Morals Clauses and Michael Vick's Endorsement Contracts

Last Friday, Nike announced that it was suspending Michael Vick's endorsement contract, effective immediately, while Reebok, the NFL's official uniform supplier, and Donruss, a leading trading card company, both announced that they would no longer sell Vick-related items. As reported by Brent Hunsberger in The Oregonian, Nike's decision reflects a marked change in position from its immediate reaction to Vick's indictment, when the world's largest athletic wear maker stood by Vick, issuing a statement saying, "We do believe that Michael Vick should be afforded the same due process as any citizen."

Animal-rights groups, however, didn't react too well to Nike's position and staged well-publicized protests outside of Nike's headquarters in Beaverton, Oregon, as well as outside of numerous Nike stores. Nike may have also been motivated to reverse course due to news of several of Vick's co-defendants cooperating with prosecutors, and perhaps also civil rights activist Al Sharpton's arguably surprising lack of support for Vick.

Still, and as we've discussed on several occasions, there is a long way to go before Michael Vick is found guilty of any crime. And as we listen to myriad talking heads blast Vick for his alleged behavior, we should keep in mind that we have yet to hear his side of the story. And when he tells that story, he will be advised by Billy Martin, one of the nation's top litigators and whom Vick secured the services of last week. Although some facts concerning how the government obtained evidence against Vick remain unclear, I strongly suspect that Martin will have something to say about how that evidence was obtained, perhaps questioning how a warrant issued to search a premises for drugs turned into a dog fighting investigation, and how the incriminating evidence was found in a separate facility behind the home. Arguments over the admissibility of certain pieces evidence are often crucial in trials, and while it's unclear if issues of admissibility will be raised by Martin, they seem like a pretty good bet to come up.

But with endorsement contracts, we're typically not talking about proving guilt "beyond a reasonable doubt," like we do with criminal trials. Instead, we're usually talking about whether a company is better or worse off being endorsed by a particular person, and if worse off, whether that company has a legal right to suspend or terminate its relationship with an endorser. Along those lines, even if Vick is found not guilty, or if he pleads no contest to lesser charges or if the charges are dropped for whatever reason, his mere tacit involvement with underground dog fighting can be seen as morally reprehensible--a point raised by Geoffrey in a comment last week--and thus ill-suited for someone endorsing a product. Indeed, Vick's previous misbehavior (e.g., the Ron Mexico lawsuit; giving the finger to Falcons' fans) motivated several other endorsers, including Coca-Cola, EA Sports, and Air Tran, to not continue their endorsement relationships with him.

With respect to Nike in this instance, however, we see a company suspending an existing contract, rather than not continuing an expiring contract. As I discussed with Hunsberger for his story, Nike enjoys that right due to a morals clause in its contract with Vick. The type of behavior that can trigger a morals clause is often the subject of intense negotiation between an athlete's representative and the company endorsed by his client, and that is a point that Peter Carfagna and I discuss in an article written by Robb London in the October 2005 issue of the Harvard Law Bulletin:

A recent trend, [Harvard Law School lecturer on law] Peter Carfagna says, is an almost obsessive attention now paid to morals clauses in sports contracts, especially in the aftermath of the O.J. Simpson and Kobe Bryant criminal cases. "Morals clauses are now the most heavily negotiated terms," he said. "And the steroid scandal in Major League Baseball is putting even more pressure on sponsors to negotiate escape clauses in contracts with athletes who test positive for illegal performance-enhancing drugs."

Lawyers hash out as much as they can foresee before a contract is finalized, says Michael McCann LL.M. '05, who, together with Greg Skidmore '05, maintains a popular sports law blog, sports-law.blogspot.com. Must an athlete be convicted of a crime before a company will be released from an endorsement contract? If so, must it be a felony? Is a mere allegation or charge sufficient to void a contract? Does a single positive test for steroids give Nike an out? What about gambling, domestic violence, an admitted extramarital affair or anything in an athlete's private life that does reputational harm--will an allegation or admission release a company from continuing to honor a contract?

It will be interesting to see whether Vick will be able to not only defeat criminal charges, but also restore his image. I think we can safely say that his days of earning $7 million a year in endorsements are long gone, and most marketing experts seem to agree. Professor Bill Sutton of the University of Central Florida, for instance, artfully says, "He's going to disappear, like a magic act."

But let's say that Vick can overcome his legal problems. Can he then make a marketing comeback?

He probably won't have that opportunity with the Falcons, which seem poised to release him. And as CNBC's Darren Rovell examines on Sports Biz, it's unlikely that Nike will want him back.

But say, hypothetically, that the Oakland Raiders signed Vick and he thrived there, restoring a once feared, but now scorned, franchise to dominance--could Vick be great again in the eyes of fans, or would the memories of dog fighting linger on?

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