UCLA Files Suit Against Under Armour For Terminating Deal

Law360 reported that the University of California Los Angeles (UCLA) filed a lawsuit against Under Armour (UA) for breach of contract. The college alleged that the sports apparel company wrongfully terminated its sponsorship deal after three of its 15-year commitment to outfit its athletic teams. Under Armour asserted that the coronavirus pandemic caused the company to financially suffer, preventing it from fulfilling its agreement. However, the school believes UA can still satisfy its obligation.

In 2017, Under Armour outbid Nike and UCLA's previous sponsor, Adidas, in a $280 million landmark contract to provide exclusive rights to provide UCLA's sports teams with its athletic and athleisure apparel, footwear, accessories, equipment, and fitness products, as well as other financial support for 15 years. 

Financial support consisted of:

• "a signing bonus of $15 million;
• rights fees in the total amount of $135 million;
• a minimum total spend of $15 million on marketing;
• $150,000.00 to upgrade and re-brand UCLA’s bookstore;
• a creative services fee of $2 million to re-brand UCLA’s athletic facilities;
• a total product allowance of $112.85 million; and
• bonuses based on the meeting of certain additional criteria." 

The university explained in the lawsuit that "This was not only the most expensive exclusive college sponsorship deal that Under Armour entered into—it was the most lucrative college sponsorship deal by any sportswear company in history. It bested, for instance, the benchmarks set by Nike in its fifteen-year sponsorship deals with Ohio State University and the University of Texas, for $252 million and $250 million, respectively."

Under the agreement, UCLA was required to:

• "require all of its coaches, staff, and teams 'to exclusively wear and use [Under Armour’s] Supplied Products...whenever the Coaches, Staff or Teams coach, practice, perform or play in UCLA’s intercollegiate athletic program, participate in Team-related activities..., or conduct or participate in exhibitions, on-campus summer camps or clinics on behalf of UCLA';
• provide Under Armour with a certain number of “best-available” tickets and season seats to certain home games, a certain number of post-season game tickets and Olympic Sports Cards, the opportunity to purchase more tickets to certain games, and certain privileges to use hospitality areas;
• provide certain signage and advertising for Under Armour at competition and practice venues; and
• make UCLA’s Head Coaches and the Athletic Director available for appearances, on Under Armour’s reasonable request." 

In the contract, UCLA stated that "By 2020, Under Armour wanted to get out of that deal—not because of anything UCLA did, but because the deal now seemed too expensive for the financially-troubled sportswear company. Under Armour decided that it would use the COVID-19 pandemic as a pretext to 'terminate' the sponsorship agreement." 

According to the lawsuit, contract termination could only occur if there was:

• Material breach after opportunity to cure.
• A specific reason, such as UCLA is unable to field an NCAA Division I Core Team, or one of those Core Teams does not participate for any reason (other than for a Force Majeure Event); or "[a] Head Coach, senior member of UCLA’s Department of Intercollegiate Athletics, Core Team member, or a senior University administrator is convicted of or pleads guilty or no contest to a severe felony."
• Force majeure event

A force majeure event is a contract clause that removes liability for catastrophic events. According to the contract, a force majeure event had to meet at least two criteria:

1. "it is 'is beyond the commercially reasonable control of [Under Armour] (or the reasonable control of UCLA)' and
2. it 'renders the performance of this Agreement by the affected Party either impossible or impracticable.' 

Under Armour used the force majeure clause as its basis for immediate termination. However, UCLA alleges that UA's financial challenges pre-dated COVID. While the pandemic further weakened its fiscal position, it did not make it "impossible or impracticable" for UA to meet its material obligations.

UCLA is seeking at least $200 million in contractual damages.

In a statement to Law360, Mary Osako, vice chancellor of strategic communications for UCLA said, "It is unfortunate that Under Armour is opportunistically using the global pandemic to try to walk away from a binding agreement it made in 2016 but no longer likes. UCLA has met the terms of the agreement, which does not require that games in any sport be played on a particular schedule."

Under Armor gave a statement to Law360: "While we are disappointed that UCLA elected to file suit, we are confident in our position and will defend it vigorously. We sought and remain open to working out a reasonable and appropriate transition for the university, and most importantly for the student-athletes."