Image Rights Policies and Procedures

Managing Sports Image Rights: ‘Morality Clauses’

This article is published with the kind approval of the Law360 website (www.law360.com). First appeared on 7/1/2020 in the expert analysis section of the Law360 (https://buff.ly/2QBLY9l)

By Prof Dr Ian Blackshaw[1]

Introduction

Managing the image rights of a sports personality involves a variety of matters that need to be addressed on behalf of the sports personality as well as the other party that is granted the rights to use the name, likeness and image of the sports personality in relation to that other party’s goods and/or services.

One such important matter is the use of so-called ‘morality clauses’ to deal with cases where the sports personality falls from grace – for whatever reason – and where the other party may become involved in, for example, tax fraud and in either case the brand of each other is tarnished.

We will look at both situations, their effects and how best to deal with them through the use of ‘Morality Clauses’

The Need for and Concept of ‘Morality Clauses’

There is so much money in sport nowadays – both on and off the field of play[2] – and, despite the Olympic motto that it is the taking part not the winning that counts,[3] which is more honoured in the breach than in the observance nowadays; sadly, it is not just a question of winning, but also winning at any and all costs.

This has led over the years to the increasing use of performance enhancing drugs and, spearheaded by the International Olympic Committee, there is an on-going war on drugs in sport and their elimination. In fact, the World Anti-Doping Agency (WADA) regularly reviews and updates its Anti-Doping Code, to combat this problem and try to keep sport clean.[4] However, unfortunately, there are still plenty of drugs cheats around in sport at the national and international levels!

So, what happens, for example, if a well-known sports person, who is associated with the promotion, endorsement and sale of your goods and services, tests positive for a banned substance; is found guilty of this offence; and sanctioned with a ban from competition? Or, likewise, commits some other disciplinary offence and is punished for it. Or, equally, your sports personality shows lack of form or performance. Or is involved in marital infidelity, like Tiger Woods. Or is accused of and admits serial doping, like Lance Armstrong. Or is involved in an alleged rape case, like Cristiano Ronaldo?[5] And so on!

So, how do any of these kinds of situation affect the reputation of your business and the value of your brand? To what extent are brands tarnished? And what can these sponsoring companies do to limit any potential damage to them and their products and services?

One possibility is by using a carefully worded so-called ‘Morality Clause’ in their Sports Image Rights Agreements to cover such situations.

So, what do we mean by a so-called ‘Morality Clause’- also known in the US as a ‘Bad Boy’ Clause?

Such a Clause in a Sports Image Rights Agreement involving the right of a Company to use a sport’s personality’s name, image and likeness, for example, on a football shirt deal, may be couched in the following terms:

The Sports Personality shall, at all times, during the term of this Agreement act and conduct himself/herself in accordance with the highest standards of disciplined and professional sporting and personal behaviour and shall not do or say anything or authorize there to be done or said anything which, in the reasonable opinion of the Licensor, is or could be detrimental, whether directly or by association, to the reputation, image or goodwill of the Company or any of its associated companies. The Sports Personality shall not, during the term of this Agreement, act or conduct himself/herself in a manner that, in the reasonable opinion of the Company, offends against decency, morality or professionalism or causes the Company, or any of its associated companies, to be held in public ridicule, disrepute or contempt, nor shall the Sports Personality be involved in any public scandal.”

As will be seen, this clause is widely drafted and covers a wide range of contingencies involving the behaviour and conduct of the sports personality concerned and the effect it may have on the grantee of the rights (the Company) and its current and future business.

So-called ‘disrepute’ and ‘public scandal’ provisions will need some objective definition/refinement to avoid any claims that they are legally void for uncertainty. In this regard, the use of the phrase “in the reasonable opinion of the Company” may help to make the provision more workable, in practice, and legally enforceable, as long as this discretion is exercised fairly.

Furthermore, some precision can also be added by including a list of specific situations that would constitute bad behaviour within the meaning and scope of the clause; such as, testing positive for a banned substance. It should be expressly stated that any such list is not exhaustive but merely illustrative, by using the time-honoured phrase: “….. including, but not limited to, the following behaviour on the part of the Sports Personality:…..” In any case, in practice, the provisions and the application of these Morality Clauses to actual cases are always discussable!

What about the commission of a criminal offence by the sports’ ‘star’? Here, one should provide, again for certainty and legal enforceability, for conviction to trigger the operation of the clause, and also to exclude, for example, minor motoring offences. But again, refinement is needed. What is ‘minor’ in this context? For example, cases concerning a fine rather than a custodial sentence – actual or suspended.

Again, when drafting Morality Clauses, especially provisions dealing with moral issues/offences, objectivity is the name of the game, because what one person may regard as being immoral, another may not according to their personal values and beliefs systems and culture. The draftsman would do well, therefore, to remember the words of a former Lord Chief Justice of England, when confronted by the submission of moral arguments in a case before him: “This is a Court of Law not of Morals!” In other words, contractual provisions will be judged by legal not moral rules.[6]

There is a school of thought – and it has some attractiveness – that Morality Clauses should be mutual and not one-sided.

In other words, the sports ‘star’ should also have the right to terminate the Sports Image Rights Agreement in certain circumstances. For example, if the Company, to whom the rights to use the ‘stars’ image and likeness in relation to its goods and services have been granted, acts improperly. For instance, where the Company is involved in, say, fraud or tax evasion; or exploitation of child labour in the production of their products.[7] In any such case, the sports ‘star’s’ valuable image could be tarnished by association with such wrongdoing and would need to be protected in such circumstances.

Enforcing ‘Morality Clauses’

There are a number of ways of enforcing and encouraging compliance with the provisions of a Morality Clause, one of which is through termination of the Sports Image Rights Agreement – expressly or for cause. It is better to rely on an express termination clause than on the general law of contract to justify termination. If the other party does not behave in a certain defined way, the contract may be expressly terminated. The threat of termination should encourage the other party to conform.

Such a right of termination clause may run as follows:

Termination

 The Licensor may forthwith terminate this Agreement by giving written notice upon failure on the part of the Licensee to perform any of its obligations under this Agreement.”

Such obligations on the licensee may include an express undertaking not to be involved in any corrupt practices or activities, including, for example, the payment of illegal bribes and kick-backs.

It should be noted, however, that this is a right (the word “may” is used in the sample clause), and not an obligation to terminate, and, as such, only to be exercised by the aggrieved party at its sole discretion. But whether to terminate or not is often a difficult call to make in an actual situation and will depend on all the particular circumstances.[8]

In practice, it is advisable for the parties to meet and review and discuss – without any delay – a terminable situation that has arisen and evaluate the effects – immediate, short-term or long-term – of any breach.

Is the breach so serious and fundamental that the only course of action is to terminate the Agreement? Or is the breach remediable within a short period of time, say, twenty-one days, with little or no long-lasting damaging effects? In other words, can the parties agree on a suitable damage limitation exercise to keep the relationship alive? All this will depend upon the nature and extent of the breach, as well as the overall objectives of the licensing and merchandising programme itself; and also the effect of the breach on any ongoing promotional/advertising campaign, amongst other commercial and financial considerations. Knee-jerk reactions should be avoided, and, before any decisions to terminate are taken, the situation should be carefully reviewed. For example, in the Tiger Woods infidelity case, ACCENTURE dropped him immediately the situation came to light, whereas NIKE stood by him.

If following such a review, it is decided to terminate the Agreement, the practical consequences of termination should also be addressed. For example, what to do with unsold branded products which are on the market. A matter for a good licensing manager to decide.

On the other hand, if the parties agree to continue with the Agreement, despite the breach, a ‘waiver clause’ will need to be included in the Sports Image Rights Agreement, in order to ensure that any waiver on one occasion does not set a precedent and oblige the aggrieved party to waive any future breach of the Agreement in the same or similar circumstances. The standard clause – one of the so-called ‘boilerplate clauses’- is usually couched in the following terms:

The failure by either party to enforce at any time or for any period any one or more of the terms or conditions of this Agreement shall not be a waiver of them or of the right at any time subsequently to enforce all terms and conditions of this Agreement.”

All of this goes to show that, as with any kind of legal Agreement, all its contractual provisions need to hang together and not be in conflict or at variance with one another. In other words, the Agreement needs to be viewed as a whole to ensure that its provisions are inter-related and not contradictory and thus legally enforceable.

Apart from the threat of termination, there are other ways of ensuring compliance with the terms of a Morality Clause For example, a financial penalty may be imposed on the party in breach of its provisions. But, be careful here, as penalties are not legally enforceable under Common Law as they are regarded as a threat (‘in terrorem’) and not a true estimate or measure of the damage that may result from the breach. In other words, they do not constitute a so-called ‘liquidated damages’ clause, which would be legally enforceable. However, under the Civil Law, penalty clauses, generally speaking, are legally enforceable, unless they are clearly excessive.

Conclusions

All of these kinds of situations present legal and commercial challenges and need to be carefully reviewed and managed by experienced sports marketers and licensing managers and all relevant circumstances and actual and potential consequences taken into account, with the overall objective of protecting the valuable goodwill in the brand concerned.

Although Morality Clauses, as mentioned, may present some legal uncertainties and problems in enforcing them, in the view of the author of this article, it is probably, on the whole, better to include Morality Clauses in Sports Image Rights Agreements rather than to leave them out, relying merely on the general law to determine whether any particular situation, that may have arisen, legally justifies termination for cause of the Agreement under the general law of contract.

This, according to the facts and circumstances of each particular case, is always a matter for discussion and argument on both sides, leaving, in the absence of any consensus being reached by the parties, the Court to decide whether the termination was lawful or not. In other words, has there been a fundamental breach of the Agreement which would legally justify its premature termination?

In the absence of express termination provisions in the Sports Image Rights Agreement, ultimately going to Court involves time and money and also publicity that may not be favourable, as well as uncertainty of the outcome – litigation has often been described as ‘a lottery’.

Furthermore, what is clear is that, without such a ‘Morality Clause’, it may prove problematic, in practice, to deal with any such cases in an effective and timely manner – particularly, in order to limit any damage caused to the valuable brand concerned.

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[1] International Sports Lawyer, Member of the Court of Arbitration for Sport and Special Consultant to APC Sports Consulting. E-mail: ‘ian.blackshaw@orange.fr’. This article first appeared on the Law360 website (www.law360.com) on 7 January 2020 and is reproduced here with the kind approval of the Publishers LexisNexis.

[2] Not least in the commercial exploitation of well-known sports persons’ image rights. For example, Cristiano Ronaldo earns millions of dollars a year from the sale of his image rights.  See https://www.espn.co.uk/football/real-madrid/story/2507618/cristiano-ronaldo-sells-image-rights-to-valencia-owner-lim.

[3] The full text of the Olympic motto is as follows: “The most important thing in the Olympic Games is not to win but to take part, just as the most important thing in life is not the triumph but the struggle. The essential thing is not to have conquered but to have fought well.”

[4] See WADA official website at: www.wada-ama.org.

[5] See post on the Ronaldo Rape Case of 25 July 2019 on the ‘Global Sports Law and Taxation Reports’ (GSLTR) website at www.gsltr.com.

[6] But, for a different point of view, see ‘Law and Morality’ by Michael Baumann, Vol. 21 No.3 Christian Research Journal, in which he argues: “Because every law springs from a system of values and beliefs, every law is an instance of legislating morality…… Those who seek to separate morality from law, therefore, are in pursuit…. of the impossible.” Furthermore, under the Civil Law system, where the concepts of ‘good faith’, ‘fairness’ and ‘good conduct’ are, generally speaking, better understood, it may be relatively easier to enforce ‘Morality Clauses’ in Civil Law countries rather than in Common Law countries. However, in any case, the general need for precision in drafting remains.

[7] NIKE has a mixed reputation in the use of child labour in the production of their sports goods products but has been cleaning up its act. See the NIKE Colin Kaepernick Ad at https://www.thecut.com/2018/09/nikes-colin-kaepernick-ad-raises-issues-of-workers-rights.html

[8] See ‘Money Morality and Megastars’ by J Tyrone Marcus in ‘Global Sports Law and Taxation Reports’, June 2013 and, in particular, the discussion regarding the record of NIKE on whether or not to terminate endorsement contracts with Tiger Woods (not); Lance Armstrong (yes); and Oscar Pistorius (put on hold). See also his discussion on ‘A Tale of Three Michael’s’ – Michael Jordan; Michael Phelps; and Michael Vick – and his general conclusion that “[t]he varying outcomes ……. offer insight into the opposing paradigms that athlete and sponsor tend to have.”

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