under would be UCLA failing to field a Div I Core Team due to the pandemic. Core Teams are considered to be football, baseball and men’s and women’s basketball. Under Armour would thus need to prove that UCLA did in fact commit a material breach, provided them with notice of such a breach, gave them an opportunity to cure it, and the school was not making “substantial and diligent progress” towards correcting the breach.

I’m not sure how successful that argument will actually be, since UCLA can counter Under Armour by claiming that the alleged breach only occurred due to the pandemic which is a Force Majeure Event.

If you’re unfamiliar, a force majeure clause is more commonly known as the “Act of God” clause. These clauses are typically put in place to relieve parties of fulfilling their remaining contractual obligations if it is impossible to perform the contract due to circumstances beyond their control. The UCLA-Under Armour deal contains a force majeure clause at Art. XIII, and while there is no explicit mention of “pandemic”, the broad wording of what a “Force Majeure Event” is within the defined terms of the agreement would likely allow the interpretation that a pandemic would render performance of the agreement impossible.

R. “Force Majeure Event …any cause or event which is beyond the commercially reasonable control of [Under Armour] (or the reasonable control of UCLA) and renders the performance of the Agreement impossible or impracticable, including, without limitation… natural calamities, national emergencies…”

However, Under Armour could still try and use the force majeure clause to their advantage. In Art. XIII, the clause states that “if this pandemic were to continue for more than one hundred (100) days, either Party may terminate this Agreement with immediate effect” by written notice. Neither party would be liable for any breach of its obligations to the extent the breach resulted from a Force Majeure Event, provided that Under Armour had “taken all reasonable steps to work around, reduce or mitigate the effects” of the COVID-19 pandemic.

But that’s easier said than done and as outlined above, UCLA has strong grounds to fight Under Armour’s claim. Taking all reasonable steps would likely have to include proving that they provided UCLA notice and gave them an opportunity to cure the alleged breach, which isn’t clear at all here. Under Armour is also still supposed to be on the hook for 12 of the agreed-upon 15 years. To fully terminate the majority of the contract might appear to be an unreasonable outcome in the eyes of the court, and Under Armour is asking for a lot by attempting to completely wipe their financial promise from the record.

Under Armour appears to desperately want out of the deal, but having the remainder deemed void would also reflect very poorly on their brand, and it would make sense for the two parties to try and re-negotiate the terms of the agreement. An offset of the contract for the duration of the shutdown due to the COVID-19 pandemic might be better suited in this case, as to simply delete the remaining years of the deal feels like an extreme measure. I can’t imagine many schools and top athletes would be interested in signing (or re-signing) with Under Armour upon hearing this news, and it could potentially leave lasting damage on the company’s reputation. Luckily for them, New UCLA Athletic Director Martin Jarmond has an existing relationship with Under Armour going back to his time as the AD at Boston College.

As to who UCLA’s new apparel sponsor might be if their relationship with Under Armour is over, the most likely guess is Nike/Jordan picks them up on a discount, but they could find a placeholder for the remaining years as UConn once did with Aeropostale. Possibly even one that’s connected to a certain prominent UCLA alumni.

Written by Nolan Cattell, Co-President of the Osgoode Entertainment and Sports Law Association